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): October 26, 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 October 26, 2006, the Company issued a press release  announcing its
results of operations for the fiscal quarter ended September 30, 2006.

         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 October 26,
                                 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: October 26, 2006                      By:    /s/ James Weber
                                                    -----------------------
                                             Name:  James Weber
                                             Title: Chief Financial Officer and
                                                    Vice President

EX-99.1

                                                                    Exhibit 99.1


FalconStor
Software

Contact: Denise Tortorelli, Investor Relations
         631-773-5877
         DENISE.TORTORELLI@FALCONSTOR.COM

               FALCONSTOR SOFTWARE ANNOUNCES Q3 QUARTERLY RESULTS
                      REVENUES INCREASE 29% FROM PRIOR YEAR

MELVILLE, N.Y., October 26, 2006--FalconStor Software, Inc. (NASDAQ: FALC), the
leading developer of data protection solutions, today announced financial
results for its third quarter ended September 30, 2006.

Revenues for the third quarter of 2006 increased 29% to $13 million, compared
with $10.1 million for the same period a year ago. Net loss for the quarter was
$1.3 million or $0.03 per share, which includes $2.4 million in expenses related
to stock options. Pro forma net income for the third quarter of 2006, excluding
stock option expense, was $1.2 million or $0.02 per share, compared with net
income of $0.5 million or $0.01 per share for the third quarter of 2005.

For the nine months ended September 30, 2006, revenues increased 25% to $34.8
million, compared with $27.9 million for the same period a year ago. Net loss
for the nine month period was $6.2 million or $0.13 per share, which includes
$7.1 million in expenses related to stock options. Pro forma net income for the
nine month period, excluding stock option expense, was $0.9 million or $0.02 per
share, compared with net income of $0.6 million and $0.01 per share for the same
period a year ago.

Compared with the previous quarter, revenues increased from $12.7 million in the
second quarter of 2006 to $13 million in the third quarter of 2006. Net loss for
the third quarter was $1.3 million or $0.03 per share, which includes $2.4
million in expenses related to stock options, compared with a net loss of $1.3
million or $0.03 per share in the second quarter, which includes $2.4 million in
expenses related to stock options. Excluding stock option expenses, pro forma
net income increased to $1.2 million or $0.02 per share in the third quarter of
2006 compared with a pro forma net income of $1.1 million or $0.02 per share in
the second quarter of 2006.

The Company closed the quarter with $39 million in cash, cash equivalents and
marketable securities and recorded its eighth consecutive quarter of positive
cash flows from operations. During the third quarter of 2006, the Company
repurchased 70,000 shares of Common Stock for a total cost of $0.5 million.
Deferred revenue at September 30, 2006, increased to $12 million, or by 8%,
compared with the previous quarter, and by 58% compared with the same period a
year ago.

"We are pleased with the strong progressive results for this quarter. It is
clear our teaming with leading industry storage companies to advance the market
acceptance and technical excellence of Virtual Tape Library (VTL) solutions is
successful," said ReiJane Huai, Chairman and CEO of FalconStor. "Our world-wide
leadership position in data protection solutions will enable FalconStor business


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partners to sell the vision of a complete family of disk-based data protection
solutions. This will accelerate our revenue growth and bolster our presence in
the network storage industry."

The company will host a conference call on Thursday, October 26th at 4:30 p.m.
EDT, to discuss the results. To participate in the conference call, please dial:

Toll Free: 800-240-8621
International: 303-262-2194
To view the presentation, please copy and paste the following link into your
browser and register for this meeting. Once you have registered for the meeting,
you will receive an email message confirming your registration.

HTTPS://FALCONSTOR.WEBEX.COM/FALCONSTOR/J.PHP?ED=93586157&RG=1

Meeting: FalconStor Q3 2006 Earnings
Meeting password: q3numbers
Meeting Number: 483 077 652

A conference call replay will be available beginning 10/26 at 6:30 PM EDT
through 11:59 PM EDT on 10/30. To listen to the replay of the call, dial toll
free: 800-405-2236 or International: 303-590-3000, passcode: 11073710#, or visit
our website at WWW.FALCONSTOR.COM/INVESTORS.ASP



NON-GAAP FINANCIAL MEASURES

The non-GAAP financial measures used in this press release are not prepared in
accordance with generally accepted accounting principles and may be different
from non-GAAP financial measures used by other companies. The Company's
management refers to these non-GAAP financial measures in making operating
decisions because they provide meaningful supplemental information regarding the
Company's operating performance. In addition, these non-GAAP financial measures
facilitate management's internal comparisons to the Company's historical
operating results and comparisons to competitors' operating results. We include
these non-GAAP financial measures (which should be viewed as a supplement to,
and not a substitute for, their comparable GAAP measures) in this press release
because we believe they are useful to investors in allowing for greater
transparency to supplemental information used by management in its financial and
operational decision-making. For a reconciliation of our GAAP and non-GAAP
financial results, please refer to our ProForma Condensed Consolidated
Statements of Operations, presented in this release.

ABOUT FALCONSTOR
FalconStor Software, Inc. (NASDAQ: FALC) is the premier developer of adaptive
data protection solutions that optimize data center efficiency and business
continuity for all IT infrastructures. The company's innovative storage
virtualization, continuous data protection (CDP), disaster recovery, and virtual
tape library (VTL) solutions integrate seamlessly to ensure rapid data recovery
and simplified storage management. Available from major OEMs, system
integrators, and resellers, FalconStor products -- including award-winning
IPStor(R), VirtualTape Library, and DiskSafe(TM) software -- are deployed
worldwide by governments, educational institutions, and Fortune 1000 enterprises
across industries including aerospace, energy production, financial services,
healthcare, law, manufacturing, and telecommunications.


                                       2



FalconStor is headquartered in Melville, New York, with offices throughout
Europe and the Asia Pacific region. FalconStor is an active member of the
Storage Networking Industry Association (SNIA). 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.


                                       3


                                       FALCONSTOR SOFTWARE, INC. AND SUBSIDIARIES
                                         CONDENSED CONSOLIDATED BALANCE SHEETS

                                                                                  September 30,           December 31,
                                                                                      2006                    2005
                                                                                  -----------              -----------
                                                                                  (unaudited)
ASSETS
Current assets:
   Cash and cash equivalents .......................................              $12,564,588              $18,796,973
   Marketable securities ...........................................               26,478,649               17,833,683
   Accounts receivable, net.........................................               15,439,649               15,187,408
   Prepaid expenses and other current assets .......................                1,045,940                  911,715
                                                                                  -----------              -----------

         Total current assets ......................................               55,528,826               52,729,779
                                                                                  -----------              -----------

Property and equipment, net ........................................                5,604,105                5,277,609
Goodwill ...........................................................                3,512,796                3,512,796
Other intangible assets, net .......................................                  297,883                  216,864
Other assets .......................................................                1,852,170                2,236,725
                                                                                  -----------              -----------

         Total assets ..............................................              $66,795,780              $63,973,773
                                                                                  ===========              ===========


LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable .................................................              $ 1,132,011              $ 1,152,228
  Accrued expenses .................................................                4,469,176                4,522,212
  Deferred revenue .................................................                9,154,879                7,401,018
                                                                                  -----------              -----------

         Total current liabilities .................................               14,756,066               13,075,458

Deferred revenue ...................................................                2,825,887                2,240,208
                                                                                  -----------              -----------

         Total liabilities .........................................               17,581,953               15,315,666
                                                                                  -----------              -----------

Commitments

         Total stockholders' equity ................................               49,213,827               48,658,107
                                                                                  -----------              -----------

         Total liabilities and stockholders' equity ................              $66,795,780              $63,973,773
                                                                                  ===========              ===========


                                                           4


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

                                                                    Three Months Ended                       Nine Months Ended
                                                                        September 30,                          September 30,
                                                             --------------------------------       --------------------------------
                                                                  2006                2005               2006                2005
                                                                        (unaudited)                             (unaudited)

Revenues
Software license revenue .............................       $  8,685,667        $  7,007,075       $ 23,088,377        $ 19,940,026
Maintenance revenue ..................................          3,315,771           1,972,037          8,815,288           5,293,478
Software services and other revenue ..................            964,673           1,077,553          2,938,993           2,710,784
                                                             ------------        ------------       ------------        ------------
                                                               12,966,111          10,056,665         34,842,658          27,944,288

Operating expenses:
  Amortization of purchased and capitalized
     software ........................................             81,334             189,472            334,389             605,472
  Cost of maintenance, software services
     and other revenue ...............................          2,246,085           1,666,459          6,550,747           4,462,542
  Software development costs .........................          5,067,882           3,007,337         14,580,122           8,438,473
  Selling and marketing ..............................          5,809,706           3,814,540         16,400,453          11,298,883
  General and administrative .........................          1,489,537           1,103,778          4,200,971           3,121,089
                                                             ------------        ------------       ------------        ------------
                                                               14,694,544           9,781,586         42,066,682          27,926,459
                                                             ------------        ------------       ------------        ------------
           Operating income (loss) ...................         (1,728,433)            275,079         (7,224,024)             17,829
                                                             ------------        ------------       ------------        ------------

  Interest and other income ..........................            514,415             245,218          1,185,075             668,713
                                                             ------------        ------------       ------------        ------------

          Income (loss) before income
                   taxes .............................         (1,214,018)            520,297         (6,038,949)            686,542
                                                             ------------        ------------       ------------        ------------

Provision for income taxes ...........................             44,353              37,418            161,103              49,387
                                                             ------------        ------------       ------------        ------------

       Net income (loss) .............................       $ (1,258,371)       $    482,879       $ (6,200,052)       $    637,155
                                                             ============        ============       ============        ============

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

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

Weighted average basic shares outstanding ............         47,990,558          47,720,496         48,014,662          47,615,182
                                                             ============        ============       ============        ============

Weighted average diluted shares outstanding ..........         47,990,558          50,531,012         48,014,662          50,715,162
                                                             ============        ============       ============        ============


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                                             FALCONSTOR SOFTWARE, INC. AND SUBSIDIARIES
                                      PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                                THREE MONTHS ENDED SEPTEMBER 30, 2006
                                                             (UNAUDITED)
                                                         GAAP RECONCILIATION

                                                                                                  Adjustment to
                                                                                                   Exclude Stock           Non-GAAP
                                                                                GAAP             Option Expense (1)     Pro Forma (2)
                                                                            ------------        -------------------     -------------
Revenues:
Software license revenue ..........................................         $  8,685,667                                $  8,685,667
Maintenance revenue ...............................................            3,315,771                                   3,315,771
Software services and other revenue ...............................              964,673                                     964,673
                                                                            ------------                                ------------
                                                                              12,966,111                                  12,966,111
                                                                            ------------                                ------------

Operating expenses:
Amortization of purchased and capitalized software ................               81,334                                      81,334
Cost of software services and other revenue .......................            2,246,085              (361,263)            1,884,822
Software development costs ........................................            5,067,882            (1,100,510)            3,967,372
Selling and marketing .............................................            5,809,706              (758,718)            5,050,988
General and administrative ........................................            1,489,537              (202,782)            1,286,755
                                                                            ------------          ------------          ------------
                                                                              14,694,544            (2,423,273)           12,271,271
                                                                            ------------          ------------          ------------
           Operating income (loss) ................................           (1,728,433)            2,423,273               694,840
                                                                            ------------          ------------          ------------

Interest and other income .........................................              514,415                                     514,415
                                                                            ------------                                ------------

Income (loss) before income taxes .................................           (1,214,018)            2,423,273             1,209,255
                                                                            ------------          ------------          ------------

Income taxes ......................................................               44,353                                      44,353
                                                                            ------------                                ------------

Net income (loss) .................................................         $ (1,258,371)         $  2,423,273          $  1,164,902
                                                                            ============          ============          ============

Basic net income (loss) per share .................................         $      (0.03)                               $       0.02
                                                                            ============                                ============

Diluted net income (loss) per share ...............................         $      (0.03)                               $       0.02
                                                                            ============                                ============

Weighted average basic shares outstanding .........................           47,990,558                                  47,990,558
                                                                            ============                                ============

Weighted average diluted shares outstanding .......................           47,990,558                                  49,194,707
                                                                            ============                                ============

     (1)  Represents the stock option expense associated with the adoption of FAS 123R.
     (2)  Pro forma amounts exclude stock option expenses recognized for GAAP purposes under FAS 123R. As discussed earlier in this
          release, these supplemental non-GAAP financial measures should not be used as a substitute for their comparable GAAP
          measures. The pro forma amounts exclude any tax related effects of FAS 123R as these effects are not deemed to be
          material.


                                                                 6


                                             FALCONSTOR SOFTWARE, INC. AND SUBSIDIARIES
                                      PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                                NINE MONTHS ENDED SEPTEMBER 30, 2006
                                                             (UNAUDITED)
                                                         GAAP RECONCILIATION

                                                                                                  Adjustment to
                                                                                                   Exclude Stock           Non-GAAP
                                                                                GAAP             Option Expense (1)     Pro Forma (2)
                                                                            ------------        -------------------     -------------
Revenues:
Software license revenue .........................................         $ 23,088,377                                $ 23,088,377
Maintenance revenue ..............................................            8,815,288                                   8,815,288
Software services and other revenue ..............................            2,938,993                                   2,938,993
                                                                           ------------                                ------------
                                                                             34,842,658                                  34,842,658
                                                                           ------------                                ------------

Operating expenses:
Amortization of purchased and capitalized software ...............              334,389                                     334,389
Cost of software services and other revenue ......................            6,550,747            (1,060,812)            5,489,935
Software development costs .......................................           14,580,122            (3,233,609)           11,346,513
Selling and marketing ............................................           16,400,453            (2,104,256)           14,296,197
General and administrative .......................................            4,200,971              (685,218)            3,515,753
                                                                           ------------          ------------          ------------
                                                                             42,066,682            (7,083,895)           34,982,787
                                                                           ------------          ------------          ------------
           Operating loss ........................................           (7,224,024)            7,083,895              (140,129)
                                                                           ------------          ------------          ------------

Interest and other income ........................................            1,185,075                                   1,185,075
                                                                           ------------                                ------------

Income (loss) before income taxes ................................           (6,038,949)            7,083,895             1,044,946
                                                                           ------------          ------------          ------------

Income taxes .....................................................              161,103                                     161,103
                                                                           ------------                                ------------

Net income (loss) ................................................         $ (6,200,052)         $  7,083,895          $    883,843
                                                                           ============          ============          ============

Basic net income (loss) per share ................................         $      (0.13)                               $       0.02
                                                                           ============                                ============

Diluted  net income (loss) per share .............................         $      (0.13)                               $       0.02
                                                                           ============                                ============

Weighted average basic shares outstanding ........................           48,014,662                                  48,014,662
                                                                           ============                                ============

Weighted average diluted shares outstanding ......................           48,014,662                                  48,859,480
                                                                           ============                                ============


     (1)  Represents the stock option expense associated with the adoption of FAS 123R.
     (2)  Pro forma amounts exclude stock option expenses recognized for GAAP purposes under FAS 123R. As discussed earlier in this
          release, these supplemental non-GAAP financial measures should not be used as a substitute for their comparable GAAP
          measures. The pro forma amounts exclude any tax related effects of FAS 123R as these effects are not deemed to be
          material.


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