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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><B><FONT STYLE="font-size: 10pt">As filed with the
Securities and Exchange Commission on June 3, 2021</FONT></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: right"><B>Registration No.&nbsp;333- </B></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><B>UNITED STATES</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><B>SECURITIES AND EXCHANGE COMMISSION</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><B>WASHINGTON, D.C. 20549</B></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><B>FORM S-1</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><B>REGISTRATION STATEMENT</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><B>under the Securities Act of 1933</B></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><B>FalconStor Software, Inc.</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 2pt; text-align: center">(Exact Name of Registrant as Specified in its
Charter)</P>

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    <TD STYLE="width: 34%; padding-right: 0.05in; padding-left: 10pt; font: 10pt Times New Roman, Times, Serif; text-align: center; text-indent: -10pt"><FONT STYLE="font-size: 10pt"><B>Delaware</B><BR>
(State or Other Jurisdiction of<BR>
Incorporation or Organization)</FONT></TD>
    <TD STYLE="width: 33%; padding-right: 0.05in; padding-left: 0.05in; font: 10pt Times New Roman, Times, Serif; text-align: center"><FONT STYLE="font-size: 10pt"><B>7310</B><BR>
(Primary Standard Industrial<BR>
Classification Number)</FONT></TD>
    <TD STYLE="width: 33%; padding-right: 0.05in; padding-left: 0.05in; font: 10pt Times New Roman, Times, Serif; text-align: center"><FONT STYLE="font-size: 10pt"><B>77-0216135</B><BR>
(I.R.S. Employer<BR>
Identification No.)</FONT></TD></TR>
  </TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 2pt 0 0; text-align: center"><B>FalconStor Software, Inc.</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><B>701 Brazos Street, Suite 400</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><B>Austin, Texas 78701</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><B>(631) 777-5188</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center">(Address, including zip code, and telephone number,
including area code, of Registrant&rsquo;s principal executive offices)</P>


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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><B>Todd Brooks</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><B>President and Chief Executive Officer</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><B>FalconStor Software, Inc.</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><B>701 Brazos Street, Suite 400</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><B>Austin, Texas 78701</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><B>(631) 777-5188</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center">(Name, address, including zip code, and telephone number,
including area code, of agent for service)</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><B>Copies to:</B></P>

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  <TR STYLE="vertical-align: top">
    <TD STYLE="width: 50%; padding-right: 0.05in; padding-left: 0.05in">
    <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 10pt; text-align: center; text-indent: -10pt"><B><BR>
    Spencer G. Feldman, Esq.</B></P>
    <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 10pt; text-align: center; text-indent: -10pt"><B>Kenneth A. Schlesinger,
    Esq.<BR>
    Olshan Frome Wolosky&nbsp;LLP<BR>
    1325 Avenue of the Americas, 15<SUP>th</SUP>&nbsp;Floor<BR>
    New York, New York 10019<BR>
    (212)&nbsp;451-2300</B></P></TD>
    <TD STYLE="width: 50%; padding-right: 0.05in; padding-left: 0.05in">
    <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center">&nbsp;</P>
    <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><B>Jonathan J. Russo, Esq.<BR>
    Pillsbury Winthrop Shaw Pittman LLP<BR>
    31 West 52<SUP>nd</SUP> Street<BR>
    New York, New York 10019-6131<BR>
    (212) 858-1000</B></P></TD></TR>
  </TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 2pt 0 0; text-align: center"><B>Approximate date of commencement of proposed
sale to the public:</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><B>As soon as practicable after the effective date
of this Registration Statement.</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 2pt 0 0; text-indent: 0.5in">If any of the securities being registered on
this Form are to be offered on a delayed or continuous basis pursuant to Rule&nbsp;415 under the Securities Act of 1933, check the following
box.&nbsp;<FONT STYLE="font-family: Wingdings">o</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 1pt 0 0; text-indent: 0.5in">If this Form is filed to register additional
securities for an offering pursuant to Rule&nbsp;462(b) under the Securities Act, please check the following box and list the Securities
Act registration statement number of the earlier effective registration statement for the same offering.&nbsp;<FONT STYLE="font-family: Wingdings">o</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 1pt 0 0; text-indent: 0.5in">If this Form is a post-effective amendment filed
pursuant to Rule&nbsp;462(c) under the Securities Act, check the following box and list the Securities Act registration statement number
of the earlier effective registration statement for the same offering.&nbsp;<FONT STYLE="font-family: Wingdings">o</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 2pt 0 0; text-indent: 0.5in">If this Form is a post-effective amendment filed
pursuant to Rule&nbsp;462(d) under the Securities Act, check the following box and list the Securities Act registration statement number
of the earlier effective registration statement for the same offering.&nbsp;<FONT STYLE="font-family: Wingdings">o</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 2pt 0; text-indent: 0.5in">Indicate by check mark whether the registrant is
a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.
See the definitions of &ldquo;large accelerated filer,&rdquo; &ldquo;accelerated filer,&rdquo; &ldquo;smaller reporting company&rdquo;
and &ldquo;emerging growth company&rdquo; in Rule 12b-2 of the Exchange Act.</P>

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    <TD STYLE="width: 25%; padding-right: 0.05in; padding-left: 10pt; font: 10pt Times New Roman, Times, Serif; text-indent: -10pt"><FONT STYLE="font-size: 10pt">Large&nbsp;Accelerated&nbsp;Filer&nbsp;<FONT STYLE="font-family: Wingdings">o</FONT></FONT></TD>
    <TD STYLE="width: 21%; padding-right: 0.05in; padding-left: 0.05in; font: 10pt Times New Roman, Times, Serif; text-align: center"><FONT STYLE="font-size: 10pt">Accelerated&nbsp;Filer&nbsp;<FONT STYLE="font-family: Wingdings">o</FONT></FONT></TD>
    <TD STYLE="width: 25%; padding-right: 0.05in; padding-left: 0.05in; font: 10pt Times New Roman, Times, Serif; text-align: center"><FONT STYLE="font-size: 10pt">Non-Accelerated&nbsp;Filer&nbsp;<FONT STYLE="font-family: Wingdings">x</FONT><BR>
<BR></FONT></TD>
    <TD STYLE="width: 29%; padding-right: 0.05in; padding-left: 0.05in">
    <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: right">Smaller&nbsp;Reporting&nbsp;Company&nbsp;<FONT STYLE="font-family: Wingdings">x</FONT></P>
    <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: right">Emerging Growth Company&nbsp;<FONT STYLE="font-family: Wingdings">o</FONT></P></TD></TR>
  </TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 2pt 0 0; text-indent: 0.5in">If an emerging growth company, indicate by check
mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting
standards provided pursuant to Section&nbsp;7(a)(2)(B) of the Securities Act.&nbsp;<FONT STYLE="font-family: Wingdings">o</FONT></P>



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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><B>CALCULATION OF REGISTRATION FEE</B></P>

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  <TR STYLE="vertical-align: bottom">
    <TD STYLE="width: 72%; border-top: Black 1.5pt double; border-right: Black 1pt solid; border-bottom: Black 1pt solid; font: 10pt Times New Roman, Times, Serif; padding-right: 0.05in; padding-left: 0.05in; text-align: center"><FONT STYLE="font-size: 10pt"><B>Title of Each Class of Securities<BR>
to be Registered</B></FONT></TD>
    <TD STYLE="width: 14%; border-top: Black 1.5pt double; border-right: Black 1pt solid; border-bottom: Black 1pt solid; font: 10pt Times New Roman, Times, Serif; padding-right: 0.05in; padding-left: 0.05in; text-align: center"><FONT STYLE="font-size: 10pt"><B>Proposed Maximum<BR>
Aggregate Offering Price(1)</B></FONT></TD>
    <TD STYLE="width: 14%; border-top: Black 1.5pt double; border-bottom: Black 1pt solid; font: 10pt Times New Roman, Times, Serif; padding-right: 0.05in; padding-left: 0.05in; text-align: center"><FONT STYLE="font-size: 10pt"><B>Amount of<BR>
Registration Fee(2)</B></FONT></TD></TR>
  <TR>
    <TD STYLE="vertical-align: top; border-right: Black 1pt solid; border-bottom: Black 1.5pt double; font: 10pt Times New Roman, Times, Serif; padding-right: 0.05in; padding-left: 10pt; text-indent: -10pt"><FONT STYLE="font-size: 10pt">Common Stock, par value $0.001 per share&#9;</FONT></TD>
    <TD STYLE="vertical-align: bottom; border-right: Black 1pt solid; border-bottom: Black 1.5pt double; font: 10pt Times New Roman, Times, Serif; padding-right: 0.05in; padding-left: 0.05in; text-align: center"><FONT STYLE="font-size: 10pt">$5,000,000</FONT></TD>
    <TD STYLE="vertical-align: bottom; border-bottom: Black 1.5pt double; font: 10pt Times New Roman, Times, Serif; padding-right: 0.05in; padding-left: 0.05in; text-align: center"><FONT STYLE="font-size: 10pt">$&nbsp;&nbsp;&nbsp;545.50&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD></TR>
  </TABLE>
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<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.5in">(1)</TD><TD>Includes shares of common stock the underwriter has the option to purchase to cover over-allotments, if any.</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 2pt; margin-bottom: 0"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.5in">(2)</TD><TD>Calculated pursuant to Rule 457(o) under the Securities Act of 1933.</TD></TR></TABLE>


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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"><B>The Registrant hereby amends this Registration Statement
on such date or dates as may be necessary to delay its effective date until the Registrant shall file&nbsp;a further amendment which specifically
states that this Registration Statement shall thereafter become effective in accordance with Section&nbsp;8(a) of the Securities Act of
1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section&nbsp;8(a)
may determine.</B></P>

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<P STYLE="font: 10pt/120% Times New Roman, Times, Serif; margin: 0; color: red">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 10pt; color: #F26548"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 10pt; color: #F26548">The information in this preliminary prospectus is
not complete and may be changed. We may not sell or accept an offer to buy these securities until the registration statement filed with
the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and we are not
soliciting offers to buy these securities in any jurisdiction where such offer or sale is not permitted.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 10pt; text-align: center; color: #F26548">Subject to Completion, dated
June 3, 2021</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 6pt"><B>PRELIMINARY PROSPECTUS</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 10pt; text-align: center; text-indent: 0.75in"><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Shares</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 12pt 0; text-align: center"><IMG SRC="image_001.jpg" ALT="" STYLE="height: 34px; width: 476px"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 12pt 0; text-align: center"><B>FalconStor Software, Inc.</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 12pt; text-align: center"><B>Common Stock</B></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0; text-indent: 0.5in">We are offering shares of our common stock, par
value $0.001 per share.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0; text-indent: 0.5in">Our common stock is quoted by the OTCQB Venture
Market under the symbol &ldquo;FALC.&rdquo; On June 2, 2021, the last reported sale price of our common stock was
$4.80 per share.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 12pt; text-indent: 0.5in"><B>Investing in our common stock involves a
high degree of risk. You should carefully consider the matters set forth in &ldquo;Risk Factors&rdquo; beginning on page&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
of this prospectus and under similar headings in the documents that are incorporated by reference into this prospectus before buying shares
of our common stock.</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 6pt; text-indent: 0.5in"><B>Neither the Securities and Exchange Commission
nor any other regulatory body has approved or disapproved these securities or determined if this prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.</B></P>

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<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <TR STYLE="vertical-align: bottom">
    <TD STYLE="width: 72%; border-top: Black 1.5pt double; border-right: Black 1pt solid; border-bottom: Black 1pt solid; padding-right: 0.05in; padding-left: 0.05in; text-align: center">&nbsp;</TD>
    <TD STYLE="width: 14%; border-top: Black 1.5pt double; border-right: Black 1pt solid; border-bottom: Black 1pt solid; padding-right: 0.05in; padding-left: 0.05in; text-align: center"><FONT STYLE="font-size: 10pt"><B>Per Share</B></FONT></TD>
    <TD STYLE="width: 14%; border-top: Black 1.5pt double; border-bottom: Black 1pt solid; padding-right: 0.05in; padding-left: 0.05in; text-align: center"><FONT STYLE="font-size: 10pt"><B>Total</B></FONT></TD></TR>
  <TR>
    <TD STYLE="vertical-align: top; border-right: Black 1pt solid; border-bottom: Black 1pt solid; padding-right: 0.05in; padding-left: 10pt; text-indent: -10pt"><FONT STYLE="font-size: 10pt">Public offering price&#9;</FONT></TD>
    <TD STYLE="vertical-align: bottom; border-right: Black 1pt solid; border-bottom: Black 1pt solid; padding-right: 0.05in; padding-left: 0.05in; text-align: center"><FONT STYLE="font-size: 10pt">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
    <TD STYLE="vertical-align: bottom; border-bottom: Black 1pt solid; padding-right: 0.05in; padding-left: 0.05in; text-align: center"><FONT STYLE="font-size: 10pt">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD></TR>
  <TR>
    <TD STYLE="vertical-align: top; border-right: Black 1pt solid; border-bottom: Black 1pt solid; padding-right: 0.05in; padding-left: 10pt; text-indent: -10pt"><FONT STYLE="font-size: 10pt">Underwriting discount (1)&#9;</FONT></TD>
    <TD STYLE="vertical-align: bottom; border-right: Black 1pt solid; border-bottom: Black 1pt solid; padding-right: 0.05in; padding-left: 0.05in; text-align: center"><FONT STYLE="font-size: 10pt">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
    <TD STYLE="vertical-align: bottom; border-bottom: Black 1pt solid; padding-right: 0.05in; padding-left: 0.05in; text-align: center"><FONT STYLE="font-size: 10pt">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD></TR>
  <TR>
    <TD STYLE="vertical-align: top; border-right: Black 1pt solid; border-bottom: Black 1.5pt double; padding-right: 0.05in; padding-left: 10pt; text-indent: -10pt"><FONT STYLE="font-size: 10pt">Proceeds to us, before expenses (2)&#9;</FONT></TD>
    <TD STYLE="vertical-align: bottom; border-right: Black 1pt solid; border-bottom: Black 1.5pt double; padding-right: 0.05in; padding-left: 0.05in; text-align: center"><FONT STYLE="font-size: 10pt">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
    <TD STYLE="vertical-align: bottom; border-bottom: Black 1.5pt double; padding-right: 0.05in; padding-left: 0.05in; text-align: center"><FONT STYLE="font-size: 10pt">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD></TR>
  </TABLE>
<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 12pt; margin-bottom: 12pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.75in">(1)</TD><TD>Please see the section of this prospectus entitled &ldquo;Underwriting&rdquo; for additional information regarding underwriter compensation.</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 12pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.75in">(2)</TD><TD>We estimate the total expenses payable by us, excluding the underwriting discount, will be approximately $ &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;.</TD></TR></TABLE>


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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">This offering is being underwritten
on a firm commitment basis. We have granted the underwriter an option to buy up to an additional shares of common stock from us to cover
over-allotments. The underwriter may exercise this option at any time and from time to time during the 30-day period from the date of
this prospectus.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 6pt; text-indent: 0.5in">The underwriter expects to deliver the shares
of our common stock to purchasers on or about &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;,
2021.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 6pt; text-indent: 0.5in">&nbsp;</P>

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<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <TR STYLE="vertical-align: top">
    <TD STYLE="width: 100%; padding-right: 0.05in; padding-left: 0.05in; text-align: center; text-indent: 18.9pt"><FONT STYLE="font-size: 12pt"><B>Roth Capital Partners</B></FONT></TD></TR>
  </TABLE>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 12pt; text-align: center">The date of this prospectus is &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;,
2021</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 6pt; text-align: center"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 6pt; text-align: center"><B>TABLE OF CONTENTS</B></P>

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  <TR>
    <TD STYLE="vertical-align: top; width: 94%; padding-bottom: 2pt; padding-left: 10pt; text-indent: -10pt">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; width: 6%; padding-right: 0.05in; padding-left: 0.05in; text-align: right"><U>Page</U></TD></TR>
  <TR>
    <TD STYLE="vertical-align: top; padding-bottom: 2pt; padding-left: 10pt; text-indent: -10pt">Prospectus Summary&#9;</TD>
    <TD STYLE="vertical-align: bottom; padding-right: 0.05in; padding-left: 0.05in; text-align: right">1</TD></TR>
  <TR>
    <TD STYLE="vertical-align: top; padding-bottom: 2pt; padding-left: 10pt; text-indent: -10pt">Risk Factors&#9;</TD>
    <TD STYLE="vertical-align: bottom; padding-right: 0.05in; padding-left: 0.05in; text-align: right">11</TD></TR>
  <TR>
    <TD STYLE="vertical-align: top; padding-bottom: 2pt; padding-left: 10pt; text-indent: -10pt">Cautionary Note Regarding Forward-Looking Statements&#9;</TD>
    <TD STYLE="vertical-align: bottom; padding-right: 0.05in; padding-left: 0.05in; text-align: right">26</TD></TR>
  <TR>
    <TD STYLE="vertical-align: top; padding-bottom: 2pt; padding-left: 10pt; text-indent: -10pt">Use of Proceeds&#9;</TD>
    <TD STYLE="vertical-align: bottom; padding-right: 0.05in; padding-left: 0.05in; text-align: right">27</TD></TR>
  <TR>
    <TD STYLE="vertical-align: top; padding-bottom: 2pt; padding-left: 10pt; text-indent: -10pt">Dividend Policy&#9;</TD>
    <TD STYLE="vertical-align: bottom; padding-right: 0.05in; padding-left: 0.05in; text-align: right">28</TD></TR>
  <TR>
    <TD STYLE="vertical-align: top; padding-bottom: 2pt; padding-left: 10pt; text-indent: -10pt">Capitalization&#9;</TD>
    <TD STYLE="vertical-align: bottom; padding-right: 0.05in; padding-left: 0.05in; text-align: right">29</TD></TR>
  <TR>
    <TD STYLE="vertical-align: top; padding-bottom: 2pt; padding-left: 10pt; text-indent: -10pt">Dilution&#9;</TD>
    <TD STYLE="vertical-align: bottom; padding-right: 0.05in; padding-left: 0.05in; text-align: right">30</TD></TR>
  <TR>
    <TD STYLE="vertical-align: top; padding-bottom: 2pt; padding-left: 10pt; text-indent: -10pt">Business&#9;</TD>
    <TD STYLE="vertical-align: bottom; padding-right: 0.05in; padding-left: 0.05in; text-align: right">31</TD></TR>
  <TR>
    <TD STYLE="vertical-align: top; padding-bottom: 2pt; padding-left: 10pt; text-indent: -10pt">Board of Directors and Management&#9;</TD>
    <TD STYLE="vertical-align: bottom; padding-right: 0.05in; padding-left: 0.05in; text-align: right">36</TD></TR>
  <TR>
    <TD STYLE="vertical-align: top; padding-bottom: 2pt; padding-left: 10pt; text-indent: -10pt">Description of Capital Stock&#9;</TD>
    <TD STYLE="vertical-align: bottom; padding-right: 0.05in; padding-left: 0.05in; text-align: right">38</TD></TR>
  <TR>
    <TD STYLE="vertical-align: top; padding-bottom: 2pt; padding-left: 10pt; text-indent: -10pt">Underwriting&#9;</TD>
    <TD STYLE="vertical-align: bottom; padding-right: 0.05in; padding-left: 0.05in; text-align: right">42</TD></TR>
  <TR>
    <TD STYLE="vertical-align: top; padding-bottom: 2pt; padding-left: 10pt; text-indent: -10pt">Legal Matters&#9;</TD>
    <TD STYLE="vertical-align: bottom; padding-right: 0.05in; padding-left: 0.05in; text-align: right">49</TD></TR>
  <TR>
    <TD STYLE="vertical-align: top; padding-bottom: 2pt; padding-left: 10pt; text-indent: -10pt">Experts&#9;</TD>
    <TD STYLE="vertical-align: bottom; padding-right: 0.05in; padding-left: 0.05in; text-align: right">49</TD></TR>
  <TR>
    <TD STYLE="vertical-align: top; padding-bottom: 2pt; padding-left: 10pt; text-indent: -10pt">Where You Can Find Additional Information&#9;</TD>
    <TD STYLE="vertical-align: bottom; padding-right: 0.05in; padding-left: 0.05in; text-align: right">49</TD></TR>
  <TR>
    <TD STYLE="vertical-align: top; padding-bottom: 2pt; padding-left: 10pt; text-indent: -10pt">Incorporation of Certain Documents by Reference&#9;</TD>
    <TD STYLE="vertical-align: bottom; padding-right: 0.05in; padding-left: 0.05in; text-align: right">50</TD></TR>
  </TABLE>

<HR SIZE="1" NOSHADE ALIGN="CENTER" STYLE="width: 25%; color: black">

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 6pt; text-align: center"><B>About this Prospectus</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 6pt; text-indent: 0.5in">This prospectus is part of a registration statement
that we filed with the SEC. As permitted by the rules and regulations of the SEC, the registration statement filed by us includes additional
information not contained in this prospectus. You may read the registration statement and the other reports we file with the SEC at the
SEC&rsquo;s website described below under the heading &ldquo;Where You Can Find More Information.&rdquo;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 6pt; text-indent: 0.5in">Neither we nor the underwriter have authorized
anyone to provide you with information that is different from that contained in, or incorporated by reference into, this prospectus, any
amendment or supplement to this prospectus or in any free writing prospectus we may authorize to be delivered or made available to you.
We and the underwriter take no responsibility for, and can provide no assurance as to the reliability of, any other information that others
may give you. We and the underwriter are offering to sell shares of our common stock and seeking offers to buy shares of our common stock
only in jurisdictions where offers and sales are permitted. The information contained in, or incorporated by reference into, this prospectus
is accurate only as of its date, regardless of the time of delivery of this prospectus or any sale of shares of our common stock. Our
business, financial condition, results of operations and prospects may have changed since that date.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 6pt; text-indent: 0.5in">For investors outside the United States: Neither
we nor the underwriter have done anything that would permit this offering, or possession or distribution of this prospectus, in any jurisdiction
where action for that purpose is required, other than in the United States. Persons outside the United States who come into possession
of this prospectus must inform themselves about, and observe any restrictions relating to, the offering of the shares of common stock
and the distribution of this prospectus outside of the United States. See &ldquo;Underwriting&rdquo; for additional information on these
restrictions.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 6pt; text-align: center"><B>Industry and Market Data</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 6pt; text-indent: 0.5in">Unless otherwise indicated, information in this
prospectus concerning economic conditions, our industry, our markets and our competitive position is based on a variety of sources, including
information from third-party industry analysts and publications and our own estimates and research. Some of the industry and market data
contained in this prospectus are based on third-party industry publications. This information involves a number of assumptions, estimates
and limitations, and you are cautioned not to give undue weight to these estimates.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 6pt; text-indent: 0.5in">The industry publications, surveys and forecasts
and other public information generally indicate or suggest that their information has been obtained from sources believed to be reliable.
None of the third-party industry publications used in this prospectus were prepared on our behalf. The industry in which we operate is
subject to a high degree of uncertainty and risk due to a variety of factors, including those described in &ldquo;Cautionary Note Regarding
Forward-Looking Statements&rdquo; and &ldquo;Risk Factors&rdquo; in this prospectus and in Item 1A of our Annual Report on Form 10-K for
the year ended December 31, 2020, which is incorporated by reference into this prospectus. See &ldquo;Where You Can Find More Information&rdquo;
and &ldquo;Incorporation of Certain Documents by Reference.&rdquo; These and other factors could cause results to differ materially from
those expressed in these publications.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 6pt; text-align: center"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 6pt; text-align: center"><B>Trademarks</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 12pt; text-indent: 0.5in">This prospectus contains references to our trademarks
and service marks and to those belonging to other entities. Solely for convenience, trademarks and trade names referred to in this prospectus
may appear without the &reg; or &trade; symbols, but such references are not intended to indicate, in any way, that we will not assert,
to the fullest extent possible under applicable law, our rights or the rights of the applicable licensor to these trademarks and trade
names. We do not intend our use or display of other companies&rsquo; trade names, trademarks or service marks to imply a relationship
with, or endorsement or sponsorship of us by any other companies.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 12pt; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 12pt; text-align: center"><B>PROSPECTUS SUMMARY</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 8pt; text-indent: 0.5in"><I>This summary highlights information contained
in this prospectus, or incorporated by reference into this prospectus, and does not contain all of the information that you should consider
in making your investment decision. Before investing in our common stock, you should carefully read this entire prospectus, including
the information set forth under the section &ldquo;Risk Factors,&rdquo; &ldquo;Management&rsquo;s Discussion and Analysis of Financial
Condition and Results of Operations,&rdquo; and our financial statements and the related notes thereto, in each case included in this
prospectus or incorporated by reference into this prospectus. Some of the statements in this prospectus constitute forward-looking statements.
See &ldquo;Cautionary Note Regarding Forward-Looking Statements.&rdquo;</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 8pt; text-indent: 0.5in"><I>Unless the context requires otherwise, the
words &ldquo;we,&rdquo; &ldquo;us,&rdquo; &ldquo;our,&rdquo; &ldquo;our company,&rdquo; &ldquo;the Company,&rdquo; and &ldquo;our business&rdquo;
refer to FalconStor Software, Inc., a Delaware corporation.</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 8pt; text-align: center"><B>Our Company</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; color: #0E101A"><B>Overview</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; color: #0E101A">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"><FONT STYLE="color: #0E101A">We are a data protection
</FONT>technology <FONT STYLE="color: #0E101A">company enabling enterprises to modernize their data backup and archival operations across
</FONT>multiple <FONT STYLE="color: #0E101A">sites and public clouds. </FONT>Our products <FONT STYLE="color: #0E101A">deliver increased
data security and provide recovery solutions for cyber attacks. We have over an exabyte of data under management, 36 issued patents and
five patent applications and offer products that are used by more than 600 enterprise customers. Our products are offered through and
supported by a network of leading service providers, systems integrators, resellers, managed services providers (&ldquo;MSPs&rdquo;) and
original equipment manufacturers (&ldquo;OEMs&rdquo;).&nbsp;&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in; color: #0E101A">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"><FONT STYLE="color: #0E101A">Our products address a
demand for enterprise data protection driven by the manner in which consumers and businesses are increasingly interacting in a digital
space through multiple devices, networks and platforms. The onset of the </FONT>coronavirus pandemic accelerated this shift, as ongoing
remote work and work from home arrangements introduced novel challenges to maintaining enterprise data security. The adoption of increased
employee mobility and flexible remote work arrangements, such as a broader incorporation of cloud technology and the option for employees
to use their own devices, has introduced additional vulnerabilities that businesses must monitor and protect through solutions like ours
in order to maintain enterprise data integrity.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in; color: #0E101A">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in; color: #0E101A">Our products are utilized by enterprises
and MSPs to address two key areas of enterprise data protection: (i) long-term data retention and recovery, and (ii) data replication
to preserve business continuity. Our integration with modern cloud-based data storage environments, such as Amazon Web Services (&ldquo;AWS&rdquo;)
and Microsoft Azure, enables our enterprise customers to significantly reduce costs and improve the portability, security and accessibility
of their enterprise data. We believe this accessibility is key in our modern world, where data must be protected and intelligently leveraged
to facilitate learning, improve product design and drive competitive advantage. Our products can be used regardless of the underlying
hardware, cloud and source-data, which enables our enterprise customers to leverage their existing hardware and software investments.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in; color: #0E101A">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in; color: #0E101A">We believe our long-term data
retention products are critical to the data protection plans of any enterprise. The foundation of any enterprise data protection
plan is the long-term data archive, as this segment represents up to 80% of an enterprise&rsquo;s data according to a 2019 Horizon
Information Strategies independent study (the &ldquo;Horizon Study&rdquo;). Whether in the form of application databases, documents, emails or
digital media files, enterprises must preserve this information for significant periods of time to fulfill operational, legal and
regulatory requirements. Expanding government and industry regulations also continue to increase mandated retention periods. In
addition to fundamental data retention, modern enterprises desire to leverage their long-term archives for strategic analysis and to
unlock new revenue streams. As a result, enterprises are challenged with secure and cost-effective data management, while also
adopting flexible and scalable cloud-based storage environments. Our long-term data retention products enable our enterprise
customers to reduce their data storage footprint while seamlessly transitioning data to a wide array of hybrid-cloud and
public-cloud storage systems, including AWS and Microsoft Azure. Our products have also been found to increase data backup speeds by
up to 600% based on the 2019 Evaluator Group Performance Analysis.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in; color: #0E101A">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in; color: #0E101A"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in; color: #0E101A">In addition to long-term data retention,
enterprises must maintain operational data redundancy to ensure business continuity in near real time. According to the Horizon Study, the remaining 20% of an enterprise&rsquo;s data is active and backed up, and such data is retained for
less than 90 days. Our data replication products and
associated technologies allow an enterprise to capture snapshots of selected data or entire systems at user-defined intervals, and include
the ability to replicate data as it is written or modified in real time. These solutions allow our enterprise customers to recover data
back to a specific point in time to completely recover from operational data loss or corruption, including ransomware. As is the case
with our long-term data retention products, our data replication products are designed to leverage existing enterprise hardware and software
investments, while enabling the use of new cloud-based data storage technologies.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in; color: #0E101A">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><B>Our <FONT STYLE="color: #0E101A">S</FONT>oftware
<FONT STYLE="color: #0E101A">P</FONT>roducts and <FONT STYLE="color: #0E101A">S</FONT>upporting <FONT STYLE="color: #0E101A">T</FONT>echnology</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; color: #0E101A">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in; color: #0E101A">Our software products create investment
protection, flexibility and leverage of modern cloud-based technologies through software-defined functionality that provides backup and
long-term retention, and business continuity driven data replication. As a result, our enterprise clients are able to utilize the underlying
storage hardware, media or environment (on-premise or cloud) that best aligns with their strategic needs, which can eliminate costly hardware-vendor,
cloud and form-factor lock-ins. &nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in; color: #0E101A">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in; color: #0E101A"><B>Long-Term Data
Retention and Recovery Products</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in; color: #0E101A">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"><FONT STYLE="color: #0E101A"><B><I>&#9679;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;FalconStor
Virtual Tape Library </I></B></FONT><B>&ndash;</B> We were <FONT STYLE="color: #0E101A">an early innovator in Virtual Tape Library (&ldquo;VTL&rdquo;)
technology, which allows enterprise customers to emulate and replace cumbersome physical tape libraries with archive related data preservation,
without replacing their existing backup and archive software and associated processes.</FONT>&nbsp;<FONT STYLE="color: #0E101A">We believe
our VTL product continues to be a leading virtual tape library solution in terms of performance and scalability. With VTL, our enterprise
customers are able to complete their data archive operations more reliably, with minimal changes to their legacy archive environment.
They are also able to leverage sophisticated physical tape emulation, advanced data security, data-deduplication, and public- or private-cloud
based virtual tape archive storage. We have subjected our VTL solution to independent performance testing, which at the time demonstrated
that our product was 25% faster than a competitor and could be executed on hardware that was </FONT>one-third <FONT STYLE="color: #0E101A">the
cost of that required by our closest competitor. We enable our customers to reduce the amount of data that needs to be archived by processing
their archive data through our integrated data deduplication engine. By eliminating redundant archive data, the archive storage capacity
required can be significantly reduced. Our technology allows our enterprise customers to significantly reduce the cost of storing the
ever-growing volume of data that is subject to long-term archive data protection mandates. </FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in; color: #0E101A">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"><FONT STYLE="color: #0E101A"><B><I>&#9679;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;FalconStor
StorSafe<SUP>TM</SUP> (&ldquo;StorSafe&rdquo;)</I></B></FONT><B> &ndash;</B> <FONT STYLE="color: #0E101A">Traditionally, enterprises have
had limited choice and have been forced to store their archive data on physical tape or within storage arrays installed in an internal
data center. Our newest and most innovative long-term archive data management software product, StorSafe, breaks these traditional storage
limitations and enables enterprises to securely and cost effectively leverage a wide array of storage options, including ultra-efficient
and scalable cloud-based storage environments, such as AWS and Microsoft Azure. Launched in 2020, StorSafe provides sophisticated physical
tape emulation and seamless integration with an enterprise&rsquo;s legacy backup and archive software and processes. By leveraging patent
pending industry-standard container technology to enable persistent long-term archive storage, our StorSafe solution dramatically improves
archive data portability, accessibility, security and integrity validation, especially as it relates to multi-cloud data storage leverage.
As a result, a full spectrum of archive data storage options is made available to our enterprise customers to utilize essentially any
storage environment, while confidently ensuring data security and efficient archive access.&nbsp;We have designed StorSafe to significantly
reduce long-term archive data storage and legal or regulatory mandated compliance costs.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.25in; color: #0E101A">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in; color: #0E101A"><B>Business Continuity
Driven Data Replication Products</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in; color: #0E101A">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"><FONT STYLE="color: #0E101A"><B><I>&#9679;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
FalconStor Continuous Data Protector (&ldquo;CDP&rdquo;)</I></B></FONT><B> &ndash;</B> <FONT STYLE="color: #0E101A">In addition to retaining
long-term archive data, enterprises routinely maintain short-term copies, or backups, of data generated by various user applications
to protect against data loss or natural disaster. Moving beyond once-a-day backup models, CDP combines local and remote protection into
a cost-effective, unified, disk-based solution that allows enterprises to recover data back to the most recent transaction. Combining
application-aware snapshot agents and continuous journaling functions, CDP enables customers to recover data effectively at any point
in time. CDP delivers instant data availability and reliable recovery, with the capacity to bring business applications back online in
a matter of minutes after a failure. CDP protects application-specific data for Microsoft, Oracle, SAP and other business applications,
ensuring high performance and stability for complex business environments.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in; color: #0E101A">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"><FONT STYLE="color: #0E101A"><B><I>&#9679;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;FalconStor
Network Storage Server (&ldquo;NSS&rdquo;)</I></B></FONT><B> &ndash;</B>&nbsp;<FONT STYLE="color: #0E101A">The expanding capacity of data
managed by enterprises creates a continual challenge in ensuring adequate amounts of available storage. NSS is a scalable solution that
enables data storage virtualization and business continuity in heterogeneous environments. Supporting existing third-party disk arrays,
NSS eliminates storage boundaries and vendor lock-in, providing fast and secure data storage provisioning and migration. Our core storage
virtualization technology provides a non-disruptive approach to data mobility across different storage area network protocols and vendors.
With NSS, it becomes a simple operation to move data from older platforms to newer ones or to introduce new storage capacity and tiers.
This allows enterprises to respond to evolving performance and capacity requirements, as well as changing data protection mandates.</FONT>&nbsp;<FONT STYLE="color: #0E101A">Our
products are sold as stand-alone software, but can also be bundled with standard hardware configurations to simplify implementation for
our customers.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; color: #0E101A">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; color: #0E101A; text-indent: 0.5in">We are currently marketing our CDP
and NSS products under the name StorGuard&trade;.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in; color: #0E101A">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in; color: #0E101A"><B>Supporting
Technology</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in; color: #0E101A">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"><FONT STYLE="color: #0E101A"><B><I>&#9679;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;FalconStor
StorSight<SUP>TM</SUP> (&ldquo;StorSight&rdquo;)</I></B></FONT><B> &ndash;</B> <FONT STYLE="color: #0E101A">StorSight gives our enterprise
customers and MSPs the ability to administer long-term archive and business continuity driven data replication from one centralized management
point and to easily test our other products they may not be currently licensing. To simplify our development efforts and to enable broader
use of our products by our enterprise customers, we have unified all user management into our modern HTML-based console and rebranded
that unified tool as StorSight. As a result, StorSight is now our unified data protection console used to administer our VTL, StorSafe,
CDP, and NSS products.</FONT>&nbsp;<FONT STYLE="color: #0E101A">Our StorSight user console provides deep analytics relative to each of
our products as they are utilized in production. StorSight also includes a full array of functionality key to our MSP customers, such
as multi-tenancy and charge-back.</FONT>&nbsp;<FONT STYLE="color: #0E101A">StorSight usage licensing is included when customers and MSPs
license any of our products.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"><FONT STYLE="color: #0E101A"><B><I>&#9679;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;FalconStor&nbsp;RecoverTrac<SUP>TM</SUP>
(&ldquo;RecoverTrac&rdquo;) Disaster Recovery Technology</I></B></FONT><B> &ndash;</B> O<FONT STYLE="color: #0E101A">ur patented RecoverTrac
technology streamlines the implementation, testing and execution of disaster recovery operations. It minimizes service failover time between
sites and reduces disaster recovery costs by offering full recovery from physical-to-physical, virtual-to-virtual and physical-to-virtual
server infrastructures. This technology is a disaster recovery automation service, and is included as a standard feature of our NSS and
CDP products to automate complex, time-consuming and error-prone failover and failback operations of systems, applications, services and
entire data centers. This technology can also work across those environments, enabling organizations to seamlessly migrate locally, remotely
or to and from cloud environments.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; color: #0E101A">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"><FONT STYLE="color: #0E101A"><B><I>&#9679;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;FalconStor&nbsp;MicroScan<SUP>TM
</SUP>(&ldquo;MicroScan&rdquo;) Technology</I></B></FONT><B> &ndash;</B> Our <FONT STYLE="color: #0E101A">patented MicroScan technology
minimizes the amount of data transferred during replication by eliminating inefficiencies at the application and file system layer. Data
changes are replicated at the smallest possible level of granularity, reducing LAN/WAN bandwidth and associated storage costs for disaster
recovery (&ldquo;DR&rdquo;), and any time data is replicated from one source to another. MicroScan is an integral part of our replication
option for CDP and NSS.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; color: #0E101A">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0"><B>Our Growth and Expansion <FONT STYLE="color: #0E101A">S</FONT>trategy</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; color: #0E101A">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in">&#9;Our <FONT STYLE="color: #0E101A">software
products and supporting technology are licensed by enterprise information technology (&ldquo;IT&rdquo;) organizations and MSPs worldwide.
The key elements of our growth and expansion strategy include the following</FONT>:<FONT STYLE="color: #0E101A">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in; color: #0E101A">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"><FONT STYLE="color: #0E101A"><B><I>&#9679;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accelerate
our marketing and distribution in our</I></B></FONT><B><I> best suited markets</I> &ndash;</B> <FONT STYLE="color: #0E101A">We plan to</FONT>
continue to focus our marketing and distribution efforts on enterprise customers, MSPs, cloud service providers (&ldquo;CSPs&rdquo;),
resellers, systems integrators and OEM partners. We believe these markets and distribution channels offer a significant opportunity and
are best suited to realize the value of our products, and provide an efficient and effective access to broad, worldwide markets.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"><FONT STYLE="color: #0E101A"><B><I>&#9679;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</I></B></FONT><B><I>Expand
our existing software product offerings</I> &ndash;</B> We intend to enhance our products to address ever-changing market dynamics to
allow us to be leader in the data protection marketplace. For example, through StorSafe, we have successfully adapted transient container
technology to deliver a persistent, long-term data protection container that is agnostic, heterogeneous and highly portable, as well as
backward compatible and compatible with future technology advancements. We believe these advancements are essential to meet the chain
of custody mandates that are inherent in long-term data retention plans subject to compliance, regulatory, legal discovery and privacy
laws that continue to evolve and mature.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"><FONT STYLE="color: #0E101A"><B><I>&#9679;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</I></B></FONT><B><I>Expand
software and hardware strategic alliances with industry leaders</I> &ndash;</B> The Flash/SSD, High-Density Single Disk and Cloud Data
Archival markets are key opportunities for us on two fronts: targeting customers wanting to integrate this new technology into existing
IT environments, and OEMs needing to enhance their software stack in order to offer data movement and protection services on their platform.
CSPs such as AWS, Microsoft Azure, Wasabi and Alibaba Cloud also represent a growth opportunity. Our mutual customers and partners need
help moving data from the customer site to their own facilities, as well as a way to deliver common data services across disparate and
often incompatible hardware typically found across the provider and end customer environments. We believe that we are positioned to continue
to take advantage of these key opportunities in the global marketplace.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"><FONT STYLE="color: #0E101A"><B><I>&#9679;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Provide
a bridge to cloud-based data storage, while protecting customers&rsquo; investments</I></B></FONT><B> &ndash;</B> We <FONT STYLE="color: #0E101A">intend
to continue leveraging the protocol-independent, unified architecture, analytics and open data services technology of our products to
maintain a competitive position in the enterprise storage software market. With the addition of StorSafe, and its associated storage container
technology, we have joined and are dedicated to the Open Source community, which has accelerated development and integration efforts across
our entire product suite. We intend to continue delivering technical innovation that creates investment protection, flexibility and leverage
of modern cloud-based technologies for our enterprise customers.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; color: #0E101A">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"><FONT STYLE="color: #0E101A"><B><I>&#9679;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Enable
MSPs</I></B></FONT><B> &ndash;</B> <FONT STYLE="color: #0E101A">As the managed service provider segment continues to grow, MSPs increasingly
have a need to support heterogeneous storage environments across their own data centers and their customers&rsquo; environments. MSPs
often have different hardware and software capabilities, making it significantly challenging to offer consistent data services across
these environments. We believe that we offer strategic benefits for MSPs by (i) </FONT>enabling the seamless and non-disruptive movement
of data from the customer premises to the service provider&rsquo;s hosted environment, (ii) offering common data services across a customer&rsquo;s
environments regardless of underlying hardware or technology, (iii) allowing for the introduction and ability to monetize additional data
services they may not have previously been able to offer, (iv) providing a low-cost growth opportunity due to the flexibility of StorSight
licensing, while eliminating the need to have multiple feature licenses array by array, and (v) enabling reduced storage management complexity
and costs within their infrastructure by eliminating silos, reducing licensing costs and optimizing hardware.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><FONT STYLE="color: #0E101A"><B>I</B></FONT><B>ndustry
Background and Trends</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; color: #0E101A">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.25in; color: #0E101A">&#9;Enterprises of all sizes are increasingly
challenged to securely archive, replicate and make available their data assets. This challenge is increased as business pressures to reduce
cost and increase efficiency push enterprises to adopt cloud-based technologies, which are critical to handling the growth in data and
strategic uses of enterprise data, despite an increasing amount of records and data that has been compromised over the past several years.
For example, according to the 2020 Year End Report published by RiskBased Security, approximately 37 billion records of sensitive data
were lost from various breaches, as compared to the approximately 15 billion and 5 billion that were lost in 2019 and 2018, respectively.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in; color: #0E101A">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.25in; color: #0E101A">&#9;We believe long-term data archive
is the fastest-growing segment of an enterprise&rsquo;s data assets. This growth is accelerating as enterprises are increasingly subject
to complex regulatory compliance, such as that driven by the Food and Drug Administration, the Health Insurance Portability and Accountability
Act, European Union&rsquo;s General Data Protection Regulation and the Sarbanes-Oxley Act. As the volume of long-term archive continues
to expand, the need for enterprises to securely and cost-effectively store the associated data will only increase.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in; color: #0E101A">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.25in; color: #0E101A">&#9;The introduction of new long-term
archive storage options has also given rise to a growth in MSPs remotely managing data protection, primarily to smaller enterprises with
a less complex array of data assets. The MSPs are able to leverage modern broadband connectivity and offer more scalable long-term storage
options, which will serve to reduce data protection costs for their customers. We believe this trend to outsourced long-term archive data
protection will continue.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.25in; color: #0E101A">&#9;New regulations and laws governing
the processing, storage, retention, protection and reinstatement of high-value information assets are driving significant growth in the
data protection markets. We believe that data archives will play an increasing role in training and validating artificial intelligence
and machine learning algorithms and optimizing strategic analytic model outcomes. Given our long history and deep skillset of the unique
challenges associated with long-term storage, we believe that we are in position to capitalize on data assets that are subject to new
protection requirements with our existing product portfolio. Our innovative StorSafe product is designed and architected to leverage the
scale-up and scale-out capabilities found in today's public and private clouds to support the expanding long-term data protection market
demand that is estimated to grow into the Zettabyte (10^21) range by 2030, according to market intelligence provider International Data
Corporation. We believe our innovative integration of long-term archive storage into modern cloud-based technologies will enable our customers
to dramatically improve the portability, security, and accessibility of their enterprise data.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in; color: #0E101A">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0"><B>Selected Risks Related to our Business</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in">Our business is subject to numerous risks, including
risks that may prevent us from achieving our business objectives or may adversely affect our business, financial condition, results of
operations, cash flows and prospects that you should consider before making an investment decision. Below are the principal factors that
make an investment in our company speculative or risky. These investment factors are more fully described in the &ldquo;Risk Factors&rdquo;
section of this prospectus immediately following this prospectus summary, as well as in the documents incorporated by reference herein:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in">&#9679; We have had limited liquidity as evidenced
by our working capital deficiency of $3.6 million at March&nbsp;31, 2021, and our future prospects are dependent on our ability to execute
our business plan.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in">&#9679; Our revenues decreased in 2020 compared to
2019. Though our revenues increased in the three months ended March 31, 2021 as compared to the three months ended March 31, 2020, there
is no guarantee that we will be able to maintain profitability.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in">&#9679; We have undertaken a restructuring and other
cost reduction initiatives to reduce our expenses and to better align our expenses with our business. There can be no assurance that we
have made enough reductions or the right reductions.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in">&#9679; We may not be able to fully utilize our net
operating loss (&ldquo;NOL&rdquo;) and other tax carryforwards, including as a result of this offering and subsequent offerings, which
may have the effect of devaluing significant deferred tax assets of the company.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in">&#9679;
Our future business, financial and operating results are substantially dependent on market acceptance of our software products and supporting
technology.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in">&#9679; The effects of the COVID-19 pandemic have materially
affected, and will continue to materially affect, how we and our customers are operating our businesses, and the duration and extent to
which this will impact our future results of operations and overall financial performance remains uncertain.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in">&#9679; Due to the uncertain and shifting development
of the data protection and network storage software markets and our reliance on our resellers and our OEM partners, we may have difficulty
accurately predicting revenue for future periods and appropriately budgeting for expenses.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in">&#9679; If we are unable to develop new products that
achieve acceptance in the data protection and the network storage software markets, our operating results may suffer.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in">&#9679; Our products handle mission-critical data for
our end-customers and are highly technical in nature. If our products have defects, failures occur or end-customer data is lost or corrupted,
our reputation and business could be harmed.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in">&#9679; We face intense competition in our market,
especially from larger, well-established companies, and we may lack sufficient financial or other resources to maintain or improve our
competitive position.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in">&#9679; Our ability to sell our products 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 effect on our sales of our products and results of operations.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in">&#9679; The international nature of our business could
have an adverse effect on our operating results.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in">&#9679; Developments limiting the availability of Open
Source software could impact our ability to deliver products and could subject us to costly litigation.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in">&#9679; Our efforts to protect our intellectual property
may cause us to become involved in costly and lengthy litigation, which could seriously harm our business.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in">&#9679; To service our indebtedness, we will require
a significant amount of cash. We may not be able to generate sufficient cash to service our term notes or our other indebtedness, and
may be forced to take other actions to satisfy our obligations under our indebtedness, which may not be successful.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in">&#9679; Our agreements with the holders of our series&nbsp;A
preferred stock and/or our term loan contain covenants that could limit our ability to obtain financing using our equity. If we engage
in future financings, we may have to use the proceeds to redeem the preferred stock held by such holders. This could cause us to have
difficulty in obtaining capital necessary to run our business.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in">&#9679; The holders of our series&nbsp;A preferred
stock are entitled to dividends on our series&nbsp;A preferred stock they hold. Depending on whether these dividends are paid in cash
or stock, the payment of these dividends will either decrease cash that is available to us to invest in our business or dilute the holdings
of all other stockholders.</P>

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    <TD STYLE="width: 24px">&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><B>Recent Developments</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in"><B>&#9;First Quarter 2021 Results</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in">&#9;The following unaudited information
reflects our results of operations for the three months ended March 31, 2021:</P>

<P STYLE="font: 10pt/12pt Times New Roman, Times, Serif; margin: 7.9pt 0.15in 0 0; text-indent: 0.5in">&#9679; total revenue of $3,828,326,
as compared to total revenue of $3,180,187 for the three months ended March 31, 2020;</P>

<P STYLE="font: 10pt/12pt Times New Roman, Times, Serif; margin: 7.9pt 0.15in 0 0; text-indent: 0.5in">&#9679; gross profit of $3,179,319,
as compared to gross profit of $2,632,807 for the three months ended March 31, 2020; and</P>

<P STYLE="font: 10pt/12pt Times New Roman, Times, Serif; margin: 7.9pt 0.15in 0 0; text-indent: 0.5in">&#9679; net income of $425,248,
which reflects a gain on debt extinguishment of $754,000 due to the SBA&rsquo;s forgiveness of the loan we received from Peapack-Gladstone
Bank pursuant to the Paycheck Protection Program un<FONT STYLE="background-color: white">der Title 1 of the Coronavirus Aid, Relief and
Economic Security Act (the &ldquo;Paycheck Protection Program&rdquo;). We incurred </FONT>a net loss of $719,840 for the three months
ended March 31, 2020.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in">&#9;<B>Extension of Maturity
Date of Debt and Preferred Stock Redemption Date</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in">&#9;As described further in the
 &ldquo;Risk Factors&rdquo; section of this prospectus, the holders of our outstanding series A redeemable convertible preferred stock
have a mandatory redemption right as of July 30, 2021 that may be exercised only with the approval of Hale Capital Partners, LP (&ldquo;HCP&rdquo;)
and HCP-FVA, LLC (&ldquo;HCP-FVA&rdquo; and, together with HCP, &ldquo;Hale Capital&rdquo;). In connection with this offering, we entered
into a letter agreement, dated June 2, 2021, with Hale Capital, in which it agreed not to exercise this mandatory redemption right until
at least July 30, 2023, with such extension to be included in an amendment to the Certificate of Designation that will be proposed for
shareholder approval at our next annual shareholder meeting (the &ldquo;Redemption Extension Letter Agreement&rdquo;). We also entered
into a letter agreement with Hale Capital, dated June 2, 2021 (the &ldquo;Loan Extension Letter Agreement&rdquo;), that provides for an
extension of the maturity date on Hale Capital&rsquo;s portion of the outstanding indebtedness owed under the Amended and Restated Loan
Agreement to June 30, 2023, which constituted $2,176,621 of the $3,510,679 principal amount outstanding as of December 31, 2020.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in"><B>&#9;Effects of COVID-19 on
our Company</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in"><B>&#9;</B>Given the commercial
uncertainty caused by the novel coronavirus pandemic, or COVID-19, we developed and implemented an aggressive expense control plan in
March 2020, which we kept in place for the remainder of 2020. This plan reduced our annual cash expense run rate by $4.0 million or 29%.
We furloughed 21 positions worldwide, and 20 of these positions were reinstated by the fourth quarter of 2020. We believe the reduced
expense level should enable us to remain profitable during 2021, even with a prolonged impact of COVID-19 well into 2021.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0"><B>Smaller Reporting Company</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.25in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.25in">&#9;We are a &ldquo;smaller reporting company&rdquo;
as defined under U.S. federal securities laws and, as such, have elected to comply with certain reduced public company reporting requirements
for this prospectus, the documents incorporated by reference herein and future filings.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><B>Corporate Information</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in">We were incorporated in 1994 as a Delaware corporation
and changed our corporate name from Network Peripherals Inc. to FalconStor Software, Inc. in 2001 through the completion of a reverse
merger. Our principal executive offices are located at 701 Brazos Street, Suite 400, Austin, Texas 78701, and our telephone number is
(631) 777-5188. We have additional offices in Melville, New York, Munich, Germany and Taichung, Taiwan. We maintain a corporate website
at https://falconstor.com and social media accounts on Linkedin at https://www.linkedin.com/company/falconstor-software and Facebook at
https://www.facebook.com/falconstorsoftwareinc/. Information on our website or our social media accounts does not constitute part of this
prospectus, is not incorporated by reference into this prospectus and should not be relied upon with respect to this offering.<B><BR STYLE="clear: both">
</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 12pt; text-align: center"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 12pt; text-align: center"><B>The Offering</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 12pt; text-indent: 0.5in"><I>The following summary contains general information
about this offering. The summary is not intended to be complete. You should read the full text and more specific details contained elsewhere
in this prospectus.</I></P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <TR>
    <TD STYLE="vertical-align: top; width: 44%; padding-right: 0.05in; padding-left: 10pt; text-indent: -10pt">Common stock offered by us&#9;</TD>
    <TD STYLE="vertical-align: bottom; width: 56%; padding-right: 0.05in; padding-left: 0.05in">
    <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.75in">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; shares.</P>
    <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P></TD></TR>
  <TR>
    <TD STYLE="vertical-align: top; padding-right: 0.05in; padding-left: 10pt; text-indent: -10pt">Underwriter&rsquo;s&nbsp;over-allotment option&#9;</TD>
    <TD STYLE="vertical-align: bottom; padding-right: 0.05in; padding-left: 0.05in">
    <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">We have granted the underwriter a 30-day option to purchase up to an additional
    &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; shares of our common stock from us at the price to public less the underwriting discount to cover
    over-allotments, if any.</P>
    <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P></TD></TR>
  <TR>
    <TD STYLE="vertical-align: top; padding-right: 0.05in; padding-left: 10pt; text-indent: -10pt">Common&nbsp;stock&nbsp;to&nbsp;be&nbsp;outstanding after this offering&#9;</TD>
    <TD STYLE="vertical-align: bottom; padding-right: 0.05in; padding-left: 0.05in">
    <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; shares (or &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    shares if the underwriter&rsquo;s option to purchase additional shares from us is exercised in full).(1)</P>
    <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P></TD></TR>
  <TR>
    <TD STYLE="vertical-align: top; padding-right: 0.05in; padding-left: 10pt; text-indent: -10pt">Use of proceeds&#9;</TD>
    <TD STYLE="vertical-align: bottom; padding-right: 0.05in; padding-left: 0.05in">
    <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">We estimate that the net proceeds from the sale of our common stock in
    this offering will be approximately $ &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; million (or approximately $ &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    million if the underwriter&rsquo;s option to purchase additional shares from us is exercised in full), based on an assumed public offering
    price of $ per share, which was the last reported sale price of our common stock on June&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;, 2021 as quoted
    by the OTCQB Venture Market, after deducting the underwriting discount and estimated offering expenses payable by us.</P>
    <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P></TD></TR>
  <TR>
    <TD STYLE="vertical-align: top; padding-right: 0.05in; padding-left: 10pt; text-indent: -10pt">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; padding-right: 0.05in; padding-left: 0.05in">
    <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">We intend to use the net proceeds of this offering to expand marketing
    and distribution of our software products and supporting technology in the United States and abroad, to enhance our ongoing product development
    programs, to finance potential acquisitions of complementary businesses, and for working capital and general corporate purposes. See &ldquo;Use
    of Proceeds&rdquo; for more information.</P>
    <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P></TD></TR>
  <TR>
    <TD STYLE="vertical-align: top; padding-right: 0.05in; padding-left: 10pt; text-indent: -10pt">Dividend policy&#9;</TD>
    <TD STYLE="vertical-align: bottom; padding-right: 0.05in; padding-left: 0.05in">
    <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">We have never declared or paid any cash dividends on our common stock.
    We anticipate that we will retain any earnings to support operations and to finance the growth and expansion of our business. Accordingly,
    we do not expect to pay cash dividends on our common stock in the foreseeable future.</P>
    <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P></TD></TR>
  <TR>
    <TD STYLE="vertical-align: top; padding-right: 0.05in; padding-left: 10pt; text-indent: -10pt">Risk factors&#9;</TD>
    <TD STYLE="vertical-align: bottom; padding-right: 0.05in; padding-left: 0.05in">
    <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">Investing in our common stock involves a high degree of risk. See &ldquo;Risk
    Factors&rdquo; and other information included in this prospectus or incorporated by reference into this prospectus for a discussion of
    factors you should carefully consider before deciding to invest in shares of our common stock.</P>
    <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P></TD></TR>
  <TR>
    <TD STYLE="vertical-align: top; padding-right: 0.05in; padding-left: 10pt; text-indent: -10pt">OTCQB symbol&#9;</TD>
    <TD STYLE="vertical-align: bottom; padding-right: 0.05in; padding-left: 0.05in">FALC</TD></TR>
  </TABLE>


<HR SIZE="1" NOSHADE ALIGN="LEFT" STYLE="width: 25%; color: black">

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.5in">(1)</TD><TD>The number of shares of our common stock to be outstanding immediately after this offering, as shown above, is based on 5,949,463
shares outstanding as of June 3, 2021, and excludes, as of that date, the following:</TD></TR></TABLE>

<P STYLE="font: 10pt/11.65pt Times New Roman, Times, Serif; margin: 0 0.15in 0 0; text-indent: 0.5in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 3pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.75in"></TD><TD STYLE="width: 0.25in">&bull;</TD><TD>87,815 shares of our common stock issuable upon the exercise of outstanding shares of series A redeemable convertible preferred stock;</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 3pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.75in"></TD><TD STYLE="width: 0.25in">&bull;</TD><TD>9,780 shares of our common stock issuable upon the exercise of outstanding stock options having an average exercise price of $113.66
per share;</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 3pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.75in"></TD><TD STYLE="width: 0.25in">&bull;</TD><TD>1,442,828 shares of our common stock issuable upon the vesting of outstanding restricted stock; and</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 3pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.75in"></TD><TD STYLE="width: 0.25in">&bull;</TD><TD><P STYLE="margin-top: 0; margin-bottom: 0">up to an additional
46,029 shares of common stock currently reserved for issuance related to accrued dividends on the series A preferred stock.<BR STYLE="clear: both"></P></TD></TR><TR STYLE="vertical-align: top">
<TD>&nbsp;</TD><TD>&nbsp;</TD><TD>&nbsp;</TD></TR>
                                                                                                                                                                 <TR STYLE="vertical-align: top">
<TD>&nbsp;</TD><TD>&nbsp;</TD><TD>Unless otherwise noted, the information in this prospectus reflects and assumes no exercise of the underwriter&rsquo;s over-allotment option to purchase additional shares.</TD></TR>
                                                                                                                                                                 </TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 12pt; text-align: center"></P>

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    <DIV STYLE="break-before: page; margin-top: 6pt; margin-bottom: 6pt"><P STYLE="margin: 0pt">&nbsp;</P></DIV>
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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 12pt; text-align: center"><B>Summary Financial Data</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 12pt; text-indent: 0.5in">The following tables summarize our historical
consolidated financial data. We have derived the summary consolidated statements of operations data for the years ended December 31, 2020
and 2019 from our audited consolidated financial statements incorporated by reference into this prospectus. The summary consolidated statements
of operations data for the three months ended March 31, 2021 and 2020 and the summary consolidated balance sheet data as of March 31,
2021 are derived from the unaudited financial statements appearing in our Quarterly Report on Form 10-Q for the quarterly period ended
March 31, 2021, which is incorporated by reference into this prospectus. Our unaudited interim condensed financial statements have been
prepared on a basis consistent with our audited financial statements and, in the opinion of management, reflect all adjustments, consisting
solely of normal recurring adjustments, necessary for the fair presentation of the financial information in those statements. The summary
consolidated financial data in this section is not intended to replace our consolidated financial statements and related notes, and our
historical results are not necessarily indicative of the results we expect in the future. The following summary of consolidated financial
data should be read in conjunction with the section titled &ldquo;Management&rsquo;s Discussion and Analysis of Financial Condition and
Results of Operations&rdquo; and our consolidated financial statements and related notes included in our Annual Report on Form 10-K for
the year ended December 31, 2020, which is incorporated by reference into this prospectus.</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <TR>
    <TD STYLE="vertical-align: bottom; padding-right: 0.05in; padding-bottom: 1pt; padding-left: 0.05in; text-align: center">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="vertical-align: bottom; padding-right: 0.05in; padding-left: 0.05in">
    <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 1pt; text-align: center; border-bottom: Black 0.5pt solid"><B>Years ended<BR>
    December 31,</B></P></TD>
    <TD COLSPAN="2" STYLE="vertical-align: top; padding-right: 0.05in; padding-left: 0.05in">
<DIV STYLE="padding: 0in; border-bottom: Black 0.5pt solid">

    <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 1pt; text-align: center"><B>Three months </B></P>
    <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 1pt; text-align: center"><B>ended March 31,</B></P>
</DIV></TD></TR>
  <TR>
    <TD STYLE="vertical-align: bottom; width: 51%; padding-right: 0.05in; padding-bottom: 1pt; padding-left: 0.05in; text-align: center">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; width: 12%; padding-right: 0.05in; padding-left: 0.05in">
    <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 1pt; text-align: center; border-bottom: Black 0.5pt solid"><B>2020</B></P></TD>
    <TD STYLE="vertical-align: top; width: 12%; padding-right: 0.05in; padding-left: 0.05in">
<DIV STYLE="padding: 0in; border-bottom: Black 0.5pt solid">

    <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 1pt; text-align: center"><B>&nbsp;</B></P>
    <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 1pt; text-align: center"><B>2019</B></P>
</DIV></TD>
    <TD STYLE="vertical-align: top; width: 12%; padding-right: 0.05in; padding-left: 0.05in">
<DIV STYLE="padding: 0in; border-bottom: Black 0.5pt solid">

    <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 1pt; text-align: center"><B>2021</B></P>
    <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 1pt; text-align: center"><B>(unaudited)</B></P>
</DIV></TD>
    <TD STYLE="vertical-align: bottom; width: 13%; padding-right: 0.05in; padding-left: 0.05in">
<DIV STYLE="padding: 0in; border-bottom: Black 0.5pt solid">

    <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 1pt; text-align: center"><B>2020</B></P>
    <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 1pt; text-align: center"><B>(unaudited)</B></P>
</DIV></TD></TR>
  <TR>
    <TD STYLE="vertical-align: top; padding-right: 0.05in; padding-left: 10pt; text-indent: -10pt"><B>Consolidated Statements of Operations Data:</B></TD>
    <TD STYLE="vertical-align: bottom; padding-right: 0.05in; padding-bottom: 1pt; padding-left: 0.05in; text-align: right">&nbsp;</TD>
    <TD STYLE="vertical-align: top; padding-right: 0.05in; padding-bottom: 1pt; padding-left: 0.05in; text-align: right">&nbsp;</TD>
    <TD STYLE="vertical-align: top; padding-right: 0.05in; padding-bottom: 1pt; padding-left: 0.05in; text-align: right">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; padding-right: 0.05in; padding-bottom: 1pt; padding-left: 0.05in; text-align: right">&nbsp;</TD></TR>
  <TR STYLE="background-color: rgb(204,238,255)">
    <TD STYLE="vertical-align: top; padding-right: 0.05in; padding-left: 10pt; text-indent: -10pt">Total revenue&#9;</TD>
    <TD STYLE="vertical-align: bottom; padding-right: 0.05in; padding-bottom: 1pt; padding-left: 0.05in; text-align: right">$ 14,768,693</TD>
    <TD STYLE="vertical-align: bottom; padding-right: 0.05in; padding-bottom: 1pt; padding-left: 0.05in; text-align: right">$ 16,543,571</TD>
    <TD STYLE="vertical-align: top; padding-right: 0.05in; padding-bottom: 1pt; padding-left: 0.05in; text-align: right">$ 3,828,326</TD>
    <TD STYLE="vertical-align: top; padding-right: 0.05in; padding-bottom: 1pt; padding-left: 0.05in; text-align: right">$ 3,180,187</TD></TR>
  <TR STYLE="background-color: White">
    <TD STYLE="vertical-align: top; padding-bottom: 1pt; padding-left: 10pt; text-indent: -10pt">Total cost of revenue&#9;</TD>
    <TD STYLE="vertical-align: bottom; padding-right: 0.05in; padding-bottom: 1pt; padding-left: 0.05in; text-align: right">1,827,478</TD>
    <TD STYLE="vertical-align: bottom; padding-right: 0.05in; padding-bottom: 1pt; padding-left: 0.05in; text-align: right">2,912,987</TD>
    <TD STYLE="vertical-align: top; padding-right: 0.05in; padding-bottom: 1pt; padding-left: 0.05in; text-align: right">649,007</TD>
    <TD STYLE="vertical-align: top; padding-right: 0.05in; padding-bottom: 1pt; padding-left: 0.05in; text-align: right">547,380</TD></TR>
  <TR STYLE="background-color: rgb(204,238,255)">
    <TD STYLE="vertical-align: top; padding-right: 0.05in; padding-left: 10pt; text-indent: -10pt">Total operating expenses&#9;</TD>
    <TD STYLE="vertical-align: bottom; padding-right: 0.05in; padding-bottom: 1pt; padding-left: 0.05in; text-align: right">11,124,187</TD>
    <TD STYLE="vertical-align: bottom; padding-right: 0.05in; padding-bottom: 1pt; padding-left: 0.05in; text-align: right">14,285,566</TD>
    <TD STYLE="vertical-align: top; padding-right: 0.05in; padding-bottom: 1pt; padding-left: 0.05in; text-align: right">3,196,760</TD>
    <TD STYLE="vertical-align: top; padding-right: 0.05in; padding-bottom: 1pt; padding-left: 0.05in; text-align: right">3,036,744</TD></TR>
  <TR STYLE="background-color: White">
    <TD STYLE="vertical-align: top; padding-right: 0.05in; padding-left: 10pt; text-indent: -10pt">Interest and other expense &#9;</TD>
    <TD STYLE="vertical-align: bottom; padding-right: 0.05in; padding-bottom: 1pt; padding-left: 0.05in; text-align: right">(692,838)</TD>
    <TD STYLE="vertical-align: bottom; padding-right: 0.05in; padding-bottom: 1pt; padding-left: 0.05in; text-align: right">(604,647)</TD>
    <TD STYLE="vertical-align: top; padding-right: 0.05in; padding-bottom: 1pt; padding-left: 0.05in; text-align: right">(266,695)</TD>
    <TD STYLE="vertical-align: top; padding-right: 0.05in; padding-bottom: 1pt; padding-left: 0.05in; text-align: right">(245,839)</TD></TR>
  <TR STYLE="background-color: rgb(204,238,255)">
    <TD STYLE="vertical-align: top; padding-bottom: 2pt; padding-left: 10pt; text-indent: -10pt">Gain on debt extinguishment &#9;</TD>
    <TD STYLE="vertical-align: bottom; padding-right: 0.05in; padding-bottom: 1pt; padding-left: 0.5in; text-align: right">&mdash;</TD>
    <TD STYLE="vertical-align: bottom; padding-right: 0.05in; padding-bottom: 1pt; padding-left: 0.05in; text-align: right">&mdash;</TD>
    <TD STYLE="vertical-align: top; padding-right: 0.05in; padding-bottom: 1pt; padding-left: 0.05in; text-align: right">754,000</TD>
    <TD STYLE="vertical-align: top; padding-right: 0.05in; padding-bottom: 1pt; padding-left: 0.05in; text-align: right">&mdash;</TD></TR>
  <TR STYLE="background-color: White">
    <TD STYLE="vertical-align: top; padding-bottom: 1pt; padding-left: 10pt; text-indent: -10pt">Net income (loss)&#9;</TD>
    <TD STYLE="vertical-align: bottom; padding-right: 0.05in; padding-bottom: 1pt; padding-left: 0.05in; text-align: right">1,138,509</TD>
    <TD STYLE="vertical-align: bottom; padding-right: 0.05in; padding-bottom: 1pt; padding-left: 0.05in; text-align: right">(1,751,954)</TD>
    <TD STYLE="vertical-align: top; padding-right: 0.05in; padding-bottom: 1pt; padding-left: 0.05in; text-align: right"><FONT STYLE="background-color: white">425,248</FONT></TD>
    <TD STYLE="vertical-align: top; padding-right: 0.05in; padding-bottom: 1pt; padding-left: 0.05in; text-align: right">(719,840)</TD></TR>
  <TR STYLE="background-color: rgb(204,238,255)">
    <TD STYLE="vertical-align: top; padding-bottom: 2pt; padding-left: 10pt; text-indent: -10pt">Net income (loss) attributable to common stockholders&#9;</TD>
    <TD STYLE="vertical-align: bottom; padding-right: 0.05in; padding-bottom: 1pt; padding-left: 0.05in; text-align: right">(497,934)</TD>
    <TD STYLE="vertical-align: bottom; padding-right: 0.05in; padding-bottom: 1pt; padding-left: 0.05in; text-align: right">(3,299,527)</TD>
    <TD STYLE="vertical-align: top; padding-right: 0.05in; padding-bottom: 1pt; padding-left: 0.05in; text-align: right">(49,036)</TD>
    <TD STYLE="vertical-align: top; padding-right: 0.05in; padding-bottom: 1pt; padding-left: 0.05in; text-align: right">(1,031,690)</TD></TR>
  <TR STYLE="background-color: White">
    <TD STYLE="vertical-align: top; padding-bottom: 2pt; padding-left: 10pt; text-indent: -10pt">Net income (loss) per common share - basic and diluted&#9;</TD>
    <TD STYLE="vertical-align: bottom; padding-right: 0.05in; padding-bottom: 1pt; padding-left: 0.05in; text-align: right">(0.08)</TD>
    <TD STYLE="vertical-align: bottom; padding-right: 0.05in; padding-bottom: 1pt; padding-left: 0.05in; text-align: right">(0.56)</TD>
    <TD STYLE="vertical-align: top; padding-right: 0.05in; padding-bottom: 1pt; padding-left: 0.05in; text-align: right">(0.01)</TD>
    <TD STYLE="vertical-align: top; padding-right: 0.05in; padding-bottom: 1pt; padding-left: 0.05in; text-align: right">(0.17)</TD></TR>
  <TR STYLE="background-color: rgb(204,238,255)">
    <TD STYLE="vertical-align: top; padding-bottom: 2pt; padding-left: 10pt; text-indent: -10pt">Weighted average common shares outstanding - basic and diluted&#9;</TD>
    <TD STYLE="vertical-align: bottom; padding-right: 0.05in; padding-bottom: 2pt; padding-left: 0.05in; text-align: right">5,920,517</TD>
    <TD STYLE="vertical-align: bottom; padding-right: 0.05in; padding-bottom: 2pt; padding-left: 0.05in; text-align: right">5,900,621</TD>
    <TD STYLE="vertical-align: top; padding-right: 0.05in; padding-left: 0.05in">
    <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 2pt; text-align: right">&nbsp;</P>
    <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 2pt; text-align: right">5,949,463</P></TD>
    <TD STYLE="vertical-align: top; padding-right: 0.05in; padding-left: 0.05in">
    <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 2pt; text-align: right">&nbsp;</P>
    <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 2pt; text-align: right">5,919,643</P></TD></TR>
  </TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <TR STYLE="vertical-align: bottom">
    <TD STYLE="padding-right: 0.05in; padding-bottom: 1pt; padding-left: 0.05in; text-align: center">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="padding-right: 0.05in; padding-left: 0.05in">
    <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 1pt; text-align: center; border-bottom: Black 0.5pt solid"><B>As of March
    31, 2021</B></P></TD></TR>
  <TR STYLE="vertical-align: bottom">
    <TD STYLE="width: 73%; padding-right: 0.05in; padding-bottom: 1pt; padding-left: 0.05in; text-align: center">&nbsp;</TD>
    <TD STYLE="width: 15%; padding-right: 0.05in; padding-left: 0.05in">
<DIV STYLE="padding: 0in; border-bottom: Black 0.5pt solid">

    <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 1pt; text-align: center"><B>Actual(1)</B></P>
    <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 1pt; text-align: center"><B>(unaudited)</B></P>
</DIV></TD>
    <TD STYLE="width: 12%; padding-right: 0.05in; padding-left: 0.05in">
    <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 1pt; text-align: center; border-bottom: Black 0.5pt solid"><B>As Adjusted
    (2)<BR>
    (unaudited)</B></P></TD></TR>
  <TR>
    <TD STYLE="vertical-align: top; padding-right: 0.05in; padding-left: 10pt; text-indent: -10pt"><B>Consolidated Balance Sheet Data:</B></TD>
    <TD STYLE="vertical-align: bottom; padding-right: 0.05in; padding-left: 0.05in; text-align: right">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; padding-right: 0.05in; padding-left: 0.05in; text-align: right">&nbsp;</TD></TR>
  <TR STYLE="background-color: rgb(204,238,255)">
    <TD STYLE="vertical-align: top; padding-right: 0.05in; padding-left: 10pt; text-indent: -10pt">Cash and cash equivalents&#9;</TD>
    <TD STYLE="vertical-align: bottom; padding-right: 0.05in; padding-left: 0.05in; text-align: right">$ 2,020,989</TD>
    <TD STYLE="vertical-align: bottom; padding-right: 0.05in; padding-left: 0.05in; text-align: right">&nbsp;</TD></TR>
  <TR STYLE="background-color: White">
    <TD STYLE="vertical-align: top; padding-right: 0.05in; padding-left: 10pt; text-indent: -10pt">Working capital&#9;</TD>
    <TD STYLE="vertical-align: bottom; padding-right: 0.05in; padding-left: 0.05in; text-align: right">(3,642,575)</TD>
    <TD STYLE="vertical-align: bottom; padding-right: 0.05in; padding-left: 0.05in; text-align: right">&nbsp;</TD></TR>
  <TR STYLE="background-color: rgb(204,238,255)">
    <TD STYLE="vertical-align: top; padding-right: 0.05in; padding-left: 10pt; text-indent: -10pt">Total assets&#9;</TD>
    <TD STYLE="vertical-align: bottom; padding-right: 0.05in; padding-left: 0.05in; text-align: right">13,447,444</TD>
    <TD STYLE="vertical-align: bottom; padding-right: 0.05in; padding-left: 0.05in; text-align: right">&nbsp;</TD></TR>
  <TR STYLE="background-color: White">
    <TD STYLE="vertical-align: top; padding-right: 0.05in; padding-left: 10pt; text-indent: -10pt">Total liabilities&#9;</TD>
    <TD STYLE="vertical-align: bottom; padding-right: 0.05in; padding-left: 0.05in; text-align: right">14,598,791</TD>
    <TD STYLE="vertical-align: bottom; padding-right: 0.05in; padding-left: 0.05in; text-align: right">&nbsp;</TD></TR>
  <TR STYLE="background-color: rgb(204,238,255)">
    <TD STYLE="vertical-align: top; padding-right: 0.05in; padding-left: 10pt; text-indent: -10pt">Redeemable convertible preferred stock&#9;</TD>
    <TD STYLE="vertical-align: bottom; padding-right: 0.05in; padding-left: 0.05in; text-align: right">13,415,006</TD>
    <TD STYLE="vertical-align: bottom; padding-right: 0.05in; padding-left: 0.05in; text-align: right">&nbsp;</TD></TR>
  <TR STYLE="background-color: White">
    <TD STYLE="vertical-align: top; padding-right: 0.05in; padding-left: 10pt; text-indent: -10pt">Total stockholders&rsquo; equity (deficit)&#9;</TD>
    <TD STYLE="vertical-align: bottom; padding-right: 0.05in; padding-left: 0.05in; text-align: right">(14,566,353)</TD>
    <TD STYLE="vertical-align: bottom; padding-right: 0.05in; padding-left: 0.05in; text-align: right">&nbsp;</TD></TR>
  </TABLE>


<HR SIZE="1" NOSHADE ALIGN="LEFT" STYLE="width: 25%; color: black">

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 12pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.5in">(1)</TD><TD>Actual balance sheet data presents balance sheet data on an actual basis without any adjustments to reflect subsequent or anticipated
events.</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 12pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.5in">(2)</TD><TD>As adjusted balance sheet data presents balance sheet data on an as adjusted basis reflecting the receipt by us of the net proceeds
from the sale of shares of common stock in this offering at an assumed public offering price of $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
per share, which was the last reported sale price of our common stock on &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;,
2021 as quoted by the OTCQB Venture Market, after deducting the underwriting discount and estimated offering expenses payable by us.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 12pt; text-align: center"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 12pt; text-align: center"><B>RISK FACTORS</B></P>

<P STYLE="font: 10pt/12pt Times New Roman, Times, Serif; margin: 0; text-indent: 20pt"><I>An investment in our common stock involves a
high degree of risk. You should carefully consider the risk factors contained in our periodic reports filed with the SEC, including the
risks, uncertainties and assumptions discussed in Item 1A of our Annual Report on Form 10-K for the year ended December&nbsp;31, 2020
and in other documents that we subsequently file with the SEC that update, supersede or supplement such information, which are incorporated
by reference into this prospectus. Before deciding to invest in our common stock, you should carefully consider these risks, as well as
other information we include or incorporate by reference in this prospectus. See &ldquo;Where You Can Find More Information&rdquo; and
 &ldquo;Incorporation of Certain Documents by Reference&rdquo; of this prospectus.</I></P>

<P STYLE="font: 10pt/12pt Times New Roman, Times, Serif; margin: 0; text-indent: 20pt"><I>&nbsp;</I></P>

<P STYLE="font: 10pt/12pt Times New Roman, Times, Serif; margin: 0; text-indent: 20pt"><I>If any of the events described in these risk
factors actually occurs, or if additional risks and uncertainties that are not presently known to us or that we currently deem immaterial
later materialize, then our business, prospects, results of operations and financial condition could be materially adversely affected.
In that event, the trading price of our common stock could decline, and you may lose all or part of your investment in our common stock.
The risks discussed below include forward-looking statements, and our actual results may differ substantially from those discussed in
these forward-looking statements. See &ldquo;Cautionary Note Regarding Forward-Looking Statements.&rdquo; </I></P>

<P STYLE="font: 10pt/120% Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><B>Risks Related to Our Financial Condition</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0"><B><I>We have had limited liquidity as evidenced by our working capital
deficiency of $3.6 million at March&nbsp;31, 2021, and our future prospects are dependent on our ability to execute our business plan
of which there can be no assurance.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.25in">We
have incurred operating losses in 10 of the previous 11 years and negative cash flow from operations in eight of the previous 11 years.
As of March&nbsp;31, 2021, we had a working capital deficiency of $3.6 million, which is inclusive of current deferred revenue of $4.2
million, and a stockholders' deficit of $14.6 million. Our cash and cash equivalents at March&nbsp;31, 2021 was $2.0 million, an increase
of $1.0 million compared to March&nbsp;31, 2020.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.25in">There
is no assurance that we will be successful in executing our business plan either through generating sufficient revenue or continuing to
reduce operating costs. The failure to execute our business plan would have a material adverse effect on our results of operations and
or our ability to continue operations. In addition, to the extent that we continue to incur losses or want to expand our operations, we
may need to seek additional financing. There can be no assurance that we will be able to obtain additional financing. Moreover, it is
likely that the terms of the Amended and Restated Loan Agreement and series A preferred stock will make it more difficult for us to obtain
additional financing, and any additional financing could be dilutive to our stockholders.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><B><I>Our revenues decreased in 2020 compared to 2019.
Though our revenues increased during the three months ended March 31, 2021 as compared to the three months ended March 31, 2020, there
is no guarantee that we will be able or to maintain, profitability.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.25in">Despite
generating $1.1 million in net income for the fiscal year ended December&nbsp;31, 2020, our revenues decreased to $14.8 million for the
year ended December&nbsp;31, 2020, as compared with $16.5 million for the year ended December&nbsp;31, 2019. Though our net income for
the three months ended March 31, 2021 increased to $425,248 as compared with a loss of $<FONT STYLE="background-color: white">719,840
for the three months ended March 31, 2020, this increase reflected a gain on debt extinguishment of $754,000 due to the SBA&rsquo;s forgiveness
of the loan we received from Peapack-Gladstone Bank pursuant to the Paycheck Protection Program. </FONT>If we are unable to stabilize
or increase revenue, we will be unable to maintain profitability, we will deplete our available cash and we may not be able to continue
to fund effective sales and marketing or research and development activities on which we are dependent.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><B><I>We have undertaken a restructuring and other
cost reduction initiatives to reduce our expenses and to better align our expenses with our business. There can be no assurance that we
have made enough reductions or the right reductions.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.25in">&#9;For the past several years, we have taken several
actions to reduce expenses significantly in an attempt to help return our company to profitability. These actions include a reduction
in personnel; closing offices in geographic locations where our expenses have continued to outpace our revenue; and reducing other expenditures.
To date, the reduction in expenses has not been sufficient to ensure that we can meet our ongoing cash needs for the foreseeable future.
In addition, there can be no assurance that the reductions we have made are the right reductions for our business going forward. There
is a risk that the restructuring, cost cutting initiatives and reduction in personnel will continue to make it more difficult to grow
the business and service our customers.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.25in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><B><I>We may not be able to fully utilize our NOL
and other tax carryforwards, including as a result of this offering and subsequent offerings, which may have the effect of devaluing significant
deferred tax assets of the company.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><B><I>&nbsp;</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.25in">&#9;As of March 31, 2021, we had approximately $86.4
million of federal NOL carryforwards, $81.8 million of which will begin to expire in 2030 if not used to reduce taxable income. Our ability
to utilize NOLs and other tax carryforwards to reduce taxable income in future years could be limited for various reasons, including as
a result of one or more ownership changes under Section 382 (&ldquo;Section 382&rdquo;) of the Internal Revenue Code of 1986 (&ldquo;Code&rdquo;),
if future taxable income is insufficient to recognize the full benefit of such NOL carryforwards prior to their expiration and/or if the
IRS successfully asserts that a transaction or transactions were concluded with the principal purpose of evasion or avoidance of United
States federal income tax. There can be no assurance that we will have sufficient taxable income in later years to enable us to use the
NOLs before they expire, or that the IRS will not successfully challenge the use of all or any portion of the NOLs.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.25in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.25in">&#9;Section 382 subjects us to limitations in the
use of NOLs if we experience an &ldquo;ownership change.&rdquo; For the purposes of Section 382, an ownership change occurs if the aggregate
stock ownership of certain stockholders (generally 5% stockholders, applying certain look through and aggregation rules) increases by
more than 50% over such stockholders&rsquo; lowest percentage ownership during the &ldquo;testing period&rdquo;. It is possible that this
or any subsequent offering could trigger an ownership change under Section 382. If an ownership change occurs, we will be limited in our
ability to realize a tax benefit from the use of our deferred tax assets, whether or not we are profitable in future years. These consequences
include, without limitation, limiting the amount of federal NOL that can be used to offset taxable income to the Section 382 annual limitation.
Generally, the annual limitation equals the product of (i) the fair market value of all of our outstanding equity immediately prior to
the ownership change, multiplied by (ii) the applicable federal long-term, tax exempt rate.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.25in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.25in">&#9;In addition, if we have a net unrealized built-in
gain (generally determined by comparing market capitalization plus total liabilities to the adjusted tax basis of assets) at the time
of the ownership change, certain built-in gains recognized within five years after the ownership change (the &ldquo;recognition period&rdquo;)
may increase the amount of the otherwise available annual limitation. Any such recognized built-in gains that are unused may be carried
forward to later post-change years. Internal Revenue Service (&ldquo;IRS&rdquo;) Notice 2003-65 provides an approach which treats built-in
gain assets of our Company as generating recognized built-in gain each year without regard to whether such assets are not disposed of
at a gain during the recognition period. However, in September 2019 the IRS released proposed Section 382 regulations that would eliminate
the beneficial provisions of IRS Notice 2003-65. If finalized as proposed, these regulations would limit the increase in the annual Section
382 limitation for recognized built-in gains to those gains that are actually realized through the disposition of built-in gain assets.
These regulations have not been finalized but provide for an effective date of 30 days after the final regulations are published. For
transactions that have been announced to the public or for which a binding commitment has been entered into when the final regulations
are published, the provisions of IRS Notice 2003- 65 should still be available.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.25in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.25in">&#9;The unused portion of the recognized built-in
gain carries forward to later post-change years. We have not calculated any recognized built-in gain with respect to the potential ownership
change but we expect to do so subsequent to such ownership change and would expect to apply for such recognition.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.25in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><B><I>The Protective Provision (as defined below)
contained in our certificate of incorporation, which is intended to help preserve the value of certain income tax assets, primarily tax
net operating loss carryforwards, may have unintended negative effects.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><B><I>&nbsp;</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.25in">&#9;Pursuant to Code Sections 382 and 383, use of
our NOLs may be limited by an &ldquo;ownership change&rdquo; as defined under Section 382 of the Code, and the Treasury Regulations thereunder.
In order to protect our company&rsquo;s significant NOLs, we included a provision to protect our NOLs in our certificate of incorporation
(the &ldquo;Protective Provision&rdquo;).</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.25in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.25in">&#9;The Protective Provision is designed to assist
us in protecting the long-term value of our accumulated NOLs by limiting certain transfers of our common stock. The Protective Provision&rsquo;s
transfer restrictions generally restrict any direct or indirect transfers (defined to exclude primary offerings of our common stock effected
by the company) of the common stock if the effect would be to increase the direct or indirect ownership of our common stock by any person
from less than 4.99% to 4.99% or more of our common stock, or increase the percentage of our common stock owned directly or indirectly
by a person owning or deemed to own 4.99% or more of our common stock (with percentage ownership determined under applicable United States
federal income tax rules). Any direct or indirect transfer attempted in violation of the Protective Provision will be void as of the date
of the prohibited transfer as to the purported transferee.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.25in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.25in"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.25in">&#9;The Protective Provision may have an unintended
 &ldquo;anti-takeover&rdquo; effect because our board of directors may be able to prevent any future takeover. Similarly, any limits on
the amount of stock that a shareholder may own could have the effect of making it more difficult for shareholders to replace current management.
Additionally, because the Protective Provision may have the effect of restricting a shareholder&rsquo;s ability to dispose of or acquire
our common stock, the liquidity and market value of our common stock might suffer.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><B><I>&nbsp;</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><B>Risks Related to Our Business, Products and Operations</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><B><I>Our future business, financial and operating
results are substantially dependent on market acceptance of our products.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.25in">We have spent considerable resources, both financially
and in our research and development efforts, developing VTL, StorSafe, CDP and NSS. We currently do not have any other products in our
pipeline with the same expectations that we had or which we believe have the same potential for market acceptance as VTL, StorSafe, CDP
and NSS. If (i) either VTL, StorSafe, CDP and NSS do not gain additional market acceptance, (ii) sales of either VTL, StorSafe, CDP and
NSS do not increase, or (iii) the ongoing future feature/functionality sets of both products are delayed, our results may suffer and
it could have a material adverse effect on our business, financial condition and operating results.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0"><B><I>The effects of the COVID-19 pandemic have materially affected and
will continue to materially affect how we and our customers are operating our businesses, and the duration and extent to which this will
impact our future results of operations and overall financial performance remains uncertain.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.25in">&#9;As a result of the COVID-19 pandemic, we temporarily
closed our office locations, introduced remote working for many of our employees that remains in effect, and implemented certain travel
restrictions, all of which has caused disruptions to how we operate our business. Our operations have been negatively affected by a range
of external factors related to the COVID-19 pandemic that are not within our control. Many of our customers are non-essential businesses
within the meaning of applicable regulations that have been forced, in some jurisdictions, to temporarily suspend or greatly reduce operations,
resulting in a lay off or termination of workers. This has had a direct impact on our revenue, as this results in a decrease in overall
product spend by our customers. Additionally, we have shifted certain of our customer events to virtual-only experiences and we may deem
it advisable to similarly alter, postpone or cancel entirely additional customer, employee or industry events in the future. The conditions
caused by the COVID-19 pandemic have affected and may continue to affect the rate of IT spending and our customer's ability or willingness
to attend our events or to purchase our offerings, our prospective customers' purchasing decisions, our ability to provide on-site consulting
services to our customers and the provisioning of our offerings, and may lengthen payment terms, reduce the value or duration of our contracts,
or affect attrition rates, all of which has and may continue to adversely affect our future sales, operating results and overall financial
information.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><B><I>The loss of any of our key personnel could harm
our business.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.25in">&#9;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,
and worldwide competition for skilled employees in the network storage software industry is intense. In particular, our success is dependent
on our executive management team, including Todd Brooks, our Chief Executive Officer. If we are unable to retain existing employees or
hire and integrate new employees, our business, financial condition and operating results could suffer.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0"><B><I>Due to the uncertain and shifting development of the data protection
and network storage software markets and our reliance on our partners, we may have difficulty accurately predicting revenue for future
periods and appropriately budgeting for expenses.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.25in">&#9;The rapidly evolving nature of the data protection
and network storage software markets in which we sell our products, the degrees of effort and success of our partners&rsquo; 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.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.25in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0"><B><I>If we are unable to develop new products that achieve acceptance
in the data protection and the network storage software markets, our operating results may suffer.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.25in"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.25in">&#9;The data protection and the network storage software
markets continue to evolve, and as a result, there is continuing demand for new products. Accordingly, we may need to develop new products
that address additional data protection or 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 data protection or network storage software
products with our customers by meeting customer performance and quality specifications. Any failure to address additional market segments
could harm our business, financial condition and operating results.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><B><I>Our products must conform to industry standards
in order to be accepted by customers in our markets.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.25in">&#9;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 and we may be required to invest considerable resources to shifting our products to meet such industry standards, either of
which could adversely affect our business.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><B><I>Our products handle mission-critical data for
our end-customers and are highly technical in nature. If our products have defects, failures occur or end-customer data is lost or corrupted,
our reputation and business could be harmed.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.25in">&#9;Our products are highly technical and complex
and are involved in storing and replicating mission-critical data for our end-customers. Our products may contain undetected defects and
failures when they are first introduced or as new versions are released. We have in the past and may in the future discover software errors
in new versions of our existing products, new products or product enhancements after their release or introduction, which could result
in lost revenue. Despite testing by us and by current and potential end-customers, errors might not be found in new releases or products
until after commencement of commercial shipments, resulting in loss of or delay in market acceptance. Our products may have security vulnerabilities
and be subject to intentional attacks by viruses that seek to take advantage of these bugs, errors or other weaknesses. If defects or
failures occur in our products, a number of negative effects in our business could result, including:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.25in">&nbsp;</P>

<P STYLE="text-indent: 0.25in; font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&bull; lost revenue or lost end-customers;</P>

<P STYLE="text-indent: 0.25in; font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&bull; increased costs, including warranty expense
and costs associated with end-customer support;</P>

<P STYLE="text-indent: 0.25in; font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&bull; delays, cancellations, reductions or rescheduling
of orders or shipments;</P>

<P STYLE="text-indent: 0.25in; font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&bull; product returns or discounts;</P>

<P STYLE="text-indent: 0.25in; font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&bull; diversion of management resources;</P>

<P STYLE="text-indent: 0.25in; font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&bull; legal claims for breach of contract, product
liability, tort or breach of warranty; and</P>

<P STYLE="text-indent: 0.25in; font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&bull; damage to our reputation and brand.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.25in">Because
our end-customers use our products to manage and protect their data, we could face claims resulting from any loss or corruption of our
end-customers&rsquo; data due to a product defect. While our sales contracts contain provisions relating to warranty disclaimers and liability
limitations, these provisions might not be upheld. Defending a lawsuit, regardless of its merit, is costly and may divert management&rsquo;s
attention from our business and could result in public perception that our products are not effective, even if the occurrence is unrelated
to the use of our products. In addition, our business liability insurance coverage might not be adequate to cover such claims. If any
data is lost or corrupted in connection with the use or support of our products, our reputation could be harmed and market acceptance
of our products could suffer.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><B><I>We rely on our resellers and our OEM partners
for most of our sales.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.25in">&#9;The vast majority of our sales to end users come
from sales by our resellers and by our OEM partners. These resellers and OEM partners have limited resources and sales forces and sell
many different products, both in the data protection and the network storage software markets and in other markets. The resellers and
OEM partners may choose to focus their sales efforts on other products in the data protection and the network storage software markets
or other markets. The OEM partners might also choose not to continue to develop or to market products which include our products. This
would likely result in lower revenue to us and would impede our ability to grow our business.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><B><I>The failure of our resellers to sell our products
effectively could have a material adverse effect on our revenue and results of operations.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.25in"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.25in">&#9;We rely significantly on our value-added resellers,
direct market resellers, systems integrators and corporate resellers, which we collectively refer to as resellers, for the marketing and
distribution of our software products and our 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 products that are competitive
with ours. These resellers may give a higher priority to other products, including those of our competitors, or may not continue to carry
our products at all. If a number of resellers were to discontinue or reduce the sales of our products, or were to promote our competitors&rsquo;
products in lieu of ours, it would have a material adverse effect on our future revenue. 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 revenue in the future.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.25in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><B><I>Our growth depends in part on the success of
our strategic relationships with third parties.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.25in">&#9;Our future growth will depend on our ability to
enter into successful strategic relationships with third parties. For example, our strategic relationships with DSI, Fujitsu and Hitachi
Vantara are intended to enhance their software stack in order to offer data movement and protection services on their platform. In addition,
we work with global distributors to streamline and grow our sales channel. These relationships may not result in additional customers
or enable us to generate significant revenue. These relationships are typically non-exclusive and do not prohibit the other party from
working with our competitors or from offering competing services. If we are unsuccessful in establishing or maintaining our relationships
with these third parties, our ability to compete in the marketplace or to grow our revenue could be impaired and our operating results
could suffer.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><B><I>We rely on channel partners to sell our solutions,
and disruptions to, or our failure to develop and manage our channel partners would harm our business.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.25in">&#9;Our future success is partially dependent upon
establishing and maintaining successful relationships with the right channel partners. A majority of our revenue is generated by sales
through our channel partners, and we expect channel sales to continue to make up the majority of our total revenue in the future. Accordingly,
our revenue is largely dependent on the effective sales and lead generation activities of these channel partners.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.25in">&#9;Recruiting and retaining qualified channel partners
and training them in our technology and product offerings requires significant time and resources. In order to develop and expand our
distribution channel, we must continue to scale and improve our processes and procedures that support our channel, including investment
in systems and training. Those processes and procedures may become increasingly complex and difficult to manage as we grow our organization.
We have no minimum purchase commitments from any of our channel partners, and our contracts with these channel partners do not prohibit
them from offering products or services that compete with ours. Our competitors may provide incentives to existing and potential channel
partners to favor their products or to prevent or reduce sales of our solutions. Our channel partners may choose not to offer our solutions
exclusively or at all. Establishing relationships with channel partners who have a history of selling our competitors&rsquo; products
may also prove to be difficult. In addition, some of our channel partners are also competitors. Our failure to establish and maintain
successful relationships with channel partners would harm our business and operating results.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><B><I>&nbsp;</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><B><I>We face intense competition in our market, especially
from larger, well-established companies, and we may lack sufficient financial or other resources to maintain or improve our competitive
position.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.25in">A number of very large corporations have historically
dominated the data management market. We consider our primary competitors to be companies that provide enterprise storage products, including
Dell Inc., Hitachi Vantara, Hewlett-Packard Company, IBM, CommVault, DataCore and Nexenta. We also compete to a lesser extent with a number
of other private companies and certain other well-established companies. Some of our competitors have made acquisitions of businesses
that allow them to offer more directly competitive and comprehensive solutions than they had previously offered. In addition, the emergence
of cloud computing and software-defined-storage may impact both short-term and long-term growth patterns in the markets in which we compete.
We expect to encounter new competitors domestically and internationally as other companies enter our market or if we enter new markets.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.25in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in">Many of our existing competitors
have, and some of our potential competitors could have, substantial competitive advantages such as:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.5in; text-align: justify; text-indent: -0.25in">&bull; potential for
broader market acceptance of their storage architectures and solutions;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.5in; text-align: justify; text-indent: -0.25in">&bull; greater name
recognition and longer operating histories;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.5in; text-align: justify; text-indent: -0.25in">&bull; larger sales
and marketing and customer support budgets and resources;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.5in; text-align: justify; text-indent: -0.25in">&bull; broader distribution
and established relationships with distribution partners and end-customers;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.5in; text-align: justify; text-indent: -0.25in">&bull; the ability
to bundle storage products with other technology products and services, or offer a broader range of storage solutions to better fit certain
customers&rsquo; needs;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.5in; text-align: justify; text-indent: -0.25in">&bull; lower labor
and development costs;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.5in; text-align: justify; text-indent: -0.25in">&bull; larger and
more mature intellectual property portfolios;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.5in; text-align: justify; text-indent: -0.25in">&bull; substantially
greater financial, technical and other resources; and</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.5in; text-align: justify; text-indent: -0.25in">&bull; greater resources
to make acquisitions.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0"><B><I>Our ability to sell our products 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 effect
on our sales of our products and results of operations.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.25in">Our services include the assessment and design of
solutions to meet our customers&rsquo; data protection and storage management requirements and the efficient installation and deployment
of our products based on specified business objectives. Further, once our products are deployed, our customers depend on us to resolve
issues relating to our products. A high level of service is critical for the successful marketing and sale of our software. If our partners
or we 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 our products and results of operations.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><B><I>Failure to achieve anticipated growth could
harm our business and operating results.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.25in">Achieving our anticipated growth will depend on a
number of factors, some of which include retention of key management, marketing and technical personnel, our ability to increase our
customer base and to increase the sales of our products and 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.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><B><I>Adverse economic conditions or reduced IT spending
may adversely impact our business.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.25in">&#9;Our business depends on the overall demand for
IT and on the economic health of our current and prospective customers. In general, worldwide economic conditions remain unstable, and
these conditions make it difficult for our current and prospective customers and us to forecast and plan future business activities accurately,
and they could cause our customers or prospective customers to reevaluate their decision to purchase our products or services. Also, global
or national health concerns, including the outbreak of pandemic or contagious disease such as COVID-19, can negatively impact the global&nbsp;economy&nbsp;and
demand for our services. Weak global economic conditions, or a reduction in IT spending even if economic conditions improve, could adversely
impact our business and operating results in a number of ways, including longer sales cycles, lower prices for our products, reduced bookings
and lower or no growth.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.25in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><B><I>Our future quarterly results may fluctuate significantly,
which could cause our stock price to decline.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.25in">&#9;Our previous results are not necessarily indicative
of our future performance and our future quarterly results may fluctuate significantly. Our future performance will depend on many factors,
including:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.25in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.5in; text-align: justify; text-indent: -0.25in">&bull; fluctuations
in the economy;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.5in; text-align: justify; text-indent: -0.25in">&bull; the timing
of securing software license contracts and the delivery of software and related revenue recognition;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.5in; text-align: justify; text-indent: -0.25in">&bull; the seasonality
of information technology, including network storage products, spending;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.5in; text-align: justify; text-indent: -0.25in">&bull; the average
unit selling price of our products;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.5in; text-align: justify; text-indent: -0.25in">&bull; existing or
new competitors introducing better products at competitive prices before we do;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.5in; text-align: justify; text-indent: -0.25in">&bull; our ability
to manage successfully the complex and difficult process of qualifying our products with our customers;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.5in; text-align: justify; text-indent: -0.25in"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.5in; text-align: justify; text-indent: -0.25in">&bull; new products
or enhancements from us or our competitors;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.5in; text-align: justify; text-indent: -0.25in">&bull; our ability
to release new and innovative products;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.5in; text-align: justify; text-indent: -0.25in">&bull; import or export
restrictions on our proprietary technology; and</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.5in; text-align: justify; text-indent: -0.25in">&bull; personnel changes.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in">&#9;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.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><B><I>The ability to predict our future effective
tax rates could impact our ability to accurately forecast future earnings.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 125.85pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.25in">&#9;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 earnings or losses, changes in the valuation of our deferred tax assets and changes in tax laws, among other factors.
Our ability to correctly predict our future effective tax rates based upon these possible changes could significantly impact our forecasted
earnings.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><B><I>Our business could be materially affected as
a result of a natural disaster, terrorist acts or other catastrophic events.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.25in">&#9;While our headquarter 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. 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.
We continually look for alternatives to help mitigate any supply chain disruptions due to natural disasters, terrorist acts or other catastrophic
events, including public health epidemics such as COVID-19, first identified in China. However, our failure to mitigate these supply chain
disruptions could impact our ability to procure and deliver products to our customers, which could adversely impact our overall financial
condition.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0"><B><I>We are dependent on a variety of IT and telecommunications systems,
and any failure of these systems could adversely impact our business and operating results.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.25in">&#9;We depend on IT and telecommunications systems
for our operations. These systems support a variety of functions including order processing, shipping, shipment tracking, billing, support
center and internal information exchange. Failures or significant downtime of our IT or telecommunications systems could prevent us from
taking customer orders, shipping products, billing customers, handling support calls, or communication among our offices. The internet
and individual websites have experienced a number of disruptions and slowdowns, some of which were caused by organized attacks. In addition,
some websites have experienced security breakdowns. If we were to experience a security breakdown, disruption or breach that compromised
sensitive information, it could harm our relationship with our customers. Our support centers are dependent upon telephone and data services
provided by third party telecommunications service vendors and our IT and telecommunications system. Any significant increase in our IT
and telecommunications costs or temporary or permanent loss of our IT or telecommunications systems could harm our relationships with
our customers. The occurrence of any of these events could have an adverse effect on our operations and financial results.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><B><I>United States government export restrictions
could impede our ability to sell our software to certain end users.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.25in">&#9;Certain of our products enable 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. As a result, certain of our products are subject to various levels of export restrictions, which could
negatively impact our business.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><B><I>The international nature of our business could
have an adverse effect on our operating results.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.25in">&#9;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.
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 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.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><B><I>Foreign currency fluctuations may impact our
revenue.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.25in">&#9;Our licenses and services in Japan are sold in
Yen. Many of our licenses and services in Australia, Canada, and in Europe are sold in Australian dollars, Canadian dollars and European
Monetary Units (or Euros), respectively. Changes in economic or political conditions globally and in any of the countries in which we
operate could result in exchange rate movements, new currency or exchange controls or other restrictions being imposed on our operations.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.25in">&#9;Fluctuations in the value of the U.S. dollar may
adversely affect our results of operations. Because our consolidated financial results are reported in U.S. dollars, translation of sales
or earnings generated in other currencies into U.S. dollars can result in a significant increase or decrease in the reported amount of
those sales or earnings. Significant changes in the value of these foreign currencies relative to the U.S. dollar could have a material
adverse effect on our financial condition or results of operations. Fluctuations in currencies relative to currencies in which our earnings
are generated make it more difficult to perform period-to-period comparisons of our reported results of operations. For purposes of accounting,
the assets and liabilities of our foreign operations, where the local currency is the functional currency, are translated using period-end
exchange rates, and the revenue, expenses and cash flows of our foreign operations are translated using average exchange rates during
each period.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.25in">&#9;In addition to currency translation risks, we
incur currency transaction risk whenever we enter into either a purchase or a sales transaction using a currency other than the local
currency of the transacting entity. Given the volatility of exchange rates, we cannot be assured we will be able to effectively manage
our currency transaction and/or translation risks. Volatility in currency exchange rates may have a material effect on our financial condition
or results of operations. Currency exchange rate fluctuations have not, in the past, resulted in a material impact on earnings. However,
we may experience at times in the future an impact on earnings as a result of foreign currency exchange rate fluctuations.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><B><I>If we are unable to protect our intellectual
property, our business will suffer.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.25in">&#9;Our success is dependent upon our proprietary
technology. We have 36 issued patents, 5 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 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.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.25in">&#9;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 and if we are unable to protect our intellectual
property our business and operating results may suffer.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.25in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in; background-color: white; color: #0E101A">FalconStor
generally enters into confidentiality or license agreements with employees, consultants, and corporate partners and generally controls
access to and distribution of its software, documentation, and other proprietary information. Despite the Company&rsquo;s efforts to protect
its proprietary rights, unauthorized parties may attempt to copy or otherwise obtain and use FalconStor&rsquo;s products or technology.
Monitoring unauthorized use of FalconStor&rsquo;s products is difficult, and there can be no assurance that the steps FalconStor has taken
will prevent misappropriation of its technology, particularly in foreign countries where laws may not protect its proprietary rights as
fully as do the laws of the United States.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.25in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0"><B><I>Our efforts to protect our intellectual property may cause us to
become involved in costly and lengthy litigation, which could seriously harm our business.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.25in">&#9;In recent years, there has been significant litigation
in the United States involving patents, trademarks and other intellectual property rights. Any litigation, regardless of its outcome,
would likely be time consuming and expensive to resolve and would divert management&rsquo;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 or our products could force us to take specific actions (any of which could have a material adverse effect on our business), including:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.5in; text-align: justify; text-indent: -0.25in">&bull; ceasing to
sell our products that use the challenged intellectual property;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.5in; text-align: justify; text-indent: -0.25in">&bull; obtaining 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;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.5in; text-align: justify; text-indent: -0.25in">&bull; redesigning
those products that use infringing intellectual property or ceasing to use an infringing product or trademark; or</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.5in; text-align: justify; text-indent: -0.25in">&bull; indemnifying
software licensees against allegations that our products infringe on a third party&rsquo;s intellectual property rights or misappropriates
trade secrets.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><B><I>&nbsp;</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><B><I>Cyberattacks and breaches could cause operational
disruptions, fraud or theft of sensitive information.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.25in">Aspects of our operations are reliant upon internet-based
activities, such as ordering supplies and back-office functions such as accounting and transaction processing, making and accepting payments,
processing payroll and other administrative functions. Although we have taken measures to protect our technology systems and infrastructure,
including employee education programs regarding cybersecurity, a breach of the security surrounding these functions could result in operational
disruptions, theft or fraud, or exposure of sensitive information to unauthorized parties. Such events could result in additional costs
related to operational inefficiencies, or damages, claims or fines.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0"><B><I>Developments limiting the availability of Open Source software could
impact our ability to deliver products and could subject us to costly litigation.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.25in">Many
of our products are designed to include software or other intellectual property licensed from third parties, including &ldquo;Open Source&rdquo;
software. At least one intellectual property rights holder has alleged that it holds the rights to software traditionally viewed as Open
Source. In addition, United States courts have not interpreted the terms of many open source licenses, and there is a risk that such licenses
could be construed in a manner that could impose unanticipated conditions or restrictions on our ability to commercialize our appliances.
We could be required to seek licenses from third parties in order to continue offering our software, to re-engineer our software, to discontinue
the sale of our software in the event re-engineering cannot be accomplished on a timely basis or to litigate any disputes relating to
our use of open source software, any of which could harm our business. 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.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><B>Risks Related to Our Preferred Stock and Debt</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><B><I>Our obligations under the series A preferred
stock and indebtedness could adversely affect our financial health. </I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.25in">&#9;The holders of our outstanding series A preferred
stock, the majority of which is held by Hale Capital, have a mandatory redemption right as of July 30, 2021, which, as of March 31, 2021,
would require the payment of approximately $13.6 million if the mandatory redemption right is exercised in full, provided that such redemption
right cannot be exercised without the approval of Hale Capital. As described further below, Hale Capital has agreed not to exercise the
mandatory redemption right of the series A preferred stock until at least July 30, 2023 pursuant to the Redemption Extension Letter Agreement.
In addition, as of March 31, 2021, we have outstanding principal indebtedness of $3,510,679 pursuant to the terms of our Amended and Restated
Term Loan Credit Agreement, dated as of February 23, 2018, as amended December 27, 2019, by and among our company, HCP-FVA, EW Capital,
LLC, the lenders party thereto and the other loan parties named therein, (as amended, the &ldquo;Amended and Restated Loan Agreement&rdquo;),
for which HCP-FVA agreed to extend the maturity date of the portion of the borrowings owed to HCP-FVA to June 30, 2023 pursuant to the
Loan Extension Letter Agreement.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in">In
connection with this offering, Hale Capital has agreed not to exercise the redemption of the series A preferred stock until at least July
30, 2023, with such extension to be included in an amendment to the Certificate of Designation to be proposed for shareholder approval
at our next annual shareholder meeting pursuant to the Redemption Extension Letter Agreement. In addition, Hale Capital has entered into
the Loan Extension Letter Agreement with us, which provides for an extension of the maturity date to June 30, 2023 on $2,176,621 principal
amount of indebtedness owed to Hale Capital under the Amended and Restated Loan Agreement to June 30, 2023 We believe our current cash
balances together with anticipated cash flows from operating activities, the extension of the maturity date of the borrowings owed to
HCP-FVA, and Hale Capital&rsquo;s agreement not to exercise the redemption of the series A preferred stock until at least July 30, 2023
will be sufficient to meet our working capital requirements for at least one year from the date of this prospectus.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.25in">&#9;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.25in"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.25in">&#9;Our obligations under the series A preferred stock
and indebtedness could have important consequences to you in the future. For example, it could:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.25in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.5in; text-align: justify; text-indent: -0.25in">&bull; increase our
vulnerability to general adverse economic and industry conditions;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.5in; text-align: justify; text-indent: -0.25in">&bull; make it more
difficult for us to satisfy our other financial obligations;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.5in; text-align: justify; text-indent: -0.25in">&bull; restrict us
from making strategic acquisitions or cause us to make non-strategic divestitures;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.5in; text-align: justify; text-indent: -0.25in">&bull; require us
to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness, thereby reducing the availability
of our cash flow to fund working capital, capital expenditures and other general corporate purposes;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.5in; text-align: justify; text-indent: -0.25in">&bull; make it more
difficult for us to satisfy our obligations to our lenders, resulting in possible defaults on and acceleration of such indebtedness;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.5in; text-align: justify; text-indent: -0.25in">&bull; limit our flexibility
in planning for, or reacting to, changes in our business and the industry in which we operate;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.5in; text-align: justify; text-indent: -0.25in">&bull; place us at
a competitive disadvantage compared to our competitors that have less debt; and</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.5in; text-align: justify; text-indent: -0.25in">&bull; limit our ability
to borrow additional funds or increase our cost of borrowing.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.5in; text-align: justify; text-indent: -0.25in">&nbsp;&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.25in">&#9;In addition, the terms of the Amended and Restated
Loan Agreement contain restrictive covenants that limit our ability to engage in activities that may be in our long-term best interests
which could have a material adverse effect on our business, financial condition or prospects.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 12pt"><B><I>To service our indebtedness, we will require a significant
amount of cash. Our ability to generate cash depends on many factors beyond our control. As such, we may not be able to generate sufficient
cash to service our Term Notes (as defined below) or our other indebtedness, and may be forced to take other actions to satisfy our obligations
under our indebtedness, which may not be successful.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.25in">&#9;Our ability to make payments on and to refinance
the term notes under our Amended and Restated Loan Agreement (the &ldquo;Term Notes&rdquo;) to fund planned capital expenditures, maintain
sufficient working capital and fund any redemption of our series A preferred stock will depend on our ability to generate cash in the
future. Our ability to generate cash is, to a certain extent, subject to general economic, financial, competitive, legislative, regulatory
and other factors that are beyond our control.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.25in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.25in">&#9;We cannot assure you that our business will generate
sufficient cash flow from operations or future borrowings from other sources in an amount sufficient to enable us to service our obligations
under the Amended and Restated Loan Agreement or our series A preferred stock, or to fund our other liquidity needs. If our cash flows
and capital resources are insufficient to allow us to make scheduled payments on our indebtedness, we may need to reduce or delay capital
expenditures, sell assets, seek additional capital, restructure or refinance the Term Notes, on or before the maturity thereof or seek
a waiver of any redemption rights under our series A preferred stock, any of which could have a material adverse effect on our operations.
We cannot assure you that we will be able to refinance the Term Notes, on commercially reasonable terms or at all, or that the terms of
that indebtedness will allow any of the above alternative measures or that these measures would satisfy our scheduled debt service obligations.
If we are unable to generate sufficient cash flow to repay or refinance our debt on favorable terms, it could significantly adversely
affect our financial condition, and our ability to make any required cash payments under our Term Notes or fund any redemption of our
series A preferred stock. Our ability to restructure or refinance our debt will depend on the condition of the capital markets and our
financial condition at that time. Any refinancing of our debt could be at higher interest rates and may require us to comply with more
onerous covenants, which could further restrict our business operations. In addition, any future credit facility may be secured by a priority
lien on substantially all of our assets. As such, our ability to refinance our Term Notes or seek additional financing could be impaired
as a result of such security interest.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><B><I>We are subject to a number of covenants and
other conditions, which may restrict our business and financing activities.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.25in">&#9;The Amended and Restated Loan Agreement has customary
representations, warranties and affirmative and negative covenants. The Amended and Restated Loan Agreement also contains customary events
of default, including but not limited to payment defaults, cross defaults with certain other indebtedness, breaches of covenants, bankruptcy
events and a change of control. In the case of an event of default, as administrative agent under the Amended and Restated Loan Agreement,
HCP-FVA may (and upon the written request of lenders holding in excess of 50% of the Term Loan (as defined in the Amended and Restated
Loan Agreement), which must include HCP-FVA, is required to) accelerate payment of all obligations under the Amended and Restated Loan
Agreement, and seek other available remedies.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.25in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.25in"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.25in">&#9;The restrictions in the Amended and Restated Loan
Agreement may prevent us from taking actions that we believe would be in the best interests of our business, and may make it difficult
for us to successfully execute our business strategy or effectively compete with companies that are not similarly restricted. In addition,
our ability to comply with the financial and other covenants and restrictions in the Amended and Restated Loan Agreement will largely
depend on the pricing of our products and services, and our ability to successfully implement our overall business strategy. We cannot
assure you that we will be granted waivers or amendments to the Amended and Restated Loan Agreement if for any reason we are unable to
comply with these covenants and restrictions. The breach of any of these covenants and restrictions could result in a default under the
Amended and Restated Loan Agreement, which could result in an acceleration of our indebtedness.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0"><B><I>Our agreements with the holders of our series&nbsp;A preferred stock
and/or the Amended and Restated Loan Agreement contain covenants that could limit our ability to obtain financing using our equity. In
addition, if we engage in future financings, we may have to use the proceeds to redeem the preferred stock held by such holders. This
could cause us to have difficulty in obtaining capital necessary to run our business.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.25in">&#9;Our agreements with the holders of our series&nbsp;A
preferred stock and the Amended and Restated Loan Agreement give such holders and lenders, as applicable, consent rights over certain
future financings, Because of these covenants, if we determine that we are in need of additional capital, we will require the prior consent
of the holders of our series A preferred stock and the lenders party to the Amended and Restated Loan Agreement to do so. In addition,
our agreements with the holders of the series&nbsp;A preferred stock provide that if, at the time of certain future debt or equity financings,
the proceeds of which exceed $5 million, the holders of the series&nbsp;A preferred stock still have outstanding series&nbsp;A preferred
stock, then we must offer to repurchase their series&nbsp;A preferred stock. The holders of the series&nbsp;A preferred stock have the
right to accept the offer or to retain their series&nbsp;A preferred stock. If we do a financing, and the holders of the series&nbsp;A
preferred stock elect to have their series&nbsp;A preferred stock repurchased, then the capital raised in excess of $5 million will go
to repurchase the holders&rsquo; series&nbsp;A preferred stock, instead of being able to be used for our business.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0"><B><I>Our agreements with the holders of our series&nbsp;A preferred stock
and the Amended and Restated Loan Agreement prevent us from undertaking certain transactions or incurring certain indebtedness without
such holders&rsquo; consent or unless the series&nbsp;A preferred stock held by such holders is repurchased and/or the Term Loan is repaid.
This could hurt our ability to sell underperforming assets or lines of business or to obtain financing.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.25in">&#9;Our agreements with the holders of our series&nbsp;A
preferred stock and the Amended and Restated Term Loan Agreement prevent us from undertaking certain transactions or incurring certain
debt without such holders&rsquo; consent or unless the series&nbsp;A preferred stock held by such holders&rsquo; is repurchased and/or
the Term Loan is repaid. These transactions include, but are not limited to:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 13.5pt">&#9;&bull; a merger with, or
the sale of substantially all of our assets or capital stock, to a third party;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 13.5pt">&#9;&bull; assumption of indebtedness
in excess of 80% of our accounts receivable; and</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 13.5pt">&#9;&bull; the sale, license
or other disposition of 10% or more of our tangible assets or capital stock.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.25in">This
could limit our ability to sell off underperforming assets or business lines. It could also prevent us from obtaining financing we may
need to run or to grow our business.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0"><B><I>The holders of our series&nbsp;A preferred stock are entitled to
dividends on the series&nbsp;A preferred stock they hold. Depending on whether these dividends are paid in cash or stock, the payment
of these dividends will either decrease cash that is available to us to invest in our business or dilute the holdings of all other stockholders.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.25in">&#9;Our agreements with the holders of our series&nbsp;A
preferred stock provide that such holders will receive quarterly dividends on the series&nbsp;A preferred stock at prime rate plus 5%,
subject to a maximum dividend rate of 10%. We also have the ability to accrue and roll over dividends. Due to the lack of sufficient surplus
to pay dividends as required by the Delaware General Corporation Law, we were not permitted to pay the fourth quarter 2016 dividend in
cash or common stock and have been accruing the quarterly dividends since then. As of March 31, 2021, our liability for dividends to the
holders of the series&nbsp;A preferred stock totaled $4.6 million. While the Term Loan is outstanding, we are only permitted to pay in-kind
dividends on the series A preferred stock. If in the future we pay cash dividends on the series A preferred stock, it will reduce the
cash that we have available to invest in our business. There can be no assurance that we will have enough cash to pay future dividends
in cash. If future dividends are paid in kind, it will dilute the holdings of all other stockholders.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.25in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 11pt; text-align: center"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 11pt; text-align: center"><B>Risks Related to this Offering and our Common
Stock</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 11pt"><B><I>Our stock price may be volatile and your investment could
decline in value.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 11pt; text-indent: 0.25in">The market price of our common stock has been
volatile in the past and may be volatile in the future. For example, during the quarter ended March&nbsp;31, 2021, the closing market
price of our common stock as quoted by the OTCQB Venture Market fluctuated between a low of $3.77 and a high of $7.00 per share and, on
of June &nbsp;&nbsp;&nbsp;, 2021, was $ &nbsp;&nbsp;&nbsp;&nbsp;&nbsp; per share. These fluctuations could cause you to lose all or part
of the value of your investment in our common stock. Factors that could cause fluctuations in the market price of our common stock include
the following:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.5in; text-align: justify; text-indent: -0.25in">&bull; actual or anticipated
fluctuations in our operating results, including changes in the timing of when we recognize revenue;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.5in; text-align: justify; text-indent: -0.25in">&bull; failure to
meet financial estimates;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.5in; text-align: justify; text-indent: -0.25in">&bull; changes in
market valuations of other technology companies, particularly those in the network storage software market;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.5in; text-align: justify; text-indent: -0.25in">&bull; the announcement
of any strategic alternatives;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.5in; text-align: justify; text-indent: -0.25in">&bull; announcements
by us or our competitors of significant technical innovations, acquisitions, strategic partnerships, strategic alternatives, joint ventures
or capital commitments;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.5in; text-align: justify; text-indent: -0.25in">&bull; loss of one
or more key customers;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.5in; text-align: justify; text-indent: -0.25in">&bull; the conversion
or exercise into common stock of stock options, the vesting of restricted stock and the anticipated grant of equity to employees;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.5in; text-align: justify; text-indent: -0.25in">&bull; the issuance
of additional shares of the series&nbsp;A preferred stock pursuant to dividend rights; and</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.5in; text-align: justify; text-indent: -0.25in">&bull; departures
of key personnel.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.25in">&#9;In addition, the stock market in general has experienced
significant price and volume fluctuations that have often been unrelated or disproportionate to operating performance of individual companies.
These broad market factors may seriously harm the market price of our common stock, regardless of our operating performance. In the past,
following periods of volatility in the market price of a company&rsquo;s securities, securities class action litigation has often been
instituted. A class action suit against us could result in significant liabilities and, regardless of the outcome, could result in substantial
costs and the diversion of our management&rsquo;s attention and resources.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.25in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0"><B><I>There may be a limited public market for our securities; we presently
fail to qualify for listing on any national securities exchange.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.25in">&#9;Trading in our common stock is conducted in the
over-the-counter market. We currently <FONT STYLE="font-family: inherit,serif">do not meet all of the requirements for an initial listing
</FONT>on either the NASDAQ Capital Market or the NYSE American. <FONT STYLE="font-family: inherit,serif">Specifically, the bid price
of our common stock is less than the minimum bid price required to obtain a listing. </FONT>As a result, the liquidity in our stock is
substantially lower than it would otherwise be and an investor may find it difficult to dispose of or to obtain accurate quotations as
to the market value of our common stock. Additionally, our common stock may be less attractive for margin loans for investment by larger
financial institutions or as consideration in possible future acquisition transactions. <FONT STYLE="font-family: inherit,serif">This
reduces the general demand for our common stock despite any future positive trends to our business outlook, results of operations or financial
condition. </FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.25in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 8pt"><B><I>Investors purchasing common stock in this offering will experience
immediate dilution</I></B>.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 8pt; text-indent: 0.25in">The public offering price of shares of our common
stock is higher than the pro forma as adjusted net tangible book value per outstanding share of our common stock. You will incur immediate
dilution of $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; per share in the pro forma as adjusted net
tangible book value of shares of our common stock, based on an assumed public offering price of $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
per share, which was the last reported sale price of our common stock on June &nbsp;&nbsp;&nbsp;, 2021 as quoted by the OTCQB Venture
Market.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 12pt; text-indent: 0.25in">To the extent our outstanding stock options
are exercised, our outstanding restricted shares become vested and/or our outstanding series&nbsp;A preferred stock are converted into
common stock, there will be further dilution of the common stock sold in this offering. As of June&nbsp;&nbsp;&nbsp;&nbsp;, 2021, these
stock options, restricted shares and series A preferred stock represent 1,586,452 additional shares of common stock that may be issued
in the future.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 8pt"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 8pt"><B><I>Future sales, or the perception of future sales, of a substantial
number of our shares of common stock could depress the trading price of our common stock.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 8pt; text-indent: 0.25in">If we or our stockholders sell a substantial
number of our shares of common stock in the public market following this offering or if the market perceives that these sales could occur,
the market price of shares of our common stock could decline. These sales may make it more difficult for us to sell equity or equity-linked
securities in the future at a time and price that we deem appropriate, or to use equity as consideration for future acquisitions.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 8pt"><B><I>If securities or industry analysts do not publish or cease
publishing research or reports about us, our business or our market, or if they change their recommendations regarding our stock adversely,
or if our actual results differ significantly from our guidance, our stock price and trading volume could decline.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 8pt; text-indent: 0.25in">The trading market for our common stock will
be influenced by the research and reports that industry or securities analysts may publish about us, our business, our market or our competitors.
If any of the analysts who may cover us change their recommendation regarding our stock adversely, or provide more favorable relative
recommendations about our competitors, our stock price would likely decline. If any analyst who may cover us were to cease coverage of
our company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause our
stock price or trading volume to decline.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 8pt; text-indent: 0.25in">In addition, from time to time, we may release
earnings guidance or other forward-looking statements in our earnings releases, earnings conference calls or otherwise regarding our future
performance that represent our management&rsquo;s estimates as of the date of release. Some or all of the assumptions of any future guidance
that we furnish may not materialize or may vary significantly from actual future results. Any failure to meet guidance or analysts&rsquo;
expectations could have a material adverse effect on the trading price or volume of our stock.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><B><I>The likelihood of a change of control in our
company could be impacted by the fact that we have a significant amount of authorized but unissued preferred stock, protective provisions
in our charter, outstanding series&nbsp;A preferred stock, a staggered board of directors and change of control agreements, as well as
certain provisions under Delaware law.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.25in">&#9;Our board of directors has the authority, without
further action by our common stockholders, to issue up to an additional 1,100,000 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 our common 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. Moreover, our outstanding series&nbsp;A preferred stock
provides the holders with certain rights in the event of a merger with a third party and if we are unable to redeem the series&nbsp;A
preferred stock prior to July&nbsp;30, 2023 or if the holders of the series&nbsp;A preferred stock elect to exercise their rights to require
us to redeem the series&nbsp;A preferred stock due to our failure to comply with the financial covenants covering the series&nbsp;A preferred
stock.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.25in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.25in">&#9;As discussed above, our certificate of incorporation
includes certain provisions that restrict transfers of our common stock in order to protect our NOLs if the effect of such transfers would
be to increase the direct or indirect ownership of stockholders from less than 4.99% to 4.99% or more of our common stock, or increase
the ownership percentage of stockholders owning 4.99% or more of our common stock. Certain &ldquo;anti-takeover&rdquo; provisions of the
Delaware General Corporation Law, among other things, may also restrict the ability of our stockholders to authorize a merger, business
combination or change of control. Further, we have a staggered board of directors and have entered into change of control agreements through
employment agreements with certain executives. In addition, proceeds received upon a change of control will generally be used first to
repay outstanding principal and interest on the Term Loan and then to the holders of the series A preferred stock, prior to the holders
of the common stock, in an amount equal to the amount of unpaid principal and interest on the Term Loan and 100% of the stated value plus
accrued and unpaid dividends with respect to the series A preferred stock. As a result of the foregoing, our stockholders may lose opportunities
to dispose of their shares at favorable prices generally available in takeover attempts or that may be available under a merger proposal,
and the market price of our common stock and the voting and other rights of our stockholders may also be affected.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><B><I>The conversion and exercise of our outstanding
securities and the anticipated grant of restricted stock to our employees will dilute the then-existing stockholders&rsquo; percentage
ownership of our common stock.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.25in">&#9;We have outstanding stock options to purchase
9,780 shares of our common stock, an aggregate of 1,442,828 outstanding unvested restricted shares and outstanding series&nbsp;A preferred
stock convertible into 87,815 shares of our common stock. Over the next several years a significant number of shares of common stock are
potentially issuable as dividends with respect to the series&nbsp;A preferred stock, including 87,815 shares of common stock reserved
for issuance related to accrued dividends as of March&nbsp;31, 2021.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.25in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.25in"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.25in">&#9;The exercise of all of the outstanding stock options,
vesting of all outstanding restricted shares and/or conversion of our outstanding series&nbsp;A preferred stock into common stock, the
payment of dividends on our series&nbsp;A preferred stock through the issuance of common stock and/or the grant and exercise of additional
stock options and/or the grant and vesting of restricted stock to our employees would dilute the then-existing stockholders&rsquo; 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.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0"><B><I>The potential concentration of equity ownership by Hale Capital and
ESW Capital LLC may limit your ability to influence corporate matters.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.25in">&#9;Hale Capital currently owns approximately 60.5%
of our outstanding common stock, or &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;% of our outstanding common stock immediately after
the consummation of this offering, and ESW currently owns approximately 21.6% of our outstanding common stock, or &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;%
of our outstanding common stock immediately after the consummation of this offering. In addition, the beneficial ownership of Hale Capital
and ESW Capital LLC is higher when calculated in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended (the
&ldquo;Exchange Act&rdquo;) due to their ownership of derivative securities. In addition, Hale Capital and ESW have additional rights
through their ownership of our series A preferred stock and their holdings of our outstanding indebtedness.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.25in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.25in">&#9;This ownership could enable Hale Capital and ESW
to exert significant influence over all corporate activities, including the election or removal of directors and the outcome of tender
offers, mergers, proxy contests or other purchases of common stock that could give our stockholders the opportunity to realize a premium
over the then-prevailing market price for their shares of common stock. This concentrated control will limit your ability to influence
corporate matters and, as a result, we may take actions that our stockholders do not view as beneficial. In addition, such concentrated
control could discourage others from initiating changes of control. In such cases, the perception of our prospects in the market may be
adversely affected and the market price of our common stock may decline.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.25in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 8pt"><B><I>We will have broad discretion as to the use of the proceeds
from this offering, and we may not use the proceeds effectively.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 7pt; text-indent: 0.25in">Although we intend to use the net proceeds in
the offering to finance our growth strategy, and for working capital and general corporate purposes, we will have broad discretion as
to the application of the net proceeds and could use them for purposes other than those contemplated at the time of this offering. Our
stockholders may not agree with the manner in which our management chooses to allocate and spend the net proceeds. Moreover, our management
could use the net proceeds for corporate purposes that may not necessarily increase our market value or improve our results of operations.</P>

<P STYLE="font: 10pt/12pt Times New Roman, Times, Serif; margin: 7.9pt 0.15in 0 0"><B><I>We have not paid dividends in the past and do
not expect to pay dividends in the future. The terms of our series A preferred stock and the Amended and Restated Loan Agreement also
restrict our ability to pay dividends on our common stock, and any return on investment may be limited to the value of our common stock.</I></B></P>

<P STYLE="font: 10pt/12pt Times New Roman, Times, Serif; margin: 12pt 0 0; text-indent: 0.25in">We have never paid cash dividends on our
common stock and do not anticipate doing so in the foreseeable future. The payment of dividends on our common stock will depend on earnings,
financial condition and other business and economic factors affecting us at such time as our board of directors may consider relevant.
In addition, the terms of our series A preferred stock and the Amended and Restated Loan Agreement restrict our ability to pay dividends
on our common stock. If we do not pay dividends, our common stock may be less valuable because a return on your investment will only occur
if our stock price appreciates.</P>

<P STYLE="font: 10pt/12pt Times New Roman, Times, Serif; margin: 7.9pt 0.15in 0 0"><B><I>If you are not an institutional investor, you
may purchase securities in this offering only if you reside within the states in which we will apply to have the securities registered
or are exempt from registration, and, if required, meet any requisite suitability standards. </I></B></P>

<P STYLE="font: 10pt/12pt Times New Roman, Times, Serif; margin: 12pt 0 0; text-indent: 0.25in">Because our common stock is quoted by
the OTCQB Venture Market and not listed on a national securities exchange, this offering must be registered, or be exempt from registration,
in any state in which the securities are to be offered or sold. We will apply to register securities, or will seek to obtain an exemption
from registration, only in certain states. If you are not an &ldquo;institutional investor,&rdquo; you must be a resident of these jurisdictions
to purchase our securities in the offering. The definition of an &ldquo;institutional investor&rdquo; varies from state to state, but
generally includes financial institutions, broker-dealers, banks, insurance companies and other qualified entities. If you are not an
institutional investor, you may purchase securities in this offering only if you reside in the jurisdictions where there is an effective
registration or exemption, and, if required, meet any requisite suitability standards.<B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 7pt; text-align: center"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 7pt; text-align: center"><B>CAUTIONARY NOTE REGARDING FORWARD-LOOKING
STATEMENTS</B></P>

<P STYLE="font: 10pt/12pt Times New Roman, Times, Serif; margin: 0; text-indent: 20pt">&#9;This prospectus and the documents incorporated
by reference contain &ldquo;forward-looking statements&rdquo; intended to qualify for the safe harbor from liability established by the
Private Securities Litigation Reform Act of 1995. The statements, which are not historical facts contained in this report, particularly
those that utilize terminology such as &ldquo;may,&rdquo; &ldquo;will,&rdquo; &ldquo;would,&rdquo; &ldquo;could,&rdquo; &ldquo;should,&rdquo;
 &ldquo;expects,&rdquo; &ldquo;anticipates,&rdquo; &quot;anticipates,&quot; &ldquo;estimates,&rdquo; &ldquo;believes,&rdquo; &ldquo;intends,&rdquo;
 &quot;likely,&quot; &quot;projects,&quot; &ldquo;plans,&rdquo; &quot;pursue,&quot; &quot;strategy&quot; or &quot;future,&quot; or the
negative of these words or other words or expressions of similar meaning, are forward-looking statements. Such statements are based on
currently available operating, financial and competitive information, and are subject to inherent risks, uncertainties and changes in
circumstances that are difficult to predict and many of which are outside of our control. Future events and our actual results and financial
condition may differ materially from those reflected in these forward-looking statements. Therefore, you should not rely on any of these
forward-looking statements. Important factors that could cause these differences include, but are not limited to, the following:</P>

<P STYLE="font: 10pt/12pt Times New Roman, Times, Serif; margin: 0; text-indent: 20pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 3pt 1in; text-indent: -0.25in">&bull; <FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
</FONT>our limited liquidity and working capital deficiency;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 3pt 1in; text-indent: -0.25in">&bull; <FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
</FONT>the success of our cost reduction initiatives;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 3pt 1in; text-indent: -0.25in">&bull; <FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
</FONT>the continuing impact of COVID-19 on our operations and financial condition;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 3pt 1in; text-indent: -0.25in">&bull; <FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
</FONT>our ability to raise additional funding;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 3pt 1in; text-indent: -0.25in">&bull; <FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
</FONT>customer and distributor cancellations;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 3pt 1in; text-indent: -0.25in">&bull; <FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
</FONT>our ability to maintain and grow our business;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 3pt 1in; text-indent: -0.25in">&bull; <FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
</FONT>the successful integration of acquired companies, products and technologies into our portfolio of software and services and into
our current operations;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 3pt 1in; text-indent: -0.25in">&bull; <FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
</FONT>our ability to pay for our acquisition liabilities in cash or to issue common stock as payment;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 3pt 1in; text-indent: -0.25in">&bull; <FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
</FONT>variability of operating results;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 3pt 1in; text-indent: -0.25in">&bull; <FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
</FONT>the timing and&nbsp;outcome&nbsp;of pending or potential claims and&nbsp;litigation, including without limitation, the pending
shareholder derivative lawsuits;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 3pt 1in; text-indent: -0.25in">&bull; <FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
</FONT>our ability to maintain effective disclosure controls and procedures and internal control over financial reporting;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 3pt 1in; text-indent: -0.25in">&bull; <FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
</FONT>our ability to maintain and enhance our brand;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 3pt 1in; text-indent: -0.25in">&bull; <FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
</FONT>our development and introduction of new products and services;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 3pt 1in; text-indent: -0.25in">&bull; <FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
</FONT>marketing and other business development initiatives;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 3pt 1in; text-indent: -0.25in">&bull; <FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
</FONT>competition in the industry;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 3pt 1in; text-indent: -0.25in">&bull; <FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
</FONT>general government regulation;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 3pt 1in; text-indent: -0.25in">&bull; <FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
</FONT>economic conditions;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 3pt 1in; text-indent: -0.25in">&bull; <FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
</FONT>dependence on key personnel;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 3pt 1in; text-indent: -0.25in">&bull; <FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
</FONT>the ability to attract, hire and retain personnel who possess the technical skills and experience necessary to meet the service
requirements of our customers;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 3pt 1in; text-indent: -0.25in">&bull; <FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
</FONT>our ability to protect our intellectual property;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 3pt 1in; text-indent: -0.25in">&bull; <FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
</FONT>the potential liability with respect to actions taken by our existing and past employees;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 3pt 1in; text-indent: -0.25in">&bull; <FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
</FONT>risks associated with international sales; and</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 3pt 1in; text-indent: -0.25in">&bull; <FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
</FONT>other risks and uncertainties described under the heading &ldquo;Risk Factors&rdquo; in this prospectus and under the heading &ldquo;Item
1A. Risk Factors&rdquo; in our Annual Report on Form 10-K for the year ended December 31, 2020, which is incorporated by reference into
this prospectus.</P>

<P STYLE="font: 10pt/12pt Times New Roman, Times, Serif; margin: 0; text-indent: 20pt">&#9;Given these risks and uncertainties, you are
cautioned not to place undue reliance on such forward-looking statements. All forward-looking statements contained or incorporated by
reference in this prospectus are based on our current expectations, intentions and beliefs using information currently available to us
only as of the date of such statement, and we assume no obligation to update any forward-looking statements, except as required by U.S.
federal securities laws. Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the
actual results to differ materially from any future results, performance or achievements expressed or implied by such forward-looking
statements.<B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 12pt; text-align: center"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 12pt; text-align: center"><B>USE OF PROCEEDS</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 12pt; text-indent: 0.5in">We estimate that the net proceeds from the sale
of our common stock in this offering will be approximately $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
(or approximately $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
if the underwriter&rsquo;s option to purchase additional shares from us is exercised in full), based upon an assumed public offering price
of $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; per share, which was the last reported sale price of
our common stock as quoted by the OTCQB Venture Market on June&nbsp;&nbsp;&nbsp;&nbsp;, 2021, after deducting the underwriting discount
and estimated offering expenses payable by us.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 12pt; text-indent: 0.5in">We intend to use the net proceeds of this offering
to expand marketing and distribution of our software products and supporting technology in the United States and abroad, to enhance our
ongoing product development programs and for working capital and general corporate purposes. As part of our growth and expansion strategy,
we may also use a portion of the net proceeds of this offering for acquisitions of complementary businesses, products and technologies.
We currently have no commitments with respect to any potential acquisitions.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 12pt; text-indent: 0.5in">The intended use of net proceeds from this offering
represents our expectations based upon our present plans and business conditions. We cannot predict with certainty all of the particular
uses for the proceeds of this offering or the amounts that we will actually spend on the uses described in this prospectus. Accordingly,
our management will have significant flexibility in applying the net proceeds of this offering. The timing and amount of our actual expenditures
will be based on many factors, including cash flows from operations and the anticipated growth of our business. Pending their use, we
intend to invest the net proceeds of this offering in a variety of capital-preservation investments, including short- and intermediate-term,
interest-bearing, investment-grade securities.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 12pt; text-align: center"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 12pt; text-align: center"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 12pt; text-align: center"><B>DIVIDEND POLICY</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">We have not previously declared
or paid any cash dividends on our common stock since inception. We anticipate that we will retain earnings to support operations and finance
the growth of our business, as described in this prospectus. In addition, the terms of our series A preferred stock and our Amended and
Restated Loan Agreement restrict our ability to pay dividends on our common stock. Accordingly, it is not anticipated that any cash dividends
will be paid on our common stock in the foreseeable future.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">Holders of our series A preferred
stock are entitled to receive quarterly dividends at the Prime Rate (Wall Street Journal Eastern Edition), plus 5% (up to a maximum amount
of 10%), payable in cash, provided, that if we will not have at least $1.0 million in positive cash flow for any calendar quarter after
giving effect to the payment of such dividends, we, at our election, can pay such dividends in whole or in part in cash, provided that
cash flow from operations is not negative, and the remainder can be accrued or paid in common stock to the extent certain equity conditions
are satisfied. Due to the lack of sufficient surplus to pay dividends as required by the Delaware General Corporation Law, we were not
permitted to pay the fourth quarter 2016 dividend in cash or common stock and have been accruing the quarterly dividends since then. As
of March 31, 2021, our liability for dividends to the holders of the series&nbsp;A preferred stock totaled $4.6 million. While the Term
Loan is outstanding, we are only permitted to pay in-kind dividends on the series A preferred stock.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 12pt; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 12pt; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt/11.25pt Times New Roman, Times, Serif; margin: 20.9pt 0 0; text-align: center"></P>

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<P STYLE="font: 10pt/11.25pt Times New Roman, Times, Serif; margin: 20.9pt 0 0; text-align: center"><FONT STYLE="letter-spacing: -0.05pt"><B>CAPITALIZATION</B></FONT></P>

<P STYLE="font: 10pt/11.25pt Times New Roman, Times, Serif; margin: 0; text-align: center"><FONT STYLE="letter-spacing: -0.05pt"><B></B></FONT>&nbsp;</P>

<P STYLE="text-indent: 0.5in; font: 10pt/11.1pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0; text-align: left">The following table
sets forth our cash and capitalization as of March 31, 2021 (a) on an actual basis, and (b) on an as adjusted basis to give effect
to the sale by us of shares of our common stock in this offering at the public offering price of
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; per share, which was the last reported
sale price of our common stock on June &nbsp;&nbsp;&nbsp;, 2021 as quoted by the OTCQB Venture Market, after deducting the
underwriting discount and estimated offering expenses payable by us.</P>

<P STYLE="font: 10pt/11.1pt Times New Roman, Times, Serif; margin: 0.9pt 0 0">&nbsp;</P>


<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 12pt; text-indent: 0.5in"><FONT STYLE="letter-spacing: -0.05pt">This table
should be read with &ldquo;Use of Proceeds&rdquo; in this prospectus, as well as &ldquo;Management&rsquo;s Discussion and Analysis of
Financial Condition and Results of Operations&rdquo; and our financial statements and related notes included in our Quarterly Report on
Form 10-Q for the three months ended March 31, 2021, which is incorporated by reference into this prospectus.</FONT></P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
  <TR STYLE="vertical-align: bottom">
    <TD STYLE="text-align: center">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="7" STYLE="text-align: center; border-bottom: Black 1pt solid">As of March 31, 2021</TD></TR>
  <TR STYLE="vertical-align: bottom">
    <TD STYLE="text-align: center">&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="3" STYLE="text-align: center">Actual <BR>(unaudited)</TD><TD>&nbsp;</TD>
    <TD COLSPAN="3" STYLE="text-align: center">As Adjusted <BR>(unaudited)</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
    <TD STYLE="width: 56%; text-align: left; padding-bottom: 2.5pt; padding-left: 5.4pt">Cash and cash equivalents</TD><TD STYLE="width: 8%; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="width: 1%; border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="width: 12%; border-bottom: Black 2.5pt double; text-align: right">2,020,989</TD><TD STYLE="width: 1%; padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="width: 8%; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="width: 1%; border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="width: 12%; border-bottom: Black 2.5pt double; text-align: right"><P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; border-bottom: Black 1.5pt double"></P></TD><TD STYLE="width: 1%; padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-left: 5.4pt">Total Debt:</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 0.25in">Short-term loan, net of debt issuance costs and discounts</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">3,396,568</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right"><P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; border-bottom: Black 0.5pt solid"></P></TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 0.25in">Series A redeemable convertible preferred stock, $0.001 par value,&nbsp;&nbsp;&nbsp;2,000,000 shares authorized; 900,000 shares issued and outstanding,&nbsp;&nbsp;redemption value of $13,623,747</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">13,415,006</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right"><P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; border-bottom: Black 0.5pt solid"></P></TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
    <TD STYLE="text-align: left; padding-left: 5.4pt">Stockholders&rsquo; equity:</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-left: 0.25in">Common stock - $0.001 par value, 30,000,000 shares authorized, 5,949,463 shares issued and outstanding, actual;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares issued and outstanding, as adjusted</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">5,949</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right"></TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
    <TD STYLE="text-align: left; padding-left: 0.25in">Additional paid-in capital</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">109,637,357</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right"></TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-left: 0.25in">Accumulated deficit</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">(122,308,096</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right"></TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 0.25in">Accumulated other comprehensive loss, net</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(1,901,563</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right"><P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; border-bottom: Black 0.5pt solid"></P></TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 5.4pt">Total stockholders&rsquo; equity (deficit)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(14,566,353</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right"><P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; border-bottom: Black 0.5pt solid"></P></TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
    <TD STYLE="text-align: left; padding-bottom: 2.5pt; padding-left: 5.4pt">Total capitalization</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">2,245,221</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right"><P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; border-bottom: Black 1.5pt double">$</P></TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
  </TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 12pt; text-indent: 0.5in">
<P STYLE="font: 10pt/11.65pt Times New Roman, Times, Serif; margin: 0 0.15in 0 0; text-indent: 0.5in">The outstanding historical share
information and additional paid-in capital in the table above is based on 5,949,463 shares of common stock outstanding as of March 31,
2020 and excludes, as of that date, the following:</P>

<P STYLE="font: 10pt/11.65pt Times New Roman, Times, Serif; margin: 0 0.15in 0 0; text-indent: 0.5in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 3pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in">&bull;</TD><TD>87,815 shares of our common stock issuable upon the exercise of outstanding shares of series A redeemable convertible preferred stock;</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 3pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in">&bull;</TD><TD>9,780 shares of our common stock issuable upon the exercise of outstanding stock options having an average exercise price of $113.66
per share;</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 3pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in">&bull;</TD><TD>1,442,828 shares of our common stock issuable upon the vesting of outstanding restricted stock; and</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 3pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in">&bull;</TD><TD>up to an additional 45,115 shares of common stock currently reserved for issuance related to accrued dividends on the series A preferred
stock.<BR STYLE="clear: both">
</TD></TR></TABLE>

<P STYLE="font: 10pt/120% Times New Roman, Times, Serif; margin: 0 0 0 0.75in">&nbsp;</P>

<P STYLE="font: 10pt/120% Times New Roman, Times, Serif; margin: 0; text-align: center"></P>

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<P STYLE="font: 10pt/120% Times New Roman, Times, Serif; margin: 0; text-align: center"><B>DILUTION</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 12pt 0 0; text-indent: 40.3pt">If you purchase shares of our common stock
in this offering, you will experience dilution to the extent of the difference between the public offering price per share in this offering
and our as adjusted net tangible book value per share immediately after this offering. Net tangible book value per share is equal to the
amount of our total tangible assets, less total liabilities, divided by the number of outstanding shares of our common stock. As of March&nbsp;31,
2021, our net tangible book value (deficit) was approximately $(5,403,377), or $(0.91) per share.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 12pt 0 0; text-indent: 40.3pt">After giving effect to the sale of shares of
our common stock in this offering at the public offering price of $ per share, which was the last reported sale price of our common stock
on June &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;, 2021 as quoted by the OTCQB Venture Market, after deducting the underwriting discount and
estimated offering expenses payable by us, our as adjusted net tangible book value as of March&nbsp;31, 2021 would have been approximately
$ . This represents an immediate increase in net tangible book value of $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; per share to existing stockholders
and an immediate dilution of $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; per share to new investors
purchasing shares of our common stock in this offering at the public offering price. The following table illustrates this per share dilution:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 7pt">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
    <TD STYLE="width: 70%">Public offering price per share</TD><TD STYLE="width: 2%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 11%; text-align: right"></TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 2%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 11%; text-align: right"></TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
    <TD>Net tangible book value (deficit) per share as of March 31, 2021</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">(0.91</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Increase in net tangible book value per share after giving effect to this offering</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">&mdash;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt">As adjusted tangible book value per share after giving effect to this offering</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right"></TD><TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right"></TD><TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
    <TD STYLE="text-align: left; padding-bottom: 2.5pt">Dilution per share to new investors in this offering</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right"></TD><TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right"></TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: left">&nbsp;</TD></TR>
  </TABLE>



<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 12pt 0; text-indent: 40.3pt">If the underwriter&rsquo;s option to purchase
additional shares of our common stock from us is exercised in full, the as adjusted net tangible book value per share of our common stock,
as adjusted to give effect to this offering, would be $ &nbsp; per share, and the dilution in net tangible book value per share to new
investors purchasing shares of our common stock in this offering would be $ per share.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 15pt 0 0; text-indent: 40pt">The foregoing discussion and table do not take
into account further dilution to new investors that could occur upon the exercise of outstanding stock options having a per share exercise
price less than the per share offering price to the public in this offering. In addition, we may choose to raise additional capital due
to market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans.
To the extent that additional capital is raised through the sale of equity or equity-linked securities, the issuance of these securities
could result in further dilution to our stockholders.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in">The table and discussion above are based on 5,949,463
shares of common stock outstanding as of March&nbsp;31, 2021 and excludes, as of that date, the following:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 3pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in">&bull;</TD><TD>87,815 shares of our common stock issuable upon the exercise of outstanding shares of series A redeemable convertible preferred stock;</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 3pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in">&bull;</TD><TD>9,780 shares of our common stock issuable upon the exercise of outstanding stock options having an average exercise price of $113.66
per share;</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 3pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in">&bull;</TD><TD>1,442,828 shares of our common stock issuable upon the vesting of outstanding restricted stock; and</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 3pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in">&bull;</TD><TD>up to an additional 45,115 shares of common stock currently reserved for issuance related to accrued dividends on the series A preferred
stock.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

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<P STYLE="font: 10pt/120% Times New Roman, Times, Serif; margin: 0; text-align: center"><B>BUSINESS</B></P>

<P STYLE="font: 10pt/120% Times New Roman, Times, Serif; margin: 0; text-align: center"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; color: #0E101A"><B>Overview</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; color: #0E101A">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"><FONT STYLE="color: #0E101A">We are a data protection
</FONT>technology <FONT STYLE="color: #0E101A">company enabling enterprises to modernize their data backup and archival operations across
</FONT>multiple <FONT STYLE="color: #0E101A">sites and public clouds. </FONT>Our products <FONT STYLE="color: #0E101A">deliver increased
data security and provide recovery solutions for cyber attacks. We have over an exabyte of data under management, 36 issued patents and
five patent applications and offer products that are used by more than 600 enterprise customers. Our products are offered through and
supported by a network of leading service providers, systems integrators, resellers, MSPs and OEMs.&nbsp;&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in; color: #0E101A">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"><FONT STYLE="color: #0E101A">Our products address a
demand for enterprise data protection driven by the manner in which consumers and businesses are increasingly interacting in a digital
space through multiple devices, networks and platforms. The onset of the </FONT>coronavirus pandemic accelerated this shift, as ongoing
remote work and work from home arrangements introduced novel challenges to maintaining enterprise data security. The adoption of increased
employee mobility and flexible remote work arrangements, such as a broader incorporation of cloud technology and the option for employees
to use their own devices, has introduced additional vulnerabilities that businesses must monitor and protect through solutions like ours
in order to maintain enterprise data integrity.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in; color: #0E101A">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in; color: #0E101A">Our products are utilized by enterprises
and MSPs to address two key areas of enterprise data protection: (i) long-term data retention and recovery, and (ii) data replication
to preserve business continuity. Our integration with modern cloud-based data storage environments, such as AWS and Microsoft Azure, enables
our enterprise customers to significantly reduce costs and improve the portability, security and accessibility of their enterprise data.
We believe this accessibility is key in our modern world, where data must be protected and intelligently leveraged to facilitate learning,
improve product design and drive competitive advantage. Our products can be used regardless of the underlying hardware, cloud and source-data,
which enables our enterprise customers to leverage their existing hardware and software investments.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in; color: #0E101A">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in; color: #0E101A">We believe our long-term data retention
products are critical to the data protection plans of any enterprise. The foundation of any enterprise data protection plan is the long-term
data archive, as this segment represents up to 80% of an enterprise&rsquo;s data according to the Horizon Study. Whether in the form of application databases, documents, emails or digital media files, enterprises must preserve this information
for significant periods of time to fulfill operational, legal and regulatory requirements. Expanding government and industry regulations
also continue to increase mandated retention periods. In addition to fundamental data retention, modern enterprises desire to leverage
their long-term archives for strategic analysis and to unlock new revenue streams. As a result, enterprises are challenged with secure
and cost-effective data management, while also adopting flexible and scalable cloud-based storage environments. Our long-term data retention
products enable our enterprise customers to reduce their data storage footprint while seamlessly transitioning data to a wide array of
hybrid-cloud and public-cloud storage systems, including AWS and Microsoft Azure. Our products have also been found to increase data backup
speeds by up to 600% based on the 2019 Evaluator Group Performance Analysis.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in; color: #0E101A">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in; color: #0E101A">In addition to long-term data retention,
enterprises must maintain operational data redundancy to ensure business continuity in near real time. According to the Horizon Study, the remaining 20% of an enterprise&rsquo;s data is active and backed up, and such data is retained for
less than 90 days. Our data replication products and
associated technologies allow an enterprise to capture snapshots of selected data or entire systems at user-defined intervals, and include
the ability to replicate data as it is written or modified in real time. These solutions allow our enterprise customers to recover data
back to a specific point in time to completely recover from operational data loss or corruption, including ransomware. As is the case
with our long-term data retention products, our data replication products are designed to leverage existing enterprise hardware and software
investments, while enabling the use of new cloud-based data storage technologies.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in; color: #0E101A">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><B>Our <FONT STYLE="color: #0E101A">S</FONT>oftware
<FONT STYLE="color: #0E101A">P</FONT>roducts and <FONT STYLE="color: #0E101A">S</FONT>upporting <FONT STYLE="color: #0E101A">T</FONT>echnology</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; color: #0E101A">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in; color: #0E101A">Our software products create investment
protection, flexibility and leverage of modern cloud-based technologies through software-defined functionality that provides backup and
long-term retention, and business continuity driven data replication. As a result, our enterprise clients are able to utilize the underlying
storage hardware, media or environment (on-premise or cloud) that best aligns with their strategic needs, which can eliminate costly hardware-vendor,
cloud and form-factor lock-ins. &nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in; color: #0E101A">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in; color: #0E101A"><B>Long-Term Data
Retention and Recovery Products</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in; color: #0E101A">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"><FONT STYLE="color: #0E101A"><B><I>&#9679;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;FalconStor
Virtual Tape Library </I></B></FONT><B>&ndash;</B> We were <FONT STYLE="color: #0E101A">an early innovator in VTL technology, which allows
enterprise customers to emulate and replace cumbersome physical tape libraries with archive related data preservation, without replacing
their existing backup and archive software and associated processes.</FONT>&nbsp;<FONT STYLE="color: #0E101A">We believe our VTL product
continues to be a leading virtual tape library solution in terms of performance and scalability. With VTL, our enterprise customers are
able to complete their data archive operations more reliably, with minimal changes to their legacy archive environment. They are also
able to leverage sophisticated physical tape emulation, advanced data security, data-deduplication, and public- or private-cloud based
virtual tape archive storage. We have subjected our VTL solution to independent performance testing, which at the time demonstrated that
our product was 25% faster than a competitor and could be executed on hardware that was </FONT>one-third <FONT STYLE="color: #0E101A">the
cost of that required by our closest competitor. We enable our customers to reduce the amount of data that needs to be archived by processing
their archive data through our integrated data deduplication engine. By eliminating redundant archive data, the archive storage capacity
required can be significantly reduced. Our technology allows our enterprise customers to significantly reduce the cost of storing the
ever-growing volume of data that is subject to long-term archive data protection mandates. </FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in; color: #0E101A">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"><FONT STYLE="color: #0E101A"><B><I>&#9679;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;FalconStor
StorSafe<SUP>TM</SUP></I></B></FONT><B> &ndash;</B> <FONT STYLE="color: #0E101A">Traditionally, enterprises have had limited choice and
have been forced to store their archive data on physical tape or within storage arrays installed in an internal data center. Our newest
and most innovative long-term archive data management software product, StorSafe, breaks these traditional storage limitations and enables
enterprises to securely and cost effectively leverage a wide array of storage options, including ultra-efficient and scalable cloud-based
storage environments, such as AWS and Microsoft Azure. Launched in 2020, StorSafe provides sophisticated physical tape emulation and seamless
integration with an enterprise&rsquo;s legacy backup and archive software and processes. By leveraging patent pending industry-standard
container technology to enable persistent long-term archive storage, our StorSafe solution dramatically improves archive data portability,
accessibility, security and integrity validation, especially as it relates to multi-cloud data storage leverage. As a result, a full spectrum
of archive data storage options is made available to our enterprise customers to utilize essentially any storage environment, while confidently
ensuring data security and efficient archive access.&nbsp;We have designed StorSafe to significantly reduce long-term archive data storage
and legal or regulatory mandated compliance costs.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.25in; color: #0E101A">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in; color: #0E101A"><B>Business Continuity
Driven Data Replication Products</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in; color: #0E101A">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.25in"><FONT STYLE="color: #0E101A">&#9;<B><I>&#9679; FalconStor
Continuous Data Protector </I></B></FONT><B> &ndash;</B> <FONT STYLE="color: #0E101A">In addition to retaining long-term archive data,
enterprises routinely maintain short-term copies, or backups, of data generated by various user applications to protect against data loss
or natural disaster. Moving beyond once-a-day backup models, CDP combines local and remote protection into a cost-effective, unified,
disk-based solution that allows enterprises to recover data back to the most recent transaction. Combining application-aware snapshot
agents and continuous journaling functions, CDP enables customers to recover data effectively at any point in time. CDP delivers instant
data availability and reliable recovery, with the capacity to bring business applications back online in a matter of minutes after a failure.
CDP protects application-specific data for Microsoft, Oracle, SAP and other business applications, ensuring high performance and stability
for complex business environments.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in; color: #0E101A">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"><FONT STYLE="color: #0E101A"><B><I>&#9679;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;FalconStor
Network Storage Server </I></B></FONT><B> &ndash;</B>&nbsp;<FONT STYLE="color: #0E101A">The expanding capacity of data managed by enterprises
creates a continual challenge in ensuring adequate amounts of available storage. NSS is a scalable solution that enables data storage
virtualization and business continuity in heterogeneous environments. Supporting existing third-party disk arrays, NSS eliminates storage
boundaries and vendor lock-in, providing fast and secure data storage provisioning and migration. Our core storage virtualization technology
provides a non-disruptive approach to data mobility across different storage area network protocols and vendors. With NSS, it becomes
a simple operation to move data from older platforms to newer ones or to introduce new storage capacity and tiers. This allows enterprises
to respond to evolving performance and capacity requirements, as well as changing data protection mandates.</FONT>&nbsp;<FONT STYLE="color: #0E101A">Our
products are sold as stand-alone software, but can also be bundled with standard hardware configurations to simplify implementation for
our customers.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in; color: #0E101A">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in; color: #0E101A"><B>Supporting
Technology</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in; color: #0E101A">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"><FONT STYLE="color: #0E101A"><B><I>&#9679;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;FalconStor
StorSight<SUP>TM</SUP></I></B></FONT><B> &ndash;</B> <FONT STYLE="color: #0E101A">StorSight gives our enterprise customers and MSPs the
ability to administer long-term archive and business continuity driven data replication from one centralized management point and to
easily test our other products they may not be currently licensing. To simplify our development efforts and to enable broader use of
our products by our enterprise customers, we have unified all user management into our modern HTML-based console and rebranded that unified
tool as StorSight. As a result, StorSight is now our unified data protection console used to administer our VTL, StorSafe, CDP, and NSS
products.</FONT>&nbsp;<FONT STYLE="color: #0E101A">Our StorSight user console provides deep analytics relative to each of our products
as they are utilized in production. StorSight also includes a full array of functionality key to our MSP customers, such as multi-tenancy
and charge-back.</FONT>&nbsp;<FONT STYLE="color: #0E101A">StorSight usage licensing is included when customers and MSPs license any of
our products.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"><FONT STYLE="color: #0E101A"><B><I>&#9679;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;FalconStor&nbsp;RecoverTrac<SUP>TM</SUP>
Disaster Recovery Technology</I></B></FONT><B> &ndash;</B> O<FONT STYLE="color: #0E101A">ur patented RecoverTrac technology streamlines
the implementation, testing and execution of disaster recovery operations. It minimizes service failover time between sites and reduces
disaster recovery costs by offering full recovery from physical-to-physical, virtual-to-virtual and physical-to-virtual server infrastructures.
This technology is a disaster recovery automation service, and is included as a standard feature of our NSS and CDP products to automate
complex, time-consuming and error-prone failover and failback operations of systems, applications, services and entire data centers. This
technology can also work across those environments, enabling organizations to seamlessly migrate locally, remotely or to and from cloud
environments.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; color: #0E101A">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"><FONT STYLE="color: #0E101A"><B><I>&#9679;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;FalconStor&nbsp;MicroScan<SUP>TM
</SUP>Technology</I></B></FONT><B> &ndash;</B> Our <FONT STYLE="color: #0E101A">patented MicroScan technology minimizes the amount of
data transferred during replication by eliminating inefficiencies at the application and file system layer. Data changes are replicated
at the smallest possible level of granularity, reducing LAN/WAN bandwidth and associated storage costs for disaster recovery (&ldquo;DR&rdquo;),
and any time data is replicated from one source to another. MicroScan is an integral part of our replication option for CDP and NSS.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; color: #0E101A">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0"><B>Our Growth and Expansion <FONT STYLE="color: #0E101A">S</FONT>trategy</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; color: #0E101A">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in">&#9;Our <FONT STYLE="color: #0E101A">software
products and supporting technology are licensed by enterprise IT organizations and MSPs worldwide. The key elements of our growth and
expansion strategy include the following</FONT>:<FONT STYLE="color: #0E101A">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in; color: #0E101A">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"><FONT STYLE="color: #0E101A"><B><I>&#9679;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accelerate
our marketing and distribution in our</I></B></FONT><B><I> best suited markets</I> &ndash;</B> <FONT STYLE="color: #0E101A">We plan to</FONT>
continue to focus our marketing and distribution efforts on enterprise customers, MSPs, CSPs, resellers, systems integrators and OEM partners.
We believe these markets and distribution channels offer a significant opportunity and are best suited to realize the value of our products,
and provide an efficient and effective access to broad, worldwide markets.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"><FONT STYLE="color: #0E101A"><B><I>&#9679;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</I></B></FONT><B><I>Expand
our existing software product offerings</I> &ndash;</B> We intend to enhance our products to address ever-changing market dynamics to
allow us to be leader in the data protection marketplace. For example, through StorSafe, we have successfully adapted transient container
technology to deliver a persistent, long-term data protection container that is agnostic, heterogeneous and highly portable, as well as
backward compatible and compatible with future technology advancements. We believe these advancements are essential to meet the chain
of custody mandates that are inherent in long-term data retention plans subject to compliance, regulatory, legal discovery and privacy
laws that continue to evolve and mature.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"><FONT STYLE="color: #0E101A"><B><I>&#9679;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</I></B></FONT><B><I>Expand
software and hardware strategic alliances with industry leaders</I> &ndash;</B> The Flash/SSD, High-Density Single Disk and Cloud Data
Archival markets are key opportunities for us on two fronts: targeting customers wanting to integrate this new technology into existing
IT environments, and OEMs needing to enhance their software stack in order to offer data movement and protection services on their platform.
CSPs such as AWS, Microsoft Azure, Wasabi and Alibaba Cloud also represent a growth opportunity. Our mutual customers and partners need
help moving data from the customer site to their own facilities, as well as a way to deliver common data services across disparate and
often incompatible hardware typically found across the provider and end customer environments. We believe that we are positioned to continue
to take advantage of these key opportunities in the global marketplace.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"><FONT STYLE="color: #0E101A"><B><I>&#9679;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Provide
a bridge to cloud-based data storage, while protecting customers&rsquo; investments</I></B></FONT><B> &ndash;</B> We <FONT STYLE="color: #0E101A">intend
to continue leveraging the protocol-independent, unified architecture, analytics and open data services technology of our products to
maintain a competitive position in the enterprise storage software market. With the addition of StorSafe, and its associated storage container
technology, we have joined and are dedicated to the Open Source community, which has accelerated development and integration efforts across
our entire product suite. We intend to continue delivering technical innovation that creates investment protection, flexibility and leverage
of modern cloud-based technologies for our enterprise customers.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; color: #0E101A">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"><FONT STYLE="color: #0E101A"><B><I>&#9679;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Enable
MSPs</I></B></FONT><B> &ndash;</B> <FONT STYLE="color: #0E101A">As the managed service provider segment continues to grow, MSPs increasingly
have a need to support heterogeneous storage environments across their own data centers and their customers&rsquo; environments. MSPs
often have different hardware and software capabilities, making it significantly challenging to offer consistent data services across
these environments. We believe that we offer strategic benefits for MSPs by (i) </FONT>enabling the seamless and non-disruptive movement
of data from the customer premises to the service provider&rsquo;s hosted environment, (ii) offering common data services across a customer&rsquo;s
environments regardless of underlying hardware or technology, (iii) allowing for the introduction and ability to monetize additional data
services they may not have previously been able to offer, (iv) providing a low-cost growth opportunity due to the flexibility of StorSight
licensing, while eliminating the need to have multiple feature licenses array by array, and (v) enabling reduced storage management complexity
and costs within their infrastructure by eliminating silos, reducing licensing costs and optimizing hardware.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><FONT STYLE="color: #0E101A"><B>I</B></FONT><B>ndustry
Background and Trends</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; color: #0E101A">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.25in; color: #0E101A">&#9;Enterprises of all sizes are increasingly
challenged to securely archive, replicate and make available their data assets. This challenge is increased as business pressures to reduce
cost and increase efficiency push enterprises to adopt cloud-based technologies, which are critical to handling the growth in data and
strategic uses of enterprise data, despite an increasing amount of records and data that has been compromised over the past several years.
For example, according to the 2020 Year End Report published by RiskBased Security, approximately 37 billion records of sensitive data
were lost from various breaches, as compared to the approximately 15 billion and 5 billion that were lost in 2019 and 2018, respectively.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in; color: #0E101A">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.25in; color: #0E101A">&#9;We believe long-term data archive
is the fastest-growing segment of an enterprise&rsquo;s data assets. This growth is accelerating as enterprises are increasingly subject
to complex regulatory compliance, such as that driven by the Food and Drug Administration, the Health Insurance Portability and Accountability
Act, European Union&rsquo;s General Data Protection Regulation and the Sarbanes-Oxley Act. As the volume of long-term archive continues
to expand, the need for enterprises to securely and cost-effectively store the associated data will only increase.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in; color: #0E101A">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.25in; color: #0E101A">&#9;The introduction of new long-term
archive storage options has also given rise to a growth in MSPs remotely managing data protection, primarily to smaller enterprises with
a less complex array of data assets. The MSPs are able to leverage modern broadband connectivity and offer more scalable long-term storage
options, which will serve to reduce data protection costs for their customers. We believe this trend to outsourced long-term archive data
protection will continue.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.25in; color: #0E101A">&#9;New regulations and laws governing
the processing, storage, retention, protection and reinstatement of high-value information assets are driving significant growth in the
data protection markets. We believe that data archives will play an increasing role in training and validating artificial intelligence
and machine learning algorithms and optimizing strategic analytic model outcomes. Given our long history and deep skillset of the unique
challenges associated with long-term storage, we believe that we are in position to capitalize on data assets that are subject to new
protection requirements with our existing product portfolio. Our innovative StorSafe product is designed and architected to leverage the
scale-up and scale-out capabilities found in today's public and private clouds to support the expanding long-term data protection market
demand that is estimated to grow into the Zettabyte (10^21) range by 2030, according to market intelligence provider International Data
Corporation. We believe our innovative integration of long-term archive storage into modern cloud-based technologies will enable our customers
to dramatically improve the portability, security, and accessibility of their enterprise data.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in; color: #0E101A">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><B>Competition</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; color: #0E101A">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in; color: #0E101A"><B>Long-Term Data
Retention and Recovery</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in; background-color: white; color: #0E101A">We
believe our VTL and StorSafe products are positioned well in the marketplace. Given the fact that these products are designed to integrate
with an enterprise&rsquo;s legacy backup and archive software and processes, the level of competition we believe we typically face is
limited to DellEMC&rsquo;s Data Domain virtual tape library product.&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in; background-color: white">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in; background-color: white; color: #0E101A">We
also compete with legacy backup and archive vendors such as Veritas, and Commvault; however, in practice, we believe our products are
more complimentary to their solutions than competitive, as our solutions do not require their solutions to be retired or replaced. In
fact, our enterprise customers view the ability to maintain their legacy software solutions and processes as a key differentiator for
selecting FalconStor products, as it is common for them to use backup and archive products from multiple vendors. By inserting our VTL
or StorSafe product, customers are able to aggregate all of their archive data easily and control global data deduplication and archive
storage from one central point.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; background-color: white; color: #0E101A">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in; background-color: white; color: #0E101A">We
believe our enterprise customers also view the fact that our VTL and StorSafe products operate effectively with Windows, Linux, and IBM
i operating system environments as a key differentiator. As a result, we execute specific go-to-market efforts to identify enterprise
customers that have multiple OS environments in production.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in; background-color: white; color: #0E101A">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.25in; background-color: white; color: #0E101A">Beyond the
differentiation our VTL and StorSafe products provide related to existing infrastructure integration, we also believe the innovations
we are delivering to improve backup and long-term retention and will serve as important competitive differentiators for FalconStor over
the next several years. This belief is founded on the fact that our new innovations are designed to significantly improve archive data
portability, security, and integrity validation. In addition, our new innovations are designed to allow our enterprise customers to seamlessly
leverage multiple private- or public-clouds at one time to significantly reduce archive data storage costs.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.25in; color: #0E101A">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in; color: #0E101A"><B>Business Continuity
Driven Data Replication</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.25in; color: #0E101A">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in; background-color: white; color: #0E101A"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in; background-color: white; color: #0E101A">Competition
within the business continuity driven data replication space is significant and includes products from Veeam, Rubrik, Cohesity, Commvault,
Veritas, DellEMC, DataCore, and others. As a result, it is imperative that we carefully select the areas in which we will compete to ensure
they are aligned with our key product differentiations. Accordingly, our two areas of <FONT STYLE="background-color: white">focus within
this space are on-premise storage virtualization and granular application-aware data replication snapshots that enable our enterprise
customers to recover data back to a specific point in time for near real-time recovery time objectives.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in; background-color: white; color: #0E101A">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><B>Intellectual Property</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in; background-color: white; color: #0E101A">FalconStor&rsquo;s
success is dependent in part upon its proprietary technology. We currently have 36 patents and five pending patent applications. The Company
has multiple registered trademarks - including &ldquo;FalconStor Software&rdquo;, &ldquo;StorSight&rdquo;, &ldquo;StorSafe&rdquo;, and
 &ldquo;Intelligent Abstraction&rdquo; - as well as pending trademark applications related to FalconStor and its products.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in; background-color: white; color: #0E101A">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in; background-color: white; color: #0E101A">FalconStor
seeks to protect its proprietary rights and other intellectual property through a combination of copyright, patents, trademark, and trade
secret protection, as well as through contractual protections such as proprietary information agreements and nondisclosure agreements.
The technological and creative skills of its personnel, new product developments, frequent product enhancements, and reliable product
maintenance are essential to establishing and maintaining a technology leadership.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in; background-color: white; color: #0E101A">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; background-color: white"><B>Major Customers</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; background-color: white">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in; background-color: white">For
each of the three months ended March&nbsp;31, 2021 and 2020, we had&nbsp;two&nbsp;customers that accounted for 10% or more of total revenue,
respectively. As of March&nbsp;31, 2021, we had&nbsp;two&nbsp;customers that accounted for 10% or more of the gross accounts receivable
balance. As of December&nbsp;31, 2020, we had&nbsp;one&nbsp;customer that accounted for 10% or more of the gross accounts receivable balance.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; background-color: white"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; background-color: white"><B>Employees</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; background-color: white">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in; background-color: white">As of
March 31, 2021, we had 45 full-time and part-time employees, consisting of 15 in research &amp; development, 12 in sales &amp; marketing,
13 in service, and 5 in general and administrative. We are not subject to any collective bargaining agreements and we believe that our
employee relations are good.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; background-color: white">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; background-color: white"><B>Internet Address and Availability
of Filings</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; background-color: white"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in; background-color: white">Our
internet address is www.falconstor.com. The Company makes available free of charge, on or through its Internet website, the Company&rsquo;s
Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports filed or furnished
pursuant to Sections 13(a) or (15)(d) of the Exchange Act, as soon as reasonably practicable after the Company electronically files such
material with, or furnishes it to, the Securities and Exchange Commission. The Company complied with this policy for every Exchange Act
report filed during the year ended December&nbsp;31, 2020.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in; background-color: white">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center; background-color: white"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center; background-color: white"><B>BOARD OF DIRECTORS AND
MANAGEMENT</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center; background-color: white"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in; background-color: white">The
names and ages of our directors and executive officer, and their positions with our company, are as follows:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in; background-color: white">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; border-collapse: collapse">
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
    <TD STYLE="padding-right: 5.75pt; padding-left: 5.75pt">
    <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; border-bottom: Black 0.5pt solid"><B>Name</B></P></TD>
    <TD STYLE="padding-right: 5.75pt; padding-left: 5.75pt">
    <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center; border-bottom: Black 0.5pt solid"><B>Position</B></P></TD>
    <TD STYLE="padding-right: 5.75pt; padding-left: 5.75pt">
    <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center; border-bottom: Black 0.5pt solid"><B>Age</B></P></TD></TR>
  <TR STYLE="background-color: White">
    <TD STYLE="vertical-align: bottom; padding-right: 5.75pt; padding-left: 5.75pt">Todd Brooks</TD>
    <TD STYLE="vertical-align: top; padding-right: 5.75pt; padding-left: 5.75pt; text-align: center">President, Chief Executive Officer and Director</TD>
    <TD STYLE="vertical-align: top; padding-right: 5.75pt; padding-left: 5.75pt; text-align: center">56</TD></TR>
  <TR STYLE="background-color: rgb(204,238,255)">
    <TD STYLE="vertical-align: bottom; padding-right: 5.75pt; padding-left: 5.75pt">Martin M. Hale, Jr.</TD>
    <TD STYLE="vertical-align: top; padding-right: 5.75pt; padding-left: 5.75pt; text-align: center">Director</TD>
    <TD STYLE="vertical-align: top; padding-right: 5.75pt; padding-left: 5.75pt; text-align: center">49</TD></TR>
  <TR STYLE="background-color: White">
    <TD STYLE="vertical-align: bottom; padding-right: 5.75pt; padding-left: 5.75pt">Michael P. Kelly</TD>
    <TD STYLE="vertical-align: top; padding-right: 5.75pt; padding-left: 5.75pt; text-align: center">Director</TD>
    <TD STYLE="vertical-align: top; padding-right: 5.75pt; padding-left: 5.75pt; text-align: center">73</TD></TR>
  <TR STYLE="background-color: rgb(204,238,255)">
    <TD STYLE="vertical-align: bottom; padding-right: 5.75pt; padding-left: 5.75pt">William D. Miller</TD>
    <TD STYLE="vertical-align: top; padding-right: 5.75pt; padding-left: 5.75pt; text-align: center">Director</TD>
    <TD STYLE="vertical-align: top; padding-right: 5.75pt; padding-left: 5.75pt; text-align: center">60</TD></TR>
  <TR STYLE="background-color: White">
    <TD STYLE="vertical-align: bottom; padding-right: 5.75pt; padding-left: 5.75pt">Barry A. Rudolph</TD>
    <TD STYLE="vertical-align: top; padding-right: 5.75pt; padding-left: 5.75pt; text-align: center">Director</TD>
    <TD STYLE="vertical-align: top; padding-right: 5.75pt; padding-left: 5.75pt; text-align: center">67</TD></TR>
  <TR STYLE="vertical-align: top; background-color: rgb(204,238,255)">
    <TD STYLE="padding-right: 5.75pt; padding-left: 5.75pt">Brad Wolfe</TD>
    <TD STYLE="padding-right: 5.75pt; padding-left: 5.75pt; text-align: center">Executive Vice President, Chief Financial Officer and Treasurer</TD>
    <TD STYLE="padding-right: 5.75pt; padding-left: 5.75pt; text-align: center">61</TD></TR>
  </TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in; background-color: white">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in; background-color: white">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in; background-color: white">Additional
information with respect to each of our directors and our executive officer, and their principal occupations, is set forth below:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"><I>Todd Brooks&nbsp;</I>is the Company&rsquo;s President
and Chief Executive Officer. Prior to joining the Company in 2017, Mr. Brooks was the Chief Operating Officer at Aurea Software, and Chief
Executive Officer of Update Software, a publicly traded company in Europe. &nbsp;Previously, Mr. Brooks was the Chief Operating Officer
at Trilogy where he was responsible for the strategic and operational leadership of the firm&rsquo;s Automotive, Financial Services and
Telecom, and Technology &amp; Media business units.&nbsp;&nbsp;Earlier in his career, Mr. Brooks co-founded and managed two technology
consulting firms, including eFuel, an early innovator and leader in logistics optimization software for the automotive industry. In addition,
Mr. Brooks held leadership roles at FedEx. Mr. Brooks earned a Bachelor&rsquo;s of Science degree in Aerospace and Ocean Engineering from
Virginia Tech, and currently serves on the Advisory Board at Virginia Tech&rsquo;s Apex Center for Innovation and Entrepreneurship. Mr.
Brooks has been a director of the Company since 2019.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"><I>Martin M. Hale, Jr.&nbsp;</I>has served as the founder
and Chief Executive Officer of Hale Capital Partners, LP, an investment firm that applies a private equity skill set and focus to investing
in small and micro-cap public companies, since 2007. Mr. Hale has 24 years of experience in venture capital and private equity as a board
member and an investor helping public and private companies grow. Mr. Hale currently serves as a director of Culmen International, Dynasil
Corporation, Galois, QL2 Software and Patch Media. Mr. Hale has also served as a director of publicly-traded technology companies including
Lantronix Inc., Adept Technology, Inc. (acquired by Omron Global), Analex Corporation (acquired by QinetiQ North America), Paradigm Holdings
(acquired by CACI International, Inc.), Telanetix, Inc. (acquired by Intermedia) and Top Image Systems (acquired by Kofax). Before joining
Hale Capital Partners, Mr. Hale was a Managing Director and member of the founding team of Pequot Ventures, an associate at Geocapital
Partners, and an analyst with Broadview International. Mr. Hale received a B.A. from Yale University. Mr. Hale has been a director of
the Company since September 2013.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"><I>Michael P. Kelly</I>&nbsp;has served as a director
at Adept Technology, Inc. from April 1997 to October 22, 2015 and also served as Chairman of the Board of Adept from November 2008 to
October 22, 2015. Mr. Kelly has also served as Chief Executive Officer of merchant bank, Kinsale Associates, Inc., since October 2005.
From July 2005 to October 2005, he was the Chief Executive Officer of Cape Semiconductor Inc., a fabless semiconductor company. From 1994
to 2005, Mr. Kelly held the positions of Vice-Chairman and Senior Managing Director of Broadview International, LLC, an international
merger and acquisitions advisory firm and a division of Jefferies Inc. Additionally, he has served as a director of Epicor Software Corporation
(EPIC), a provider of enterprise business software solutions, since September 2005. Mr. Kelly received a B.A. in Accounting from Western
Illinois University, a M.B.A. from St. Louis University, and is also a Certified Public Accountant. Mr. Kelly has been a director of the
Company since October 2014 and our Chairman of the Board since March 2018.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"><FONT STYLE="color: #0E101A"><I>W</I></FONT><I>illiam
D. Miller</I>&nbsp;has served as Chairman and Chief Executive Officer of Axellio Inc., an edge computing systems company, since November
2018 and has been General Partner of FirstMile Ventures (previously Miller Investment Management), a venture capital fund manager making
investments in early stage companies, since 2010. He previously served as Chief Executive Officer of X-IO Technologies, Inc., an enterprise
storage company, from February 2015 to October 2018. Mr. Miller is a director of the following private entities: Axellio Inc., Violin
Sytems LLC, Chromatic Technologies, Inc., New Planet Technologies, Inc., Wanamaker Corp., BurstIQ Inc., and Altia Inc. Mr. Miller was
a cofounder and Chief Technology Officer of StorageNetworks. Mr. Miller holds a B.S. in Chemistry from the University of Illinois. Mr.
Miller has been a director of the Company since December 2016.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"><I>Barry A. Rudolph</I>&nbsp;has served as Chief Executive
Officer of VelociData, Inc., a firm that specializes in high performance data transformation and process offload in large corporations,
since July 2014, and as a director since December 2012. Mr. Rudolph has also served as a director of Spectra Logic Corporation, a computer
data storage company, since December 2015. Previously, Mr. Rudolph served as a director of Dot Hill Systems Corp., a provider of high
performance storage arrays, from February 2012 until its sale to Seagate Technology in October 2015. Mr. Rudolph began his career in January
1978 and held numerous senior level positions with IBM until his retirement in November 2010 in a variety of functional areas, including
operations, engineering, product development, test and assurance, program management, field support and direct manufacturing. Most recently
he was Vice President, System Networking, for IBM with responsibility for delivering overall networking product strategy, portfolio management
and profit and loss management over each of the products in the group. Prior to this position, Mr. Rudolph was Vice President, Storage
Strategy, responsible for the development and integration of the storage strategy for IBM including market segmentation and opportunity
identification. Prior to that, Mr. Rudolph was Vice President, Stack Integration, responsible for the definition and execution of horizontal
solutions and solution selling. Prior positions Mr. Rudolph held at IBM include Vice President and Business Executive, Disk Storage and
Software Systems, where he was responsible for all aspects of disk storage and related software business within IBM. He also held an identical
role with responsibility for IBM&rsquo;s tape storage business. Mr. Rudolph holds a B.S. in Engineering and a Master of Science in Electrical
Engineering from San Diego State University and an MBA from Santa Clara University. Mr. Rudolph has been a director of the Company since
December 2016.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"><I>Brad Wolfe&nbsp;</I>is the Company&rsquo;s Executive
Vice President, Chief Financial Officer and Treasurer. Prior to joining the Company in April 2018, Mr. Wolfe served as Chief Financial
Officer for Asure Software (NASDAQ: ASUR) from October 2014 to July 2017. Prior to joining Asure Software, Mr. Wolfe spent most of the
preceding 14 years with DCI Group and their related entities and investments, a private equity and investment organization, where he served
in consulting, office and executive finance and operational roles for the firm&rsquo;s subsidiary and portfolio companies to promote their
growth and profitability. Before that, he was Chief Financial Officer and Executive Vice President at AON Corporation, a Fortune 200 company.
He holds an MBA degree from Northwestern University&rsquo;s Kellogg School of Business, a J.D. degree from the Kent Law School executive
program, and a B.B.A. degree in accounting and information systems from Southern Methodist University.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0"><B>&nbsp;</B></P>

<P STYLE="font: 10pt/120% Times New Roman, Times, Serif; margin: 0; text-align: center"></P>

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<P STYLE="font: 10pt/120% Times New Roman, Times, Serif; margin: 0; text-align: center"><B>DESCRIPTION OF CAPITAL STOCK</B></P>

<P STYLE="font: 10pt/120% Times New Roman, Times, Serif; margin: 0; text-align: center"><B>&nbsp;</B></P>

<P STYLE="font: 10pt/120% Times New Roman, Times, Serif; margin: 0"><B>General</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in">We have 32,000,000 authorized shares of capital stock,
par value $0.001 per share, of which 30,000,000 shares are common stock and 2,000,000 shares are preferred stock.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 6pt; text-indent: 0.5in">We have the following issued and outstanding
capital stock as of the date of this prospectus:</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in">&bull;</TD><TD>5,949,463 shares of common stock;</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in">&bull;</TD><TD>series A preferred stock convertible into 87,815 shares of common stock;</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in">&bull;</TD><TD>stock options to purchase an aggregate of 9,780 shares of common stock;</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in">&bull;</TD><TD>1,442,828 unvested shares of restricted stock.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.75in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in">On June 2, 2021, the last reported
sale price of our common stock as quoted by the OTCQB Venture Market was $4.80
per share. As of June 2, 2021, there were 46 holders of record of our common stock.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0"><B>Common Stock</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"><I>Voting Rights and Requirements</I>. Each share of
our common stock entitles its record holder to one vote on all matters to be voted on by our common stockholders. Except as otherwise
provided by law, actions by the common stockholders of our company may be approved by a majority vote of the stockholders present at a
duly called meeting of the stockholders at which a quorum is present (with the series A preferred stock generally voting on an as-converted
basis with the common stock); however, an amendment to our bylaws by the stockholders requires the affirmative vote of the holders of
at least 66-2/3% of the voting power of all of the then outstanding shares of our capital stock entitled to vote generally in the election
of directors, voting together as a single class, as well as approval by the holders of series A preferred stock. Our board may amend the
bylaws with the majority vote of the total number of authorized directors. Our board is classified and currently consists of four directors
divided into three classes, each class with a term of office expiring the third succeeding annual meeting of stockholders after election
of such class. At all meetings of stockholders for the election of directors, a plurality of the votes cast is sufficient to elect. No
provision of our charter or bylaws provides for cumulative voting in the case of the election of directors or on any other matter.</P>

<P STYLE="font: 10pt/120% Times New Roman, Times, Serif; margin: 0"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"><I>Dividends and Liquidation Rights</I>. Each holder
of our common stock is entitled to share pro rata in any dividends paid on the common stock out of assets legally available for that purpose,
when, and if declared by the board. Upon the liquidation, dissolution or winding up of our company, the assets will be distributed pro
rata among the holders of common stock. However, the aforementioned dividend and liquidation rights are limited and qualified by the series
A preferred stock, which has a preference to any such distribution of the assets or funds. Other than the rights described above, the
holders of our common stock have no redemption, preemptive, subscription or conversion rights, nor any rights to payment from any sinking
or similar fund, and are not subject to any calls or assessments. There are no restraints in our charter or bylaws on the right of holders
of shares of common stock to sell or otherwise alienate their shares of stock, and there are no provisions discriminating against any
existing or prospective holder of shares of common stock as a result of such security holder owning a substantial amount of securities.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in">In addition to our outstanding common stock, we have
outstanding stock options to purchase common stock and unvested shares of restricted stock held by our employees and directors and additional
shares available for issuance under our 2018 Incentive Stock Plan, as further described in our periodic reports filed with the SEC.</P>

<P STYLE="font: 10pt/120% Times New Roman, Times, Serif; margin: 0"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in">We refer you to our certificate of incorporation, bylaws
and the applicable statutes of the State of Delaware for a more complete description of the rights and liabilities of holders of our securities.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0"><B>Preferred Stock</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in">Our certificate of incorporation authorizes the issuance
of up to 2,000,000 shares of preferred stock with designations, rights and preferences as may be determined from time to time by our board
of directors.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0"><B>Series A Preferred Stock</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 12pt; text-align: left; text-indent: 0.5in"><I>Conversion.</I> Pursuant
to our Amended and Restated Certificate of Designations, Preferences and Rights of Series A Convertible Preferred Stock (the &ldquo;Certificate
of Designations&rdquo;), each share of series A preferred stock can be converted into shares of our common stock, at an initial conversion
price equal to $102.488 per share, subject to appropriate adjustments for any stock dividend, stock split, stock combination, reclassification
or similar transaction, (i) at any time at the option of the holder or (ii) by us if, following the first anniversary of the issuance
of the series A preferred stock (subject to extension under certain circumstances), the volume weighted average trading price per share
of our common stock for 60 consecutive trading days exceeds 250% of the conversion price and continues to exceed 225% of the conversion
price through the conversion date, subject at all times to the satisfaction of, and the limitations imposed by, the equity conditions
set forth in the Certificate of Designations (including, without limitation, the volume limitations set forth therein).</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 12pt; text-align: left; text-indent: 0.5in"><I>Dividends.</I> Pursuant
to the Certificate of Designations, the holders of the series A preferred stock are entitled to receive quarterly dividends at the prime
rate (provided in the Wall Street Journal), plus 5% (up to a maximum dividend rate of 10%), payable in cash or in kind (i.e., through
the issuance of additional shares of series A preferred stock), except that we are not permitted to pay such dividends in cash while any
indebtedness and our Amendment and Restated Loan Agreement remains outstanding without the consent of the holders of the series A preferred
stock. In addition, the declaration and payment of dividends is subject to compliance with applicable law and unpaid dividends will accrue.
A holder&rsquo;s right to convert its shares of series A preferred stock and receive dividends in the form of common stock is subject
to certain limitations including, among other things, that the shares of common stock issuable upon conversion or as dividends will not
result in any holder beneficially owning greater than 9.99% of our currently outstanding shares of common stock.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 12pt; text-align: left; text-indent: 0.5in">The series A preferred stock
dividends will accrue whether or not the declaration or payment of such series A preferred stock dividends are prohibited by applicable
law, whether or not we have earnings, whether or not there are funds legally available for the payment of such dividends and whether or
not such dividends are authorized or declared.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 12pt; text-align: left; text-indent: 0.5in"><I>Redemption Rights.</I>
Upon certain triggering events, such as bankruptcy, insolvency or a material adverse effect or our failure to issue shares of common stock
upon conversion of the series A preferred stock in accordance with our obligations, the holders may require us to redeem all or some of
the series A preferred stock at a price per share equal to the greater of (i) the sum of 100% of the stated value of a share of series
A preferred stock plus accrued and unpaid dividends with respect thereto, and (ii) the product of the number of shares of common stock
underlying a share of series A preferred stock and the closing price as of the occurrence of the triggering event. On or after July 30,
2021, each holder of series A preferred stock can also require us to redeem its series A preferred stock in cash at a per share price
equal to 100% of the stated value of a share of series A preferred stock plus accrued and unpaid dividends with respect thereto. Notwithstanding
the forgoing, no holder of series A preferred stock is permitted to exercise any rights or remedies upon a Breach Event or to exercise
any redemption rights under the Certificate of Designations, unless approved by the holders of a majority of the then outstanding shares
of series A preferred stock. Hale Capital, as the holder of the majority of the currently outstanding shares of series A preferred stock,
has agreed not to approve or to exercise the redemption of the series A preferred stock until at least July 30, 2023, with such extension
to be included in an amendment to the Certificate of Designation that will be proposed for shareholder approval at our next annual shareholder
meeting.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 12pt; text-align: left; text-indent: 0.5in"><I>Fundamental Sale.</I>
Upon consummation of a fundamental sale transaction, the series A preferred stock will be redeemed at a per share redemption price equal
to the greater of (y) 250% of the per share purchase price of the series A preferred stock and (z) the price payable in respect of such
share of series A preferred stock if such share of series A preferred stock had been converted into such number of shares of common stock
in accordance with the Certificate of Designations (but without giving effect to any limitations or restrictions contained therein) immediately
prior to such fundamental sale transaction; provided that the 250% threshold is changed to 100% if the fundamental sale transaction is
approved by the two Series A Directors (as defined in the Certificate of Designations). In addition, if we consummate an equity or debt
financing that results in more than $5.0 million of net proceeds to us and/or our subsidiaries, the holders of series A preferred stock
will have the right, but not the obligation, to require us to use the net proceeds in excess of $5.0 million to repurchase all or a portion
of the series A preferred stock at a per share price equal to the greater of (i) the sum of 100% of the stated value of such share of
series A preferred stock plus accrued and unpaid dividends with respect thereto, and (ii) the number of shares of common stock into which
such share of series A preferred stock is then convertible multiplied by the greater of (y) the closing price of the common stock on
the date of announcement of such financing or (z) the closing price of the common stock on the date of consummation of such financing.</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 12pt; text-align: left; text-indent: 0.5in"><I>Voting.</I> Each holder
of series A preferred stock has a vote equal to the number of shares of common stock into which its series A preferred stock would be
convertible as of the record date. In addition, the holders of a majority of the series A preferred stock must approve certain actions,
including approving any amendments to our charter or bylaws that adversely affects the voting powers, preferences or other rights of the
series A preferred stock, payment of dividends or distributions, any liquidation, capitalization, reorganization or any other fundamental
transaction of our company, issuance of any equity security senior to or on parity with the series A preferred stock as to dividend rights,
redemption rights, liquidation preference and other rights, issuances of equity below the conversion price, any liens or borrowings other
than non-convertible indebtedness from standard commercial lenders which does not exceed 80% of our accounts receivable, and the redemption
or purchase of any of our capital stock.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 12pt; text-align: left; text-indent: 0.5in">The holders of the series
A preferred stock have the exclusive right, voting separately as a class, to elect two directors to our board, for so long as at least
85% of the series A preferred stock purchased under the September 16, 2013 Purchase Agreement relating to the series A preferred stock
remains outstanding, which will be reduced to one director at such time as less than 85% but greater than 15% of the series A preferred
stock purchased under the Purchase Agreement remains outstanding. Currently, Martin M. Hale, Jr. and Michael P. Kelly have been designated
for election by the holders of the series A preferred stock to serve as members of our board of directors.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0"><B>Certain Anti-Takeover Provisions</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in">The provisions of our restated certificate of incorporation
and Delaware law may have the effect of delaying, deferring or preventing another party from acquiring control of the company. These provisions
may discourage and prevent coercive takeover practices and inadequate takeover bids.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.25in"><I>&#9;</I>Our board of directors has the authority,
without further action by our common stockholders, to issue up to an additional 1,100,000 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 our common 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. Moreover, our outstanding series&nbsp;A preferred
stock provides the holders with certain rights in the event of a merger with a third party and if we are unable to redeem the series&nbsp;A
preferred stock prior to July&nbsp;30, 2023 or if the holders of the series&nbsp;A preferred stock elect to exercise their rights to require
us to redeem the series&nbsp;A preferred stock due to our failure to comply with the financial covenants covering the series&nbsp;A preferred
stock.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.25in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.25in">&#9;Our restated certificate of incorporation, as
amended, includes certain provisions that restrict transfers of our common stock in order to protect our NOLs if the effect of such transfers
would be to increase the direct or indirect ownership of stockholders from less than 4.99% to 4.99% or more of our common stock, or increase
the ownership percentage of stockholders owning 4.99% or more of our common stock.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.25in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.25in">&#9;Certain &ldquo;anti-takeover&rdquo; 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. We are subject to Section 203 of the Delaware General Corporation Law, which prohibits a Delaware corporation,
such as our company, from engaging in a wide variety of specified transactions with any person who becomes a 15% stockholder, under certain
circumstances, within three years after such person became an &ldquo;interested stockholder.&rdquo;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.25in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.25in">&#9;We have a staggered board of directors and have
entered into change of control agreements through employment agreements with certain executives.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.25in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.25in">&#9;In addition, generally proceeds received upon
a change of control will be used first to repay outstanding principal and interest on the Term Loan and then to the holders of the series
A preferred stock, prior to the holders of the common stock, in an amount equal to the amount of unpaid principal and interest on the
Term Loan and 100% of the stated value plus accrued and unpaid dividends with respect to the series A preferred stock. As a result of
the foregoing, our stockholders may lose opportunities to dispose of their shares at favorable prices generally available in takeover
attempts or that may be available under a merger proposal and the market price of our common stock and the voting and other rights of
our stockholders may also be affected.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0"><B>Over-the-Counter Market</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 24pt">Our common stock is quoted by the OTCQB Venture Market
under the symbol &ldquo;FALC.&rdquo;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 24pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0"><B>Transfer Agent and Registrar</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 24pt"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 24pt">The transfer agent and registrar for our common stock
is Computershare, Inc.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt/120% Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 10pt/120% Times New Roman, Times, Serif; margin: 0; text-align: center"></P>

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<P STYLE="font: 10pt/120% Times New Roman, Times, Serif; margin: 0; text-align: center"><B>UNDERWRITING</B></P>

<P STYLE="font: 10pt/120% Times New Roman, Times, Serif; margin: 0; text-align: center"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 7pt; text-indent: 23.75pt">&#9;We are offering the shares of common stock
described in this prospectus through Roth Capital Partners, LLC (&ldquo;Roth Capital&rdquo; or the &ldquo;underwriter&rdquo;). Roth Capital
has agreed to buy, subject to the terms of the underwriting agreement, the number of shares of common stock listed opposite its name below.
The underwriter is committed to purchase and pay for all of the shares if any are purchased, other than the shares covered by the over-allotment
option described below unless and until this option is exercised.</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; border-collapse: collapse">
  <TR STYLE="vertical-align: top">
    <TD STYLE="width: 78%; border-bottom: Black 1.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt"><B>Underwriter</B></TD>
    <TD STYLE="width: 22%; border-bottom: Black 1.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt"><B>Number of Shares</B></TD></TR>
  <TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-bottom: 6pt; padding-left: 5.4pt">Roth Capital Partners, LLC</TD>
    <TD STYLE="border-bottom: Black 1.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-bottom: 6pt; padding-left: 5.4pt">Total</TD>
    <TD STYLE="border-bottom: Black 4.5pt double; padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD></TR>
  </TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 7pt; text-indent: 23.75pt">&#9;We have granted to the underwriter a 30-day
option to purchase up to an additional &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; shares of our common
stock from us at the same price to the public, and with the same underwriting discount, as set forth in the table below. The underwriter
may exercise this option any time during the 30-day period after the date of this prospectus, but only to cover over-allotments, if any.
To the extent the underwriter exercises the option, the underwriter will become obligated, subject to certain conditions, to purchase
the securities for which it exercised the option.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 7pt"><B>Discounts, Commissions and Expenses</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 7pt; text-indent: 23.75pt">&#9;The underwriter has advised us that it
proposes to offer the shares of common stock to the public at a public offering price of $ &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
share. The underwriter proposes to offer the shares of common stock to certain dealers at the same price less a concession of not more
than $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per share. After the offering, these figures may be
changed by the underwriter. No such change shall change the amount of proceeds to be received by us as set forth on the cover page of
this prospectus.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 7pt; text-indent: 23.75pt">&#9;The shares sold in this offering are expected
to be ready for delivery against payment in immediately available funds on or about &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;,
2021, subject to customary closing conditions. The underwriter may reject all or part of any order.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 12pt 0 7pt; text-indent: 23.75pt">&#9;In connection with the sale of the common
stock to be purchased by the underwriter, the underwriter will be deemed to have received compensation in the form of underwriting commissions
and discounts. The underwriting commissions and discounts will be 7% of the gross proceeds of this offering, or $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
per share of common stock, based on the public offering price per share set forth on the cover page of this prospectus. The underwriting
discount is equal to the public offering price per share of common stock, less the amount paid by the underwriter to us per share.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 12pt 0 7pt; text-indent: 23.75pt">The following table shows the per share
and total underwriting discount to be paid by us to the underwriter in this offering, assuming both no exercise and full exercise of the
over-allotment option.</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; border-collapse: collapse">
  <TR STYLE="vertical-align: top">
    <TD STYLE="width: 52%; border-bottom: Black 1.5pt solid; padding-right: 5.4pt; padding-bottom: 7pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="width: 13%; border-bottom: Black 1.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center"><B><BR>
Per Share</B></TD>
    <TD STYLE="width: 18%; border-bottom: Black 1.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center"><B>Total with<BR>
No Over-Allotment</B></TD>
    <TD STYLE="width: 17%; border-bottom: Black 1.5pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center"><B>Total with<BR>
Over-Allotment</B></TD></TR>
  <TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-bottom: 7pt; padding-left: 5.4pt">Underwriting discount to be paid by us</TD>
    <TD STYLE="padding-right: 5.4pt; padding-bottom: 7pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-bottom: 7pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-bottom: 7pt; padding-left: 5.4pt">&nbsp;</TD></TR>
  </TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 12pt 0 7pt; text-indent: 23.75pt">&#9;We estimate that the total expenses
of this offering, excluding the underwriting discount, will be approximately $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;.
We have also agreed to reimburse the underwriter for legal expenses incurred by it in connection with the offering up to a maximum of
$100,000, which includes all fees of counsel for the underwriter incident to any required review and approval by FINRA of the sale of
the shares. In addition, we have agreed to reimburse the underwriter for fees of counsel for the underwriter incurred in connection with
the qualification of the shares for offering and sale under state securities or blue-sky laws, up to a maximum of $15,000. We have also
agreed to pay or reimburse the underwriter&rsquo;s counsel for all filing fees incident to any required review and approval by FINRA of
the sale of the shares and all filing fees in connection with the qualification of the shares for offering and sale under state securities
or blue-sky laws. In accordance with FINRA Rule 5110, the $100,000 reimbursement fee described in this paragraph is deemed underwriting
compensation for this offering.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 7pt; text-indent: 23.75pt">&#9;We have also agreed to indemnify the underwriter
against certain liabilities, including civil liabilities under the Securities Act of 1933 (the &ldquo;Securities Act&rdquo;) or to contribute
to payments that the underwriter may be required to make in respect of those liabilities.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 7pt; text-indent: 23.75pt">&#9;Except as disclosed in this prospectus,
the underwriter has not received, and will not receive, from us any other item of compensation or expense in connection with this offering
considered by FINRA to be underwriting compensation under its rule of fair price. The underwriting discount was determined through an
arms&rsquo; length negotiation between us and the underwriter.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><B>Lock-Up Agreements</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">Without the prior written consent
of Roth Capital, for a period of 90 days following the date of this prospectus (the &ldquo;Lock-Up Period&rdquo;), we have agreed not
to (i) offer, pledge, issue, sell, contract to sell, purchase, contract to purchase, lend or otherwise transfer or dispose of, directly
or indirectly, any shares of common stock or any securities convertible into or exercisable or exchangeable for common stock of the Company,
(ii) enter into any swap or other arrangement that transfers, in whole or in part, any of the economic consequences of ownership of shares
of common stock or (iii) file any registration statement with the SEC relating to the offering of any shares of common stock or any securities
convertible into or exercisable or exchangeable for shares of common stock, except for (a) the issuance of the shares of our common stock
in this offering, (b) the issuance of shares of our common stock pursuant to our existing stock option plan and (c) the issuance of shares
in connection with any acquisition consummated by us during the Lock-Up Period, as long as the aggregate number of shares issued or issuable
does not exceed 5% of the number of shares of common stock outstanding immediately after giving effect to this offering and certain other
restrictions are met.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">In addition, each of our directors
and executive officers has entered into a lock-up agreement with Roth Capital. Under the lock-up agreements, without the prior written
consent of Roth Capital, the foregoing persons may not, directly or indirectly, (i) sell, assign, transfer, pledge, offer to sell, contract
to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option for sale (including any short
sale), right or warrant to purchase, lend, establish an open &ldquo;put equivalent position&rdquo; (within the meaning of Rule 16a-1(h)
under the Exchange Act), or otherwise dispose of, or enter into any transaction which is designed to or could be expected to result in
the disposition of, any shares of common stock or securities convertible into or exercisable or exchangeable for any equity securities
of the Company (including, without limitation, shares of common stock or any such securities which may be deemed to be beneficially owned
by such persons in accordance with the rules and regulations promulgated by the SEC from time to time (such shares or securities, the
 &ldquo;Beneficially Owned Shares&rdquo;)), or publicly announce any intention to do any of the foregoing, other than the exercise of options
or warrants so long as there is no sale or disposition of the common stock underlying such options or warrants during the Lock-Up Period,
(ii) enter into any swap, hedge or other agreement or arrangement that transfers in whole or in part, the economic risk of ownership of
any Beneficially Owned Shares, common stock or securities convertible into or exercisable or exchangeable for any equity securities of
the Company, or (iii) engage in any short selling of any Beneficially Owned Shares, common stock or securities convertible into or exercisable
or exchangeable for any equity securities of the Company, whether any such transaction described in clause (i), (ii) or (iii) above is
to be settled by delivery of shares of common stock or such other securities, in cash or otherwise, for a period of 90 days from the date
of this prospectus. This consent may be given at any time without public notice. These restrictions on future dispositions by our directors
and executive officers are subject to certain exceptions for transfers of Beneficially Owned Shares, including, but not limited to, transfers
(i) as a bona fide gift or gifts, (ii) by operation of law, including pursuant to a qualified domestic order or in connection with a divorce
settlement, (iii) to the immediate family of the transferor, (iv) to any trust for the direct or indirect benefit of such person or the
immediate family of the transferor, (v) to any beneficiary of the transferor pursuant to a will or other testamentary document or applicable
laws of descent and (vi) to any corporation, partnership, limited liability company or other entity all of the beneficial ownership interests
of which are held by the transferor or the immediate family of the transferor.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 12pt"><B>Price Stabilization, Short Positions and Penalty Bids</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">In connection with the offering,
the underwriter may engage in stabilizing transactions, over-allotment transactions, syndicate covering transactions and penalty bids
in accordance with Regulation M under the Exchange Act:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.75in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Courier New, Courier, Monospace">o</FONT></TD><TD STYLE="text-align: justify">Stabilizing transactions permit bids to purchase the underlying security so long as the stabilizing bids
do not exceed a specified maximum.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.75in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Courier New, Courier, Monospace">o</FONT></TD><TD>Over-allotment involves sales by the underwriter of shares in excess of the number of shares the underwriter is obligated to purchase,
which creates a syndicate short position. The short position may be either a covered short position or a naked short position. In a covered
short position, the number of shares over-allotted by the underwriter is not greater than the number of shares that it may purchase pursuant
to the over-allotment option. In a naked short position, the number of shares involved is greater than the number of shares that the underwriter
may purchase pursuant to the over-allotment option. The underwriter may close out any covered short position by either exercising the
over-allotment option and/or purchasing shares in the open market.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.75in; text-align: justify; text-indent: -15.75pt">&nbsp;</P>

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<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.75in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Courier New, Courier, Monospace">o</FONT></TD><TD>Syndicate covering transactions involve purchases of the common stock in the open market after the distribution has been completed
in order to cover syndicate short positions. In determining the source of shares to close out the short position, the underwriter will
consider, among other things, the price of shares available for purchase in the open market as compared to the price at which it may purchase
shares through the over-allotment option. A naked short position occurs if the underwriter sells more shares than could be covered by
the over-allotment option. This position can only be closed out by buying shares in the open market. A naked short position is more likely
to be created if the underwriter is concerned that there could be downward pressure on the price of the shares in the open market after
pricing that could adversely affect investors who purchase in the offering.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.75in; text-align: justify; text-indent: -15.75pt">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.75in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Courier New, Courier, Monospace">o</FONT></TD><TD>Penalty bids permit the underwriter to reclaim a selling concession from a syndicate member when the common stock originally sold
by the syndicate member is purchased in a stabilizing or syndicate covering transaction to cover syndicate short positions.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; text-indent: 23.75pt; margin-right: 0; margin-left: 0">These stabilizing transactions,
syndicate covering transactions and penalty bids may have the effect of raising or maintaining the market price of our common stock or
preventing or retarding a decline in the market price of the common stock. As a result, the price of our common stock may be higher than
the price that might otherwise exist in the open market. These transactions may be effected on the OTCQB Venture Market or otherwise and,
if commenced, may be discontinued at any time.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 7pt; text-indent: 23.75pt">In connection with this offering, the underwriter
and selling group members, if any, may also engage in passive market making transactions in our common stock on the OTCQB Venture Market.
Passive market making consists of displaying bids on the OTCQB Venture Market by the prices of independent market makers and effecting
purchases limited by those prices in response to order flow. Rule 103 of Regulation M promulgated by the SEC limits the amount of net
purchases that each passive market maker may make and the displayed size of each bid. Passive market making may stabilize the market price
of our common stock at a level above that which might otherwise prevail in the open market and, if commenced, may be discontinued at any
time.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 7pt; text-indent: 23.75pt">Neither we nor the underwriter make any representation
or prediction as to the direction or magnitude of any effect that the transactions described above may have on the price of our common
stock. In addition, neither we nor the underwriter make any representation that the underwriter will engage in these transactions or that
any transaction, if commenced, will not be discontinued without notice.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 12pt"><B>Affiliations</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 7pt; text-indent: 23.75pt">&#9;The underwriter and its affiliates are
full service financial institutions engaged in various activities, which may include securities trading, commercial and investment banking,
financial advisory, investment management, investment research, principal investment, hedging, financing and brokerage activities. The
underwriter may in the future engage in investment banking and other commercial dealings in the ordinary course of business with us or
our affiliates. The underwriter may in the future receive customary fees and commissions for these transactions.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 7pt; text-indent: 23.75pt">&#9;In the ordinary course of its business
activities, the underwriter and its affiliates may make or hold a broad array of investments and actively trade debt and equity securities
(or related derivative securities) and financial instruments (including bank loans) for its own account and for the accounts of its customers,
and such investment and securities activities may involve securities and/or instruments of the issuer. The underwriter and its affiliates
may also make investment recommendations and/or publish or express independent research views in respect of such securities or instruments
and may at any time hold, or recommend to clients that they acquire, long and/or short positions in such securities and instruments.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 12pt"><B>Electronic Offer, Sale and Distribution</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 7pt; text-indent: 23.75pt">&#9;In connection with this offering, the underwriter
or certain of the securities dealers may distribute prospectuses by electronic means, such as e-mail. In addition, the underwriter may
facilitate Internet distribution for this offering to certain of its internet subscription customers. The underwriter may allocate a limited
number of shares for sale to its online brokerage customers. An electronic prospectus is available on the Internet website maintained
by the underwriter. Other than the prospectus in electronic format, the information on the website of the underwriter is not part of this
prospectus.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 12pt"><B>Over-the-Counter Market</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 7pt; text-indent: 23.75pt">&#9;Our common stock is quoted by the OTCQB
Venture Market under the symbol &ldquo;FALC.&rdquo;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 12pt"><B>Selling Restrictions</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><B>Australia</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">This prospectus is not a disclosure
document under Chapter 6D of the Australian Corporations Act, has not been lodged with the Australian Securities and Investments Commission
and does not purport to include the information required of a disclosure document under Chapter 6D of the Australian Corporations Act.
Accordingly, (i) the offer of the securities under this prospectus is only made to persons to whom it is lawful to offer the securities
without disclosure under Chapter 6D of the Australian Corporations Act under one or more exemptions set out in section 708 of the Australian
Corporations Act, (ii) this prospectus is made available in Australia only to those persons as set forth in clause (i) above, and (iii)
the offeree must be sent a notice stating in substance that by accepting this offer, the offeree represents that the offeree is such a
person as set forth in clause (i) above, and, unless permitted under the Australian Corporations Act, agrees not to sell or offer for
sale within Australia any of the securities sold to the offeree within 12 months after its transfer to the offeree under this prospectus.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><B>Canada</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">The securities may be sold in
Canada only to purchasers purchasing, or deemed to be purchasing, as principal that are accredited investors, as defined in National Instrument
45-106 Prospectus Exemptions or subsection 73.3(1) of the Securities Act (Ontario), and are permitted clients, as defined in National
Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations. Any resale of the securities must be made
in accordance with an exemption from, or in a transaction not subject to, the prospectus requirements of applicable securities laws. Securities
legislation in certain provinces or territories of Canada may provide a purchaser with remedies for rescission or damages if this prospectus
(including any amendment thereto) contains a misrepresentation, provided that the remedies for rescission or damages are exercised by
the purchaser within the time limit prescribed by the securities legislation of the purchaser&rsquo;s province or territory. The purchaser
should refer to any applicable provisions of the securities legislation of the purchaser&rsquo;s province or territory for particulars
of these rights or consult with a legal advisor. Pursuant to section 3A.3 of National Instrument 33-105 Underwriting Conflicts (NI 33-105),
the underwriter is not required to comply with the disclosure requirements of NI33-105 regarding underwriter&rsquo;s conflicts of interest
in connection with this offering.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><B>China</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in">The information in this document
does not constitute a public offer of the securities, whether by way of sale or subscription, in the People&rsquo;s Republic of China
(excluding, for purposes of this paragraph, Hong Kong Special Administrative Region, Macau Special Administrative Region and Taiwan).
The securities may not be offered or sold directly or indirectly in the PRC to legal or natural persons other than directly to &ldquo;qualified
domestic institutional investors.&rdquo;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 12pt; text-align: justify"><B>European Economic Area</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in">In relation to each Member State
of the European Economic Area (each a &ldquo;Relevant State&rdquo;), none of the shares of our common stock have been offered or will
be offered pursuant to this offering to the public in that Relevant State prior to the publication of a prospectus in relation to such
shares which has been approved by the competent authority in that Relevant State or, where appropriate, approved in another Relevant State
and notified to the competent authority in that Relevant State, all in accordance with the Prospectus Regulation, except that it may make
an offer to the public in that Relevant State of the shares of our common stock at any time under the following exemptions under the Prospectus
Regulation:</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 11.05pt; margin-bottom: 0"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&#183;</FONT></TD><TD STYLE="text-align: justify">to any legal entity which is a qualified investor as defined in the Prospectus Regulation;</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 11.05pt; margin-bottom: 0"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&#183;</FONT></TD><TD STYLE="text-align: justify">to fewer than 150 natural or legal persons (other than qualified investors as defined in the Prospectus
Regulation), subject to obtaining the prior consent of the underwriter; or</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 11.05pt; margin-bottom: 0"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&#183;</FONT></TD><TD STYLE="text-align: justify">in any other circumstances falling within Article 1(4) of the Prospectus Regulation,</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 11.05pt 0 0; text-align: justify">provided that no such offer of shares of
our common stock shall require us or the underwriter to publish a prospectus pursuant to Article 3 of the Prospectus Regulation or supplement
a prospectus pursuant to Article 23 of the Prospectus Regulation.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 11.05pt 0 0; text-align: justify; text-indent: 0.25in">In the case of any
shares of our common stock being offered to a financial intermediary as that term is used in Article 5(1) of the Prospectus Regulation,
each such financial intermediary will be deemed to have represented, acknowledged and agreed that the shares of our common stock acquired
by it in the offer have not been acquired on a non-discretionary basis on behalf of, nor have they been acquired with a view to their
offer or resale to, persons in circumstances which may give rise to an offer of any shares of our common stock to the public other than
their offer or resale in a Relevant State to qualified investors as so defined or in circumstances in which the prior consent of the underwriter
has been obtained to each such proposed offer or resale.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 11.05pt 0 0; text-align: justify; text-indent: 0.25in"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 11.05pt 0 0; text-align: justify; text-indent: 0.25in">For the purposes of
this provision, the expression an &ldquo;offer of shares of our common stock to the public&rdquo; in relation to any shares of our common
stock in any Relevant State means the communication in any form and by means of sufficient information on the terms of the offer and the
shares of our common stock to be offered so as to enable an investor to decide to purchase shares of our common stock, and the expression
 &ldquo;Prospectus Regulation&rdquo; means Regulation (EU) 2017/1129.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><B>France</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 4.2pt 0 0; text-align: justify; text-indent: 0.25in">This document is not
being distributed in the context of a public offering of financial securities (offre au public de titres financiers) in France within
the meaning of Article L.411-1 of the French Monetary and Financial Code (Code mon&eacute;taire et financier) and Articles 211-1 et seq.
of the General Regulation of the French Autorit&eacute; des march&eacute;s financiers (&ldquo;AMF&rdquo;). The securities have not been
offered or sold and will not be offered or sold, directly or indirectly, to the public in France.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 11.05pt 0 0; text-align: justify; text-indent: 0.25in">This document and any
other offering material relating to the securities have not been, and will not be, submitted to the AMF for approval in France and, accordingly,
may not be distributed or caused to distributed, directly or indirectly, to the public in France.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 11.05pt 0 0; text-align: justify; text-indent: 0.25in">Such offers, sales
and distributions have been and shall only be made in France to (i) qualified investors (investisseurs qualifi&eacute;s) acting for their
own account, as defined in and in accordance with Articles L.411-2-II-2 and D.411-1 to D.411-3, D. 744-1, D.754-1 and D.764-1 of the French
Monetary and Financial Code and any implementing regulation and/or (ii) a restricted number of non-qualified investors (cercle restreint
d&rsquo;investisseurs) acting for their own account, as defined in and in accordance with Articles L.411-2-II-2&deg; and D.411-4, D.744-1,
D.754-1 and D.764-1 of the French Monetary and Financial Code and any implementing regulation.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 11.05pt 0 0; text-align: justify; text-indent: 0.25in">Pursuant to Article
211-3 of the General Regulation of the AMF, investors in France are informed that the securities cannot be distributed (directly or indirectly)
to the public by the investors otherwise than in accordance with Articles L.411-1, L.411-2, L.412-1 and L.621-8 to L.621-8-3 of the French
Monetary and Financial Code.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><B>Ireland</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 4.2pt 0 0; text-align: justify; text-indent: 0.25in">The information in this
document does not constitute a prospectus under any Irish laws or regulations and this document has not been filed with or approved by
any Irish regulatory authority as the information has not been prepared in the context of a public offering of securities in Ireland within
the meaning of the Irish Prospectus (Directive 2003/71/EC) Regulations 2005 (the &ldquo;Prospectus Regulations&rdquo;). The securities
have not been offered or sold, and will not be offered, sold or delivered directly or indirectly in Ireland by way of a public offering,
except to (i) qualified investors as defined in Regulation 2(l) of the Prospectus Regulations and (ii) fewer than 100 natural or legal
persons who are not qualified investors.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><B>Israel</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 4.2pt 0 0; text-align: justify; text-indent: 0.25in">The securities offered
by this prospectus have not been approved or disapproved by the Israeli Securities Authority (the ISA), or ISA, nor have such securities
been registered for sale in Israel. Shares of our common stock may not be offered or sold, directly or indirectly, to the public in Israel,
absent the publication of a prospectus. The ISA has not issued permits, approvals or licenses in connection with this offering or publishing
the prospectus; nor has it authenticated the details included herein, confirmed their reliability or completeness, or rendered an opinion
as to the quality of the securities being offered. Any resale in Israel, directly or indirectly, to the public of the securities offered
by this prospectus is subject to restrictions on transferability and must be effected only in compliance with the Israeli securities laws
and regulations.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><B>Italy</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 4.2pt 0 0; text-align: justify; text-indent: 0.25in">The offering of the securities
in the Republic of Italy has not been authorized by the Italian Securities and Exchange Commission (Commissione Nazionale per le Societ&agrave;
e la Borsa, &ldquo;CONSOB&rdquo; pursuant to the Italian securities legislation and, accordingly, no offering material relating to the
securities may be distributed in Italy and such securities may not be offered or sold in Italy in a public offer within the meaning of
Article 1.1(t) of Legislative Decree No. 58 of 24 February 1998 (&ldquo;Decree No. 58&rdquo;), other than:</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 11.05pt; margin-bottom: 0"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&#183;</FONT></TD><TD STYLE="text-align: justify">to Italian qualified investors, as defined in Article 100 of Decree no. 58 by reference to Article 34-ter
of CONSOB Regulation no. 11971 of 14 May 1999 (&ldquo;Regulation no. 1197l&rdquo;) as amended (&ldquo;Qualified Investors&rdquo;); and</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 11.05pt; margin-bottom: 0"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&#183;</FONT></TD><TD STYLE="text-align: justify">in other circumstances that are exempt from the rules on public offer pursuant to Article 100 of Decree
No. 58 and Article 34-ter of Regulation No. 11971 as amended.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 11.05pt 0 0; text-align: justify; text-indent: 0.25in">Any offer, sale or
delivery of the securities or distribution of any offer document relating to the securities in Italy (excluding placements where a Qualified
Investor solicits an offer from the issuer) under the paragraphs above must be:</P>

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<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 11.05pt; margin-bottom: 0"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&#183;</FONT></TD><TD STYLE="text-align: justify">made by investment firms, banks or financial intermediaries permitted to conduct such activities in Italy
in accordance with Legislative Decree No. 385 of 1 September 1993 (as amended), Decree No. 58, CONSOB Regulation No. 16190 of 29 October
2007 and any other applicable laws; and</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 11.05pt; margin-bottom: 0"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&#183;</FONT></TD><TD STYLE="text-align: justify">in compliance with all relevant Italian securities, tax and exchange controls and any other applicable
laws.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 11.05pt 0 0; text-align: justify; text-indent: 0.25in">Any subsequent distribution
of the securities in Italy must be made in compliance with the public offer and prospectus requirement rules provided under Decree No.
58 and the Regulation No. 11971 as amended, unless an exception from those rules applies. Failure to comply with such rules may result
in the sale of such securities being declared null and void and in the liability of the entity transferring the securities for any damages
suffered by the investors.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><B>Japan</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 4.2pt 0 0; text-align: justify; text-indent: 0.25in">The securities have not
been and will not be registered under Article 4, paragraph 1 of the Financial Instruments and Exchange Law of Japan (Law No. 25 of 1948),
as amended (the &ldquo;FIEL&rdquo;) pursuant to an exemption from the registration requirements applicable to a private placement of securities
to Qualified Institutional Investors (as defined in and in accordance with Article 2, paragraph 3 of the FIEL and the regulations promulgated
thereunder). Accordingly, the securities may not be offered or sold, directly or indirectly, in Japan or to, or for the benefit of, any
resident of Japan other than Qualified Institutional Investors. Any Qualified Institutional Investor who acquires securities may not resell
them to any person in Japan that is not a Qualified Institutional Investor, and acquisition by any such person of securities is conditional
upon the execution of an agreement to that effect.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><B>New Zealand</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 4.2pt 0 0; text-align: justify; text-indent: 0.25in">The shares of our common
stock offered hereby have not been offered or sold, and will not be offered or sold, directly or indirectly in New Zealand and no offering
materials or advertisements have been or will be distributed in relation to any offer of shares in New Zealand, in each case other than:</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 11.05pt; margin-bottom: 0"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&#183;</FONT></TD><TD STYLE="text-align: justify">to persons whose principal business is the investment of money or who, in the course of and for the purposes
of their business, habitually invest money;</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 5.55pt; margin-bottom: 0"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&#183;</FONT></TD><TD STYLE="text-align: justify">to persons who in all the circumstances can properly be regarded as having been selected otherwise than
as members of the public;</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 5.55pt; margin-bottom: 0"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&#183;</FONT></TD><TD STYLE="text-align: justify">to persons who are each required to pay a minimum subscription price of at least NZ$500,000 for the shares
of our common stock before the allotment of those shares (disregarding any amounts payable, or paid, out of money lent by the issuer or
any associated person of the issuer); or</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 5.55pt; margin-bottom: 0"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&#183;</FONT></TD><TD STYLE="text-align: justify">in other circumstances where there is no contravention of the Securities Act 1978 of New Zealand (or any
statutory modification or reenactment of, or statutory substitution for, the Securities Act 1978 of New Zealand).</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 5.55pt 0 0 0.5in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><B>Portugal</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 4.2pt 0 0; text-align: justify; text-indent: 0.25in">This document is not
being distributed in the context of a public offer of financial securities (oferta p&uacute;blica de valores mobili&aacute;rios) in Portugal,
within the meaning of Article 109 of the Portuguese Securities Code (C&oacute;digo dos Valores Mobili&aacute;rios). The securities have
not been offered or sold and will not be offered or sold, directly or indirectly, to the public in Portugal. This document and any other
offering material relating to the securities have not been, and will not be, submitted to the Portuguese Securities Market Commission
(Comiss&abreve;o do Mercado de Valores Mobili&aacute;rios) for approval in Portugal and, accordingly, may not be distributed or caused
to distributed, directly or indirectly, to the public in Portugal, other than under circumstances that are deemed not to qualify as a
public offer under the Portuguese Securities Code. Such offers, sales and distributions of securities in Portugal are limited to persons
who are &ldquo;qualified investors&rdquo; (as defined in the Portuguese Securities Code). Only such investors may receive this document
and they may not distribute it or the information contained in it to any other person.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0 0; text-align: justify"><B>Sweden</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 4.2pt 0 0; text-align: justify; text-indent: 0.25in">This document has not
been, and will not be, registered with or approved by Finansinspektionen (the Swedish Financial Supervisory Authority). Accordingly, this
document may not be made available, nor may the securities be offered for sale in Sweden, other than under circumstances that are deemed
not to require a prospectus under the Swedish Financial Instruments Trading Act (1991:980) (Sw. lag (1991:980) om handel med finansiella
instrument). Any offering of securities in Sweden is limited to persons who are &ldquo;qualified investors&rdquo; (as defined in the Financial
Instruments Trading Act). Only such investors may receive this document and they may not distribute it or the information contained in
it to any other person.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><B>Switzerland</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 4.2pt 0 0; text-align: justify; text-indent: 0.25in"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 4.2pt 0 0; text-align: justify; text-indent: 0.25in">The securities may not
be publicly offered in Switzerland and will not be listed on the SIX Swiss Exchange (&ldquo;SIX&rdquo;) or on any other stock exchange
or regulated trading facility in Switzerland. This document has been prepared without regard to the disclosure standards for issuance
prospectuses under art. 652a or art. 1156 of the Swiss Code of Obligations or the disclosure standards for listing prospectuses under
art. 27 ff. of the SIX Listing Rules or the listing rules of any other stock exchange or regulated trading facility in Switzerland. Neither
this document nor any other offering material relating to the securities may be publicly distributed or otherwise made publicly available
in Switzerland.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 11.05pt 0 0; text-align: justify; text-indent: 0.25in">Neither this document
nor any other offering material relating to the securities have been or will be filed with or approved by any Swiss regulatory authority.
In particular, this document will not be filed with, and the offer of securities will not be supervised by, the Swiss Financial Market
Supervisory Authority (FINMA). This document is personal to the recipient only and not for general circulation in Switzerland.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><B>United Arab Emirates</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 4.2pt 0 0; text-align: justify; text-indent: 0.25in">Neither this document
nor the securities have been approved, disapproved or passed on in any way by the Central Bank of the United Arab Emirates or any other
governmental authority in the United Arab Emirates, nor have we received authorization or licensing from the Central Bank of the United
Arab Emirates or any other governmental authority in the United Arab Emirates to market or sell the securities within the United Arab
Emirates. This document does not constitute and may not be used for the purpose of an offer or invitation. We may not render services
relating to the securities within the United Arab Emirates, including the receipt of applications and/or the allotment or redemption of
such shares.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 11.05pt 0 0; text-align: justify; text-indent: 0.25in">No offer or invitation
to subscribe for securities is valid or permitted in the Dubai International Financial Centre.</P>

<P STYLE="font: 10pt/11.25pt Times New Roman, Times, Serif; margin: 0.2pt 0 0; text-align: justify"><FONT STYLE="letter-spacing: 1.25pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><B>United Kingdom</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 4.2pt 0 0; text-align: justify; text-indent: 0.25in">The communication of
this prospectus and any other documents or materials relating to the issue of the shares of our common stock offered hereby is not being
made, and such documents and/or materials have not been approved, by an authorised person for purposes of <B>S</B>ection 21 of the United
Kingdom&rsquo;s Financial Services and Markets Act 2000, as amended (the &ldquo;FSMA&rdquo;). Accordingly, such documents and/or materials
are not being distributed to, and must not be passed on to, the general public in the United Kingdom.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 11.05pt 0 0; text-align: justify; text-indent: 0.25in">In the United Kingdom,
this prospectus is being distributed only to, and are directed only at, persons who: (i) have professional experience in matters relating
to investments falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended
(the &ldquo;Order&rdquo;); and/or (ii) are high net worth entities (or persons to whom they may otherwise lawfully be communicated) falling
within Article 49(2)(a) to (d) of the Order (all such persons together being referred to as &ldquo;relevant persons&rdquo;). Any person
in the United Kingdom that is not a relevant person should not act or rely on the information included in this prospectus or use it as
basis for taking any action. In the United Kingdom, any investment or investment activity to which this prospectus relates is only available
to, and will be engaged in with, relevant persons.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 11.05pt 0 0; text-align: justify; text-indent: 0.25in">Any invitation or
inducement to engage in investment activity (within the meaning of Section 21 of the FSMA) in connection with the issue or sale of the
shares of our common stock may only be communicated or caused to be communicated in circumstances in which Section 21(1) of the FSMA
does not apply to us.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 12pt; text-align: center"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 12pt; text-align: center"><B>LEGAL MATTERS</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in">Olshan Frome Wolosky LLP, New York, New York, will
pass upon the validity of the issuance of the common stock offered by this prospectus as our counsel. Pillsbury Winthrop Shaw Pittman
LLP, New York, New York, is acting as counsel for the underwriter in connection with this offering.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 12pt; text-align: center"><B>EXPERTS</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"><FONT STYLE="letter-spacing: 0.2pt">Marcum LLP, an
independent registered public accounting firm, has audited our consolidated financial statements at December 31, 2020 and 2019 and for
each of the two years in the period ended December 31, 2020, in each case, as set forth in its report included in our annual report on
Form 10-K for the year ended December 31, 2020, which is incorporated by reference into this prospectus and elsewhere in the registration
statement of which this prospectus is a part. Our consolidated financial statements are incorporated by reference in reliance on Marcum
LLP&rsquo;s reports, given on their authority as experts in accounting and auditing.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 12pt; text-align: center"><B>WHERE YOU CAN FIND MORE INFORMATION</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in">We have filed with the SEC a registration statement
on Form S-1, including exhibits and schedules, under the Securities Act, with respect to the shares of common stock being offered by this
prospectus. This prospectus, which constitutes part of the registration statement, does not contain all of the information in the registration
statement and its exhibits. For further information with respect to us and the common stock offered by this prospectus, we refer you to
the registration statement and its exhibits. Statements contained in this prospectus as to the contents of any contract or any other document
referred to are not necessarily complete and, in each instance, we refer you to the copy of the contract or other document filed as an
exhibit to the registration statement. Each of these statements is qualified in all respects by this reference.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in">We file annual, quarterly and current reports, proxy
statements and other information with the SEC. Our SEC filings, including the registration statement, are available to the public over
the Internet at the SEC&rsquo;s website at www.sec.gov.&nbsp;&nbsp;&nbsp;Our annual reports on&nbsp;Form&nbsp;10-K,&nbsp;quarterly reports
on&nbsp;Form&nbsp;10-Q&nbsp;and current reports on&nbsp;Form&nbsp;8-K,&nbsp;including any amendments to those reports, and other information
that we file with or furnish to the SEC pursuant to Section&nbsp;13 or 15(d)&nbsp;of the Exchange Act, can also be accessed free of charge
in the Investor Relations section of our website, which is located at https://falconstor.com. These filings will be available as soon
as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. Information contained on our website
is not incorporated by reference into this prospectus and you should not consider information contained on our website to be part of this
prospectus.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><B>INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE<BR>
<BR>
</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 20pt">&#9;The SEC allows us to incorporate by reference information
that we file with them. Incorporation by reference allows us to disclose important information to you by referring you to those other
documents. The information incorporated by reference is an important part of this prospectus, and information that we file later with
the SEC will automatically update and supersede this information. We filed a registration statement on Form S-1 under the Securities Act
with the SEC with respect to the securities being offered pursuant to this prospectus. This prospectus omits certain information contained
in the registration statement, as permitted by the SEC. You should refer to the registration statement, including the exhibits, in addition
to the information incorporated by reference, for further information about us and the securities being offered pursuant to this prospectus.
Statements in this prospectus regarding the provisions of certain documents filed with, or incorporated by reference in, the registration
statement are not necessarily complete and each statement is qualified in all respects by that reference. Copies of all or any part of
the registration statement, including the documents incorporated by reference or the exhibits, may be obtained upon payment of the prescribed
rates at the offices of the SEC listed above in &ldquo;Where You Can Find More Information.&rdquo; We are incorporating by reference the
documents listed below, which we have already filed with the SEC, and all documents subsequently filed by us pursuant to Sections&nbsp;13(a),
13(c), 14 or 15(d) of the Exchange Act, except as to any portion of any future report or document that is not deemed filed under such
provisions, prior to the termination of the offering:<BR>
<BR>
</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0"><TR STYLE="vertical-align: top">
<TD STYLE="width: 36pt"></TD><TD STYLE="width: 22.5pt">&bull;</TD><TD>our Annual Report on Form 10-K for the year ended December&nbsp;31, 2020, filed with the SEC on March 10, 2021, as amended by Form
10-K/A, filed with the SEC on April 23, 2021;</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 58.5pt">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0"><TR STYLE="vertical-align: top">
<TD STYLE="width: 36pt"></TD><TD STYLE="width: 22.5pt">&bull;</TD><TD>our Definitive Proxy Statement on Schedule 14A, filed with the SEC on June 1, 2021;</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 58.5pt">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0"><TR STYLE="vertical-align: top">
<TD STYLE="width: 36pt"></TD><TD STYLE="width: 22.5pt">&bull;</TD><TD>our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2021, filed with the SEC on May 5, 2021; and</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0"><TR STYLE="vertical-align: top">
<TD STYLE="width: 36pt"></TD><TD STYLE="width: 22.5pt">&bull;</TD><TD>the description of our common stock set forth in Exhibit 4.6 of our Annual Report on Form 10-K for the year ended December&nbsp;31,
2019, filed with the SEC on March 19, 2020.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 58.5pt">&nbsp;</P>



<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 20pt">&#9;Any statement contained in this prospectus or in
a document incorporated or deemed to be incorporated by reference into this prospectus will be deemed to be modified or superseded for
purposes of this prospectus to the extent that a statement contained in this prospectus or other subsequently filed document that also
is or is deemed to be incorporated by reference herein modifies or supersedes the statement. Any statement so modified or superseded will
not be deemed, except as so modified or superseded, to constitute a part of this prospectus.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 20pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 20pt">&#9;We will furnish without charge to you, on written
or oral request, a copy of any filing or report incorporated by reference, including exhibits to the document. You should direct any
requests for documents to FalconStor Software, Inc., 701 Brazos Street, Suite 400, Austin, Texas 78701, tel.: (631) 777-5188, Attention:
Corporate Secretary.&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 7pt; text-align: center">&nbsp;</P>

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<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <TR STYLE="vertical-align: bottom">
    <TD STYLE="width: 100%; border-top: Black 2.25pt solid; border-bottom: Black 1pt solid; padding-left: 3pt">&nbsp;</TD></TR>
  </TABLE>
<P STYLE="font: 10pt/120% Times New Roman, Times, Serif; margin: 3pt 0 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt/120% Times New Roman, Times, Serif; margin: 0; text-align: center"><B>&nbsp;</B></P>

<P STYLE="font: 10pt/120% Times New Roman, Times, Serif; margin: 5pt 0 6pt; text-align: center; text-indent: 1.25in"><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Shares</B></P>

<P STYLE="font: 10pt/120% Times New Roman, Times, Serif; margin: 5pt 0 6pt; text-align: center"><B>&nbsp;</B></P>

<P STYLE="font: 10pt/120% Times New Roman, Times, Serif; margin: 0; text-align: center"><IMG SRC="image_001.gif" ALT="FalconStor" STYLE="height: 16px; width: 218px"></P>

<P STYLE="font: 10pt/120% Times New Roman, Times, Serif; margin: 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt/120% Times New Roman, Times, Serif; margin: 0; text-align: center"><B>&nbsp;</B></P>

<P STYLE="font: 10pt/120% Times New Roman, Times, Serif; margin: 0; text-align: center"><B>FalconStor Software, Inc.</B></P>

<P STYLE="font: 10pt/120% Times New Roman, Times, Serif; margin: 0; text-align: center"><B>&nbsp;</B></P>

<P STYLE="font: 10pt/120% Times New Roman, Times, Serif; margin: 0; text-align: center"><B>Common Stock</B></P>

<P STYLE="font: 10pt/120% Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0; text-align: center"><B>&nbsp;</B></P>

<P STYLE="font: 10pt/120% Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0; text-align: center"><B></B></P>

<P STYLE="font: 10pt/120% Times New Roman, Times, Serif; margin: 12pt 0 0; text-align: center"><B>PROSPECTUS </B></P>

<P STYLE="font: 10pt/120% Times New Roman, Times, Serif; margin: 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt/120% Times New Roman, Times, Serif; margin: 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt/120% Times New Roman, Times, Serif; margin: 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt/120% Times New Roman, Times, Serif; margin: 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt/120% Times New Roman, Times, Serif; margin: 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt/120% Times New Roman, Times, Serif; margin: 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt/120% Times New Roman, Times, Serif; margin: 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt/120% Times New Roman, Times, Serif; margin: 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt/120% Times New Roman, Times, Serif; margin: 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt/120% Times New Roman, Times, Serif; margin: 0; text-align: center"><B>Roth Capital Partners</B></P>

<P STYLE="font: 10pt/120% Times New Roman, Times, Serif; margin: 0 0 6pt; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt/120% Times New Roman, Times, Serif; margin: 0 0 6pt; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt/120% Times New Roman, Times, Serif; margin: 0 0 6pt; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt/120% Times New Roman, Times, Serif; margin: 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt/120% Times New Roman, Times, Serif; margin: 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt/120% Times New Roman, Times, Serif; margin: 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt/120% Times New Roman, Times, Serif; margin: 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt/120% Times New Roman, Times, Serif; margin: 0; text-align: center">The date of this prospectus is , 2021</P>

<P STYLE="font: 10pt/120% Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 7pt; text-align: center">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <TR STYLE="vertical-align: bottom">
    <TD STYLE="width: 100%; border-bottom: Black 2.25pt solid; padding-top: 2pt; padding-bottom: 2pt">&nbsp;</TD></TR>
  </TABLE>
<P STYLE="font: 10pt/120% Times New Roman, Times, Serif; margin: 3pt 0 0">&nbsp;</P>

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    <DIV STYLE="break-before: page; margin-top: 6pt; margin-bottom: 6pt"><P STYLE="margin-top: 0pt; margin-bottom: 0pt; text-align: center; font-size: 8pt">&nbsp;</P></DIV>
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<P STYLE="font: 10pt/120% Times New Roman, Times, Serif; margin: 3pt 0 0">&nbsp;</P>

<P STYLE="font: 10pt/120% Times New Roman, Times, Serif; margin: 0; text-align: center"><B>PART II.</B> &nbsp;&nbsp;&nbsp; <B>INFORMATION
NOT REQUIRED IN PROSPECTUS</B></P>

<P STYLE="font: 10pt/120% Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 10pt/120% Times New Roman, Times, Serif; margin: 0"><B>Item 13. Other Expenses of Issuance and Distribution.</B></P>

<P STYLE="font: 10pt/120% Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 10pt/12pt Times New Roman, Times, Serif; margin: 0; text-indent: 20pt">&#9;The following table provides information regarding
the various actual and anticipated expenses payable by us in connection with the issuance and distribution of the securities being registered
hereby. All amounts shown are estimates except the Securities and Exchange Commission registration fee and FINRA filing fee.</P>

<P STYLE="font: 10pt/12pt Times New Roman, Times, Serif; margin: 0; text-indent: 20pt">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <TR STYLE="vertical-align: bottom">
    <TD STYLE="border-bottom: Black 1pt solid; padding-top: 2pt; padding-bottom: 2pt; text-align: center"><B>Nature of Expense</B></TD>
    <TD STYLE="border-bottom: Black 1pt solid; padding-top: 2pt; padding-bottom: 2pt">&nbsp;</TD>
    <TD COLSPAN="3" STYLE="border-bottom: Black 1pt solid; padding-top: 2pt; padding-bottom: 2pt; text-align: center"><B>Amount</B></TD></TR>
  <TR STYLE="vertical-align: bottom">
    <TD STYLE="padding-top: 2pt; padding-bottom: 2pt">&nbsp;</TD>
    <TD STYLE="padding-top: 2pt; padding-bottom: 2pt">&nbsp;</TD>
    <TD COLSPAN="3" STYLE="padding-top: 2pt; padding-bottom: 2pt">&nbsp;</TD></TR>
  <TR STYLE="background-color: rgb(204,238,255)">
    <TD STYLE="vertical-align: bottom; width: 33%; padding-top: 2pt; padding-bottom: 2pt">SEC registration fee</TD>
    <TD STYLE="vertical-align: bottom; width: 47%; padding-top: 2pt; padding-bottom: 2pt">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; width: 1%; padding-top: 2pt; padding-bottom: 2pt">$</TD>
    <TD STYLE="vertical-align: bottom; width: 18%; padding-top: 2pt; padding-bottom: 2pt; text-align: right">546</TD>
    <TD STYLE="vertical-align: top; width: 1%">&nbsp;</TD></TR>
  <TR STYLE="background-color: White">
    <TD STYLE="vertical-align: bottom; padding-top: 2pt; padding-bottom: 2pt">FINRA filing fee</TD>
    <TD STYLE="vertical-align: bottom; padding-top: 2pt; padding-bottom: 2pt">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; padding-top: 2pt; padding-bottom: 2pt">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; padding-top: 2pt; padding-bottom: 2pt; text-align: right">1,250</TD>
    <TD STYLE="vertical-align: top">&nbsp;</TD></TR>
  <TR STYLE="background-color: rgb(204,238,255)">
    <TD STYLE="vertical-align: bottom; padding-top: 2pt; padding-bottom: 2pt">Accounting fees and expenses</TD>
    <TD STYLE="vertical-align: bottom; padding-top: 2pt; padding-bottom: 2pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="vertical-align: bottom; padding-top: 2pt; padding-bottom: 2pt; text-align: right">20,000</TD>
    <TD STYLE="vertical-align: top">&nbsp;</TD></TR>
  <TR STYLE="background-color: White">
    <TD STYLE="vertical-align: bottom; padding-top: 2pt; padding-bottom: 2pt">Legal fees and expenses</TD>
    <TD STYLE="vertical-align: bottom; padding-top: 2pt; padding-bottom: 2pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="vertical-align: bottom; padding-top: 2pt; padding-bottom: 2pt; text-align: right">80,000</TD>
    <TD STYLE="vertical-align: top">&nbsp;</TD></TR>
  <TR STYLE="background-color: rgb(204,238,255)">
    <TD STYLE="vertical-align: bottom; padding-top: 2pt; padding-bottom: 2pt">Blue sky fees and expenses</TD>
    <TD STYLE="vertical-align: bottom; padding-top: 2pt; padding-bottom: 2pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="vertical-align: bottom; padding-top: 2pt; padding-bottom: 2pt; text-align: right">15,000</TD>
    <TD STYLE="vertical-align: top">&nbsp;</TD></TR>
  <TR STYLE="background-color: White">
    <TD STYLE="vertical-align: bottom; padding-top: 2pt; padding-bottom: 2pt">Printing and EDGAR expenses</TD>
    <TD STYLE="vertical-align: bottom; padding-top: 2pt; padding-bottom: 2pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="vertical-align: bottom; padding-top: 2pt; padding-bottom: 2pt; text-align: right">10,000</TD>
    <TD STYLE="vertical-align: top">&nbsp;</TD></TR>
  <TR STYLE="background-color: rgb(204,238,255)">
    <TD STYLE="vertical-align: bottom; padding-top: 2pt; padding-bottom: 2pt">Miscellaneous</TD>
    <TD STYLE="vertical-align: bottom; padding-top: 2pt; padding-bottom: 2pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="vertical-align: bottom; padding-top: 2pt; padding-bottom: 2pt; text-align: right">23,204</TD>
    <TD STYLE="vertical-align: top">&nbsp;</TD></TR>
  <TR STYLE="background-color: White">
    <TD STYLE="vertical-align: bottom; padding-top: 2pt; padding-bottom: 2pt">Total</TD>
    <TD STYLE="vertical-align: bottom; padding-top: 2pt; padding-bottom: 2pt">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; border-top: Black 1pt solid; border-bottom: Black 1.5pt double; padding-top: 2pt; padding-bottom: 2pt">$</TD>
    <TD STYLE="vertical-align: bottom; border-top: Black 1pt solid; border-bottom: Black 1.5pt double; padding-top: 2pt; padding-bottom: 2pt; text-align: right">150,000</TD>
    <TD STYLE="vertical-align: top; border-top: Black 1pt solid; border-bottom: Black 1.5pt double">&nbsp;</TD></TR>
  </TABLE>
<P STYLE="font: 10pt/120% Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 10pt/120% Times New Roman, Times, Serif; margin: 0 0 12pt"><B>Item 14. Indemnification of Directors and Officers.</B></P>

<P STYLE="font: 10pt/12pt Times New Roman, Times, Serif; margin: 0; text-indent: 20pt">&#9;Our directors and officers are indemnified
as provided by the Delaware General Corporation Law and our bylaws. We have agreed to indemnify each of our directors and certain officers
against certain liabilities, including liabilities under the Securities Act. Insofar as indemnification for liabilities arising under
the Securities Act may be permitted to our directors, officers and controlling persons pursuant to the provisions described above, or
otherwise, we have been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy
as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities
(other than our payment of expenses incurred or paid by our director, officer or controlling person 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, we
will, unless in the opinion of our counsel the matter has been settled by 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 and will be governed by the
final adjudication of such issue.</P>

<P STYLE="font: 10pt/12pt Times New Roman, Times, Serif; margin: 0; text-indent: 20pt">&nbsp;</P>

<P STYLE="font: 10pt/12pt Times New Roman, Times, Serif; margin: 0; text-indent: 20pt">&#9;We have been advised that in the opinion of
the Securities and Exchange Commission indemnification for liabilities arising under the Securities Act is against public policy as expressed
in the Securities Act, and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities is asserted
by one of our directors, officers, or controlling persons in connection with the securities being registered, we will, unless in the opinion
of our legal counsel the matter has been settled by controlling precedent, submit the question of whether such indemnification is against
public policy to a court of appropriate jurisdiction. We will then be governed by the court's decision.</P>

<P STYLE="font: 10pt/12pt Times New Roman, Times, Serif; margin: 0; text-indent: 20pt">&nbsp;</P>

<P STYLE="font: 10pt/12pt Times New Roman, Times, Serif; margin: 0; text-indent: 20pt">&#9;Our Restated Certificate of Incorporation provides
that, to the fullest extent permitted by the Delaware General Corporation Law, no director of the company will be personally liable to
the company or its stockholders for monetary damages for breach of fiduciary duty as a director.</P>

<P STYLE="font: 10pt/120% Times New Roman, Times, Serif; margin: 0 0 0 0.5in">&nbsp;</P>

<P STYLE="font: 10pt/120% Times New Roman, Times, Serif; margin: 0"><B>Item 15. Recent Sales of Unregistered Securities.</B></P>

<P STYLE="font: 10pt/120% Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt/12pt Times New Roman, Times, Serif; margin: 0; text-indent: 20pt">&#9;The following is a summary of transactions
in the past three years involving sales of our securities that were not registered under the Securities Act, all of which were consummated
pursuant to the exemption set forth in Section 4(a)(2) of the Securities Act:</P>

<P STYLE="font: 10pt/12pt Times New Roman, Times, Serif; margin: 0; text-indent: 20pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 12pt; text-align: justify; text-indent: 0.5in"></P>

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    <DIV STYLE="break-before: page; margin-top: 6pt; margin-bottom: 6pt"><P STYLE="margin-top: 0pt; margin-bottom: 0pt; text-align: center; font-size: 8pt">&nbsp;</P></DIV>
    <!-- Field: /Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 12pt; text-align: justify; text-indent: 0.5in">On October 9, 2018, our
company closed on the final tranche of a previously-announced private placement. As part of such private placement, our company issued
warrants pursuant to which (i) certain eligible stockholders were entitled to purchase 1,859,420 shares of our common stock, and (ii)
HCP-FVA was entitled to purchase 3,033,790 shares of our common stock (the &ldquo;Warrants&rdquo;). On December 19, 2018, we issued 3,033,790
shares of our common stock to HCP-FVA pursuant to the exercise of its Warrants. Between December 6, 2018 and December 27, 2018, we issued
an additional 1,859,420 shares of our common stock pursuant to the exercise of the Warrants by the eligible stockholders. The Warrants
and all such shares of our common stock were issued pursuant to the exemption set forth in Section 4(a)(2) of the Securities Act.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 12pt; text-align: justify; text-indent: 0.5in">On May 21, 2019, HCP-FVA
exercised its warrant to purchase 1,543,630 shares of Common Stock on a cashless exercise basis and was issued 1,518,107 shares of Common
Stock.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 12pt; text-align: justify; text-indent: 0.5in">On May 31, 2019, we issued
an aggregate of 1,251,154 restricted shares of our common stock. Such restricted stock did not bestow any voting or dispositive power
and is not deemed outstanding until they vest. The restricted stock generally vests as follows: 2.5% vested immediately upon grant on
May 31, 2019 (the &ldquo;2019 Grant Date&rdquo;); 2.5% vested on the first anniversary of the 2019 Grant Date; 2.5% shall vest on the
second anniversary of the 2019 Grant Date; 2.5% shall vest on the third anniversary of the 2019 Grant Date; 45% shall vest based on the
return of invested capital in accordance with the terms of the restricted stock agreement between our company and the grantee; and 45%
shall vest upon a change of control of our company.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 12pt; text-align: justify; text-indent: 0.5in">On September 30, 2020,
we issued an aggregate of 316,480 restricted stock awards. Such restricted stock awards do not bestow any voting or dispositive power
and are not deemed outstanding until they vest. The restricted stock awards generally vest as follows: 2.5% vested immediately upon grant
on September 30, 2020 (the &ldquo;2020 Grant Date&rdquo;); 2.5% shall vest on the first anniversary of the 2020 Grant Date; 2.5% shall
vest on the second anniversary of the 2020 Grant Date; 2.5% shall vest on the third anniversary of the 2020 Grant Date; 45% shall vest
based on the return of invested capital in accordance with the terms of the restricted stock award agreement between our company and the
grantee; and 45% shall vest upon a change of control of our company.</P>

<P STYLE="font: 10pt/120% Times New Roman, Times, Serif; margin: 0"><B>Item&nbsp;16.&nbsp;Exhibits and Financial Statement Schedules.
</B></P>

<P STYLE="font: 10pt/120% Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 10pt/120% Times New Roman, Times, Serif; margin: 0"><I>(a)&nbsp;Exhibits</I></P>

<P STYLE="font: 10pt/120% Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 10pt/12pt Times New Roman, Times, Serif; margin: 0; text-indent: 20pt">&#9;The exhibits listed in the following Exhibit
Index are part of this Registration Statements or, as indicated, incorporated by reference.</P>

<P STYLE="font: 10pt/120% Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

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    <DIV STYLE="break-before: page; margin-top: 6pt; margin-bottom: 6pt"><P STYLE="margin-top: 0pt; margin-bottom: 0pt; text-align: center; font-size: 8pt">&nbsp;</P></DIV>
    <!-- Field: /Page -->
<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <TR>
    <TD COLSPAN="2" STYLE="padding-top: 2pt; border-bottom: Black 1pt solid; vertical-align: bottom; padding-bottom: 2pt; padding-left: 1pt"><P STYLE="margin-top: 0; margin-bottom: 0">Exhibit</P>
                                                                                <P STYLE="margin-top: 0; margin-bottom: 0">No.</P></TD>
    <TD STYLE="border-bottom: Black 1pt solid; vertical-align: bottom; padding-right: 3pt; padding-bottom: 2pt; padding-left: 3pt; text-align: center">Description</TD>
    </TR>
  <TR STYLE="background-color: rgb(204,238,255)">
    <TD STYLE="vertical-align: top; padding-top: 2pt; padding-bottom: 2pt; padding-left: 1pt; width: 3%"><U STYLE="text-decoration: none"><A HREF="ex1-1tos104637018_06032021.htm" STYLE="-sec-extract: exhibit">1.1</A></U></TD>
    <TD STYLE="vertical-align: top; padding-top: 2pt; padding-bottom: 2pt; width: 3%"><A HREF="ex1-1tos104637018_06032021.htm" STYLE="-sec-extract: exhibit">*</A></TD>
    <TD STYLE="vertical-align: bottom; padding-top: 2pt; padding-bottom: 2pt; width: 94%"><U STYLE="text-decoration: none"><A HREF="ex1-1tos104637018_06032021.htm" STYLE="-sec-extract: exhibit">Form of Underwriting Agreement.</A> </U></TD>
    </TR>
  <TR STYLE="background-color: White">
    <TD STYLE="vertical-align: top; padding-top: 2pt; padding-bottom: 2pt; padding-left: 1pt"><U STYLE="text-decoration: none">3.</U>1</TD>
    <TD STYLE="vertical-align: top; padding-top: 2pt; padding-bottom: 2pt">&nbsp;</TD>
    <TD STYLE="vertical-align: top; padding-top: 2pt; padding-bottom: 2pt">Restated Certificate
    of Incorporation, incorporated herein by reference to Exhibit 3.1 to the Registrant&rsquo;s registration statement on Form S-1 (File
    no. 33-79350), filed on April 28, 1994.</TD>
    </TR>
  <TR STYLE="background-color: rgb(204,238,255)">
    <TD STYLE="vertical-align: top; padding-top: 2pt; padding-bottom: 2pt; padding-left: 1pt"><A HREF="http://www.sec.gov/Archives/edgar/data/922521/000092189511000516/ex32to10k04637_12312010.htm" STYLE="-sec-extract: exhibit">3.2</A></TD>
    <TD STYLE="vertical-align: top; padding: 0.75pt 0.75pt 5pt"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="vertical-align: top; padding-top: 2pt; padding-bottom: 2pt"><A HREF="http://www.sec.gov/Archives/edgar/data/922521/000092189511000516/ex32to10k04637_12312010.htm" STYLE="-sec-extract: exhibit">Amended and Restated By-Laws of FalconStor Software, Inc., incorporated herein by reference to Exhibit 3.2 to the Registrant&rsquo;s annual report on Form 10-K for the year ended December 31, 2010, filed on March 14, 2011.</A></TD>
    </TR>
  <TR STYLE="background-color: White">
    <TD STYLE="vertical-align: top; padding-top: 2pt; padding-bottom: 2pt; padding-left: 1pt"><A HREF="http://www.sec.gov/Archives/edgar/data/922521/000095000500000877/0000950005-00-000877-0002.txt" STYLE="-sec-extract: exhibit">3.3</A></TD>
    <TD STYLE="vertical-align: top; padding: 0.75pt 0.75pt 5pt">&nbsp;</TD>
    <TD STYLE="vertical-align: top; padding-top: 2pt; padding-bottom: 2pt"><A HREF="http://www.sec.gov/Archives/edgar/data/922521/000095000500000877/0000950005-00-000877-0002.txt" STYLE="-sec-extract: exhibit">Certificate of Amendment to the Restated Certificate of Incorporation, incorporated herein by reference to Exhibit 3.3 to the Registrant&rsquo;s the quarterly report on Form 10-Q for the period ended June 30, 2000 filed on August 11, 2000.</A></TD>
    </TR>
  <TR STYLE="background-color: rgb(204,238,255)">
    <TD STYLE="vertical-align: top; padding-top: 2pt; padding-bottom: 2pt; padding-left: 1pt"><A HREF="http://www.sec.gov/Archives/edgar/data/922521/000092189502000146/form10kex3404637_12312001.htm" STYLE="-sec-extract: exhibit">3.4</A></TD>
    <TD STYLE="vertical-align: top; padding: 0.75pt 0.75pt 5pt">&nbsp;</TD>
    <TD STYLE="vertical-align: top; padding-top: 2pt; padding-bottom: 2pt"><A HREF="http://www.sec.gov/Archives/edgar/data/922521/000092189502000146/form10kex3404637_12312001.htm" STYLE="-sec-extract: exhibit">Certificate of Amendment to the Restated Certificate of Incorporation, incorporated herein by reference to Exhibit 3.4 to the Registrant&rsquo;s annual report on Form 10-K for the year ended December 31, 2001, filed on March 27, 2002.</A></TD>
    </TR>
  <TR STYLE="background-color: White">
    <TD STYLE="vertical-align: top; padding-top: 2pt; padding-bottom: 2pt; padding-left: 1pt"><A HREF="http://www.sec.gov/Archives/edgar/data/922521/000092189513001909/ex41to8k04637_09162013.htm" STYLE="-sec-extract: exhibit">3.5</A></TD>
    <TD STYLE="vertical-align: top; padding: 0.75pt 0.75pt 5pt">&nbsp;</TD>
    <TD STYLE="vertical-align: top; padding-top: 2pt; padding-bottom: 2pt"><A HREF="http://www.sec.gov/Archives/edgar/data/922521/000092189513001909/ex41to8k04637_09162013.htm" STYLE="-sec-extract: exhibit">Certificate of Designations, Preferences and Rights of Series A Convertible Preferred Stock, incorporated herein by reference to Exhibit 4.1 to the Registrant's report on Form 8-K dated September 16, 2013.</A></TD>
    </TR>
  <TR STYLE="background-color: rgb(204,238,255)">
    <TD STYLE="vertical-align: top; padding-top: 2pt; padding-bottom: 2pt; padding-left: 1pt"><A HREF="http://www.sec.gov/Archives/edgar/data/922521/000092189518002018/ex31to8k04637006_06252018.htm" STYLE="-sec-extract: exhibit">3.6</A></TD>
    <TD STYLE="vertical-align: top; padding: 0.75pt 0.75pt 5pt">&nbsp;</TD>
    <TD STYLE="vertical-align: top; padding-top: 2pt; padding-bottom: 2pt"><A HREF="http://www.sec.gov/Archives/edgar/data/922521/000092189518002018/ex31to8k04637006_06252018.htm" STYLE="-sec-extract: exhibit">Certificate of Amendment of the Restated Certificate of Incorporation of FalconStor Software, Inc,, incorporated by reference to Exhibit 3.1 to the Registrant&rsquo;s report on Form 8-K dated June 25, 2018.</A></TD>
    </TR>
  <TR STYLE="background-color: White">
    <TD STYLE="vertical-align: top; padding-top: 2pt; padding-bottom: 2pt; padding-left: 1pt"><A HREF="http://www.sec.gov/Archives/edgar/data/922521/000092189518002018/ex32to8k04637006_06252018.htm" STYLE="-sec-extract: exhibit">3.7</A></TD>
    <TD STYLE="vertical-align: top; padding: 0.75pt 0.75pt 5pt">&nbsp;</TD>
    <TD STYLE="vertical-align: top; padding-top: 2pt; padding-bottom: 2pt"><A HREF="http://www.sec.gov/Archives/edgar/data/922521/000092189518002018/ex32to8k04637006_06252018.htm" STYLE="-sec-extract: exhibit">Amended and Restated Certificate of Designations, Preferences and Rights of Series A Convertible Preferred Stock of FalconStor Software, Inc., incorporated by reference to Exhibit 3.2 to the Registrant&rsquo;s report on Form 8-K dated June 25, 2018.</A></TD>
    </TR>
  <TR STYLE="background-color: rgb(204,238,255)">
    <TD STYLE="vertical-align: top; padding-top: 2pt; padding-bottom: 2pt"><A HREF="http://www.sec.gov/Archives/edgar/data/922521/000092189519001882/ex31to8k04637006_06242019.htm" STYLE="-sec-extract: exhibit">3.8</A></TD>
    <TD STYLE="vertical-align: top; padding: 0.75pt 0.75pt 5pt">&nbsp;</TD>
    <TD STYLE="vertical-align: top; padding-top: 2pt; padding-bottom: 2pt"><A HREF="http://www.sec.gov/Archives/edgar/data/922521/000092189519001882/ex31to8k04637006_06242019.htm" STYLE="-sec-extract: exhibit">Certificate of Amendment to the Restated Certificate of Incorporation incorporated herein by reference to Exhibit 3.1 to the Registrant's current report on Form 8-K filed on June 25, 2019.</A></TD>
    </TR>
  <TR STYLE="background-color: White">
    <TD STYLE="vertical-align: top; padding-top: 2pt; padding-bottom: 2pt"><A HREF="http://www.sec.gov/Archives/edgar/data/922521/000162828019010762/ex31-q22019.htm" STYLE="-sec-extract: exhibit">3.9</A></TD>
    <TD STYLE="vertical-align: top; padding: 0.75pt 0.75pt 5pt">&nbsp;</TD>
    <TD STYLE="vertical-align: top; padding-top: 2pt; padding-bottom: 2pt"><A HREF="http://www.sec.gov/Archives/edgar/data/922521/000162828019010762/ex31-q22019.htm" STYLE="-sec-extract: exhibit">Certificate of Amendment to the Restated Certificate of Incorporation incorporated herein by reference to Exhibit 3.1 to the Registrant's quarterly report on Form 10-Q for the period ended June 30, 2019 filed on August 14, 2019.</A></TD>
    </TR>
  <TR STYLE="background-color: rgb(204,238,255)">
    <TD STYLE="vertical-align: top; padding-top: 2pt; padding-bottom: 2pt"><A HREF="http://www.sec.gov/Archives/edgar/data/922521/000092189507001015/ex41to10q04637_03312007.htm" STYLE="-sec-extract: exhibit">4.1</A></TD>
    <TD STYLE="vertical-align: top; padding: 0.75pt 0.75pt 5pt">&nbsp;</TD>
    <TD STYLE="vertical-align: top; padding-top: 2pt; padding-bottom: 2pt"><A HREF="http://www.sec.gov/Archives/edgar/data/922521/000092189507001015/ex41to10q04637_03312007.htm" STYLE="-sec-extract: exhibit">Amended and Restated 2006 Incentive Stock Plan incorporated herein by reference to Exhibit 4.1 to the Registrant&rsquo;s quarterly report on Form 10-Q for the quarter ended March 31, 2007, filed on May 10, 2007.</A></TD>
    </TR>
  <TR STYLE="background-color: White">
    <TD STYLE="vertical-align: top; padding-top: 2pt; padding-bottom: 2pt">4.2</TD>
    <TD STYLE="vertical-align: top; padding: 0.75pt 0.75pt 5pt">&nbsp;</TD>
    <TD STYLE="vertical-align: top; padding-top: 2pt; padding-bottom: 2pt">Intentionally omitted.</TD>
    </TR>
  <TR STYLE="background-color: rgb(204,238,255)">
    <TD STYLE="vertical-align: top; padding-top: 2pt; padding-bottom: 2pt"><A HREF="http://www.sec.gov/Archives/edgar/data/922521/000092189514000767/ex41to8k04637_04012014.htm" STYLE="-sec-extract: exhibit">4.3</A></TD>
    <TD STYLE="vertical-align: top; padding: 0.75pt 0.75pt 5pt">&nbsp;</TD>
    <TD STYLE="vertical-align: top; padding-top: 2pt; padding-bottom: 2pt"><A HREF="http://www.sec.gov/Archives/edgar/data/922521/000092189514000767/ex41to8k04637_04012014.htm" STYLE="-sec-extract: exhibit">Form of Restricted Stock Letter Agreement, incorporated herein by reference to Exhibit 4.1 to the Registrant&rsquo;s current report on Form 8-K filed on April 7, 2014.</A></TD>
    </TR>
  <TR STYLE="background-color: White">
    <TD STYLE="vertical-align: top; padding-top: 2pt; padding-bottom: 2pt">4.4</TD>
    <TD STYLE="vertical-align: top; padding: 0.75pt 0.75pt 5pt">&nbsp;</TD>
    <TD STYLE="vertical-align: top; padding-top: 2pt; padding-bottom: 2pt">Intentionally omitted.</TD>
    </TR>
  <TR STYLE="background-color: rgb(204,238,255)">
    <TD STYLE="vertical-align: top; padding-top: 2pt; padding-bottom: 2pt"><A HREF="http://www.sec.gov/Archives/edgar/data/922521/000092252116000042/definitiveproxy2016.htm" STYLE="-sec-extract: exhibit">4.5</A></TD>
    <TD STYLE="vertical-align: top; padding: 0.75pt 0.75pt 5pt">&nbsp;</TD>
    <TD STYLE="vertical-align: top; padding-top: 2pt; padding-bottom: 2pt"><A HREF="http://www.sec.gov/Archives/edgar/data/922521/000092252116000042/definitiveproxy2016.htm" STYLE="-sec-extract: exhibit">FalconStor Software, Inc. 2016 Incentive Stock Plan, incorporated by reference to Exhibit A to the Proxy Statement on Schedule 14A dated March 18, 2016.</A></TD>
    </TR>
  <TR STYLE="background-color: White">
    <TD STYLE="vertical-align: top; padding-top: 2pt; padding-bottom: 2pt"><A HREF="http://www.sec.gov/Archives/edgar/data/922521/000162828020003823/ex46-q42019.htm" STYLE="-sec-extract: exhibit">4.6</A></TD>
    <TD STYLE="vertical-align: top; padding-top: 2pt; padding-bottom: 2pt">&nbsp;</TD>
    <TD STYLE="vertical-align: top; padding-top: 2pt; padding-bottom: 2pt"><A HREF="http://www.sec.gov/Archives/edgar/data/922521/000162828020003823/ex46-q42019.htm" STYLE="-sec-extract: exhibit">Description of Registered Securities of FalconStor Software, Inc. , incorporated by reference to Exhibit 4.6 of the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 2019.</A></TD>
    </TR>
  <TR STYLE="background-color: rgb(204,238,255)">
    <TD STYLE="vertical-align: top; padding-top: 2pt; padding-bottom: 2pt; padding-left: 1pt">5.1</TD>
    <TD STYLE="vertical-align: top; padding-top: 2pt; padding-bottom: 2pt">**</TD>
    <TD STYLE="vertical-align: bottom; padding-top: 2pt; padding-bottom: 2pt">Opinion of Olshan Frome Wolosky LLP.</TD></TR>
  <TR STYLE="background-color: White">
    <TD STYLE="vertical-align: top; padding-top: 2pt; padding-bottom: 2pt">10.1</TD>
    <TD STYLE="vertical-align: top; padding: 0.75pt 0.75pt 5pt">&nbsp;</TD>
    <TD STYLE="vertical-align: top; padding-top: 2pt; padding-bottom: 2pt">Intentionally omitted.</TD>
    </TR>
  <TR STYLE="background-color: rgb(204,238,255)">
    <TD STYLE="vertical-align: top; padding-top: 2pt; padding-bottom: 2pt"><A HREF="http://www.sec.gov/Archives/edgar/data/922521/000092189513001618/ex991to10q04637_06302013.htm" STYLE="-sec-extract: exhibit">10.2</A></TD>
    <TD STYLE="vertical-align: top; padding: 0.75pt 0.75pt 5pt">&nbsp;</TD>
    <TD STYLE="vertical-align: top; padding-top: 2pt; padding-bottom: 2pt"><A HREF="http://www.sec.gov/Archives/edgar/data/922521/000092189513001618/ex991to10q04637_06302013.htm" STYLE="-sec-extract: exhibit">Agreement of Lease between Huntington Quadrangle 2 LLC and FalconStor Software, Inc. dated May 30, 2013, with a commencement date of March 1, 2014, incorporated herein by reference to Exhibit 99.1 to the Registrant's quarterly report on Form 10-Q for the period ended June 30, 2013 filed on August 9, 2013.</A></TD>
    </TR>
  <TR STYLE="background-color: White">
    <TD STYLE="vertical-align: top; padding-top: 2pt; padding-bottom: 2pt"><A HREF="http://www.sec.gov/Archives/edgar/data/922521/000092189513001909/ex101to8k04637_09162013.htm" STYLE="-sec-extract: exhibit">10.3</A></TD>
    <TD STYLE="vertical-align: top; padding: 0.75pt 0.75pt 5pt">&nbsp;</TD>
    <TD STYLE="vertical-align: top; padding-top: 2pt; padding-bottom: 2pt"><A HREF="http://www.sec.gov/Archives/edgar/data/922521/000092189513001909/ex101to8k04637_09162013.htm" STYLE="-sec-extract: exhibit">Preferred Stock Purchase Agreement dated as of September 16, 2013 between FalconStor Software, Inc. and Hale Capital Partners, LP, incorporated herein by reference to Exhibit 10.1 to the Registrant's report on Form 8-K dated September 16, 2013.</A></TD>
    </TR>
  <TR STYLE="background-color: rgb(204,238,255)">
    <TD STYLE="vertical-align: top; padding-top: 2pt; padding-bottom: 2pt">10.4</TD>
    <TD STYLE="vertical-align: top; padding: 0.75pt 0.75pt 5pt">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; padding-top: 2pt; padding-bottom: 2pt">Intentionally omitted.</TD>
    </TR>
  <TR STYLE="background-color: White">
    <TD STYLE="vertical-align: top; padding-top: 2pt; padding-bottom: 2pt"><A HREF="http://www.sec.gov/Archives/edgar/data/922521/000119380517001497/ex102to8k04637006_08172017.htm" STYLE="-sec-extract: exhibit">10.5</A></TD>
    <TD STYLE="vertical-align: top; padding-top: 2pt; padding-bottom: 2pt">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; padding-top: 2pt; padding-bottom: 2pt"><A HREF="http://www.sec.gov/Archives/edgar/data/922521/000119380517001497/ex102to8k04637006_08172017.htm" STYLE="-sec-extract: exhibit">Agreement between FalconStor Software, Inc. and Todd Brooks, dated August 14, 2017, incorporated by reference to Exhibit 10.2 to the Registrant&rsquo;s current report on Form 8-K filed August 17, 2017.</A></TD>
    </TR>
  <TR STYLE="background-color: rgb(204,238,255)">
    <TD STYLE="vertical-align: top; padding-top: 2pt; padding-bottom: 2pt">10.6</TD>
    <TD STYLE="vertical-align: top; padding: 0.75pt 0.75pt 5pt">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; padding-top: 2pt; padding-bottom: 2pt">Intentionally omitted.</TD>
    </TR>
  <TR STYLE="background-color: White">
    <TD STYLE="vertical-align: top; padding-top: 2pt; padding-bottom: 2pt">10.7</TD>
    <TD STYLE="vertical-align: top; padding-top: 2pt; padding-bottom: 2pt">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; padding-top: 2pt; padding-bottom: 2pt">Intentionally omitted.</TD>
    </TR>
  <TR STYLE="background-color: rgb(204,238,255)">
    <TD STYLE="vertical-align: top; padding-top: 2pt; padding-bottom: 2pt">10.8</TD>
    <TD STYLE="vertical-align: top; padding: 0.75pt 0.75pt 5pt">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; padding-top: 2pt; padding-bottom: 2pt">Intentionally omitted.</TD>
    </TR>
  <TR STYLE="background-color: White">
    <TD STYLE="vertical-align: top; padding-top: 2pt; padding-bottom: 2pt">10.9</TD>
    <TD STYLE="vertical-align: top; padding: 0.75pt 0.75pt 5pt">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; padding-top: 2pt; padding-bottom: 2pt">Intentionally omitted.</TD>
    </TR>
  <TR STYLE="background-color: rgb(204,238,255)">
    <TD STYLE="vertical-align: top; padding-top: 2pt; padding-bottom: 2pt">10.10</TD>
    <TD STYLE="vertical-align: top; padding: 0.75pt 0.75pt 5pt">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; padding-top: 2pt; padding-bottom: 2pt">Intentionally omitted.</TD>
    </TR>
  <TR STYLE="background-color: White">
    <TD STYLE="vertical-align: top; padding-top: 2pt; padding-bottom: 2pt"><A HREF="http://www.sec.gov/Archives/edgar/data/922521/000119380518000283/e617723_ex10-1.htm" STYLE="-sec-extract: exhibit">10.11</A></TD>
    <TD STYLE="vertical-align: top; padding: 0.75pt 0.75pt 5pt">&nbsp;</TD>
    <TD STYLE="vertical-align: top; padding-top: 2pt; padding-bottom: 2pt"><A HREF="http://www.sec.gov/Archives/edgar/data/922521/000119380518000283/e617723_ex10-1.htm" STYLE="-sec-extract: exhibit">Amended and Restated Term Loan Credit Agreement, dated as of February 23, 2018, by and among FalconStor Software, Inc., HCP-FVA, LLC, as Administrative Agent and as a Lender, and the other Loan Parties named therein, incorporated herein by reference to Exhibit 10.1 to Registrant&rsquo;s current report on Form 8-K filed on February 26, 2018.</A></TD>
    </TR>
  <TR STYLE="background-color: rgb(204,238,255)">
    <TD STYLE="vertical-align: top; padding-top: 2pt; padding-bottom: 2pt">10.12</TD>
    <TD STYLE="vertical-align: top; padding: 0.75pt 0.75pt 5pt">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; padding-top: 2pt; padding-bottom: 2pt">Intentionally omitted.</TD>
    </TR>
  <TR STYLE="background-color: White">
    <TD STYLE="vertical-align: top; padding-top: 2pt; padding-bottom: 2pt">10.13</TD>
    <TD STYLE="vertical-align: top; padding: 0.75pt 0.75pt 5pt">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; padding-top: 2pt; padding-bottom: 2pt">Intentionally omitted.</TD>
    </TR>
  <TR STYLE="background-color: rgb(204,238,255)">
    <TD STYLE="vertical-align: top; padding-top: 2pt; padding-bottom: 2pt"><A HREF="http://www.sec.gov/Archives/edgar/data/922521/000092189518001273/ex102to8k04637006_04112018.htm" STYLE="-sec-extract: exhibit">10.14</A></TD>
    <TD STYLE="vertical-align: top; padding: 0.75pt 0.75pt 5pt">&nbsp;</TD>
    <TD STYLE="vertical-align: top; padding-top: 2pt; padding-bottom: 2pt"><A HREF="http://www.sec.gov/Archives/edgar/data/922521/000092189518001273/ex102to8k04637006_04112018.htm" STYLE="-sec-extract: exhibit">Agreement between FalconStor Software, Inc. and Brad Wolfe, dated April 4, 2018, incorporated by reference to Exhibit 10.2 to the Registrant&rsquo;s current report on Form 8-K filed April 11, 2018.</A></TD>
    </TR>
  <TR STYLE="background-color: White">
    <TD STYLE="vertical-align: top; padding-top: 2pt; padding-bottom: 2pt"><A HREF="http://www.sec.gov/Archives/edgar/data/922521/000092189518001873/def14a04637006_06052018.htm" STYLE="-sec-extract: exhibit">10.15</A></TD>
    <TD STYLE="vertical-align: top; padding: 0.75pt 0.75pt 5pt">&nbsp;</TD>
    <TD STYLE="vertical-align: top; padding-top: 2pt; padding-bottom: 2pt"><A HREF="http://www.sec.gov/Archives/edgar/data/922521/000092189518001873/def14a04637006_06052018.htm" STYLE="-sec-extract: exhibit">Falconstor Software Inc. 2018 Stock Incentive Plan, incorporated by reference to the Definitive Proxy Statement on Schedule 14A filed on June 5, 2018.</A></TD>
    </TR>
  <TR STYLE="background-color: rgb(204,238,255)">
    <TD STYLE="vertical-align: top; padding-top: 2pt; padding-bottom: 2pt"><A HREF="http://www.sec.gov/Archives/edgar/data/922521/000092189518002748/ex102to8k04637006_10112018.htm" STYLE="-sec-extract: exhibit">10.16</A></TD>
    <TD STYLE="vertical-align: top; padding: 0.75pt 0.75pt 5pt">&nbsp;</TD>
    <TD STYLE="vertical-align: top; padding-top: 2pt; padding-bottom: 2pt"><A HREF="http://www.sec.gov/Archives/edgar/data/922521/000092189518002748/ex102to8k04637006_10112018.htm" STYLE="-sec-extract: exhibit">Joinder to Amended and Restated Term Loan Credit Agreement, dated as of February 23, 2018, by and among FalconStor Software, Inc., HCP-FVA, LLC, as Administrative Agent and as a Lender, and the other Loan Parties named therein, incorporated by reference to Exhibit 10.2 to the Registrant&rsquo;s current report on Form 8-K filed October 11, 2018.</A></TD>
    </TR>
  <TR STYLE="background-color: White">
    <TD STYLE="vertical-align: top; padding-top: 2pt; padding-bottom: 2pt"><A HREF="http://www.sec.gov/Archives/edgar/data/922521/000092189520000020/ex101to8k04637016_01032020.htm" STYLE="-sec-extract: exhibit">10.17</A></TD>
    <TD STYLE="vertical-align: top; padding: 0.75pt 0.75pt 5pt">&nbsp;</TD>
    <TD STYLE="vertical-align: top; padding-top: 2pt; padding-bottom: 2pt"><A HREF="http://www.sec.gov/Archives/edgar/data/922521/000092189520000020/ex101to8k04637016_01032020.htm" STYLE="-sec-extract: exhibit">Amendment No. 1 to Amended and Restated Term Loan Credit Agreement dated December 27, 2019 by and among FalconStor Software, Inc., HCP-FVA, LLC, EW Capital, LLC, the lenders party thereto and the other loan parties named therein, incorporated by reference to Exhibit 10.1 to the Registrant's current report on Form 8-K, filed on January 3, 2020.</A></TD>
    </TR>
  <TR STYLE="background-color: rgb(204,238,255)">
    <TD STYLE="vertical-align: top; padding-top: 2pt; padding-bottom: 2pt"><A HREF="http://www.sec.gov/Archives/edgar/data/922521/000162828020007019/ex101-q12020.htm" STYLE="-sec-extract: exhibit">10.18</A></TD>
    <TD STYLE="vertical-align: top; padding: 0.75pt 0.75pt 5pt">&nbsp;</TD>
    <TD STYLE="vertical-align: top; padding-top: 2pt; padding-bottom: 2pt"><A HREF="http://www.sec.gov/Archives/edgar/data/922521/000162828020007019/ex101-q12020.htm" STYLE="-sec-extract: exhibit">Promissory Note between the Company and Peapack-Gladstone Bank, dated April 28, 2020, incorporated by reference to Exhibit 10.1 of the Company's Quarterly Report on Form 10-Q for the three months ended March 31, 2020.</A></TD>
    </TR>
  <TR STYLE="background-color: White">
    <TD STYLE="vertical-align: top; padding-top: 2pt; padding-bottom: 2pt">21.1</TD>
    <TD STYLE="vertical-align: top; padding-top: 2pt; padding-bottom: 2pt">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; padding-top: 2pt; padding-bottom: 2pt">Subsidiaries of Registrant &ndash; FalconStor, Inc., FalconStor AC, Inc., FalconStor Software (Korea), Inc.</TD>
    </TR>
  <TR STYLE="background-color: rgb(204,238,255)">
    <TD STYLE="vertical-align: top; padding-top: 2pt; padding-bottom: 2pt"><A HREF="ex231tos104637018_06032021.htm" STYLE="-sec-extract: exhibit">23.1</A></TD>
    <TD STYLE="vertical-align: top; padding-top: 2pt; padding-bottom: 2pt"><A HREF="ex231tos104637018_06032021.htm" STYLE="-sec-extract: exhibit">*</A></TD>
    <TD STYLE="vertical-align: bottom; padding-top: 2pt; padding-bottom: 2pt"><A HREF="ex231tos104637018_06032021.htm" STYLE="-sec-extract: exhibit">Consent
    of Marcum LLP, independent registered public accounting firm.</A></TD>
    </TR>
  <TR STYLE="background-color: White">
    <TD STYLE="vertical-align: top; padding-top: 2pt; padding-bottom: 2pt">23.1</TD>
    <TD STYLE="vertical-align: top; padding-top: 2pt; padding-bottom: 2pt">**</TD>
    <TD STYLE="vertical-align: bottom; padding-top: 2pt; padding-bottom: 2pt">Consent of Olshan
    Frome Wolosky LLP (included in the opinion filed as Exhibit 5.1).</TD>
    </TR>
  <TR STYLE="background-color: rgb(204,238,255)">
    <TD STYLE="vertical-align: top; padding-top: 2pt; padding-bottom: 2pt">24.1</TD>
    <TD STYLE="vertical-align: top; padding-top: 2pt; padding-bottom: 2pt">*</TD>
    <TD STYLE="vertical-align: bottom; padding-top: 2pt; padding-bottom: 2pt">Power of Attorney (set forth on the Signature
    Page of this Registration Statement).</TD>
    </TR>
  </TABLE>
<P STYLE="font: 10pt/120% Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 3.5in">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt/120% Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.5in">*</TD><TD STYLE="text-align: justify">Filed herewith.</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt/120% Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.5in">**</TD><TD STYLE="text-align: justify">To be filed by amendment.</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt/120% Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.5in">(a)</TD><TD STYLE="text-align: justify">Denotes management contract or compensatory plan or arrangement.</TD></TR></TABLE>

<P STYLE="font: 10pt/120% Times New Roman, Times, Serif; margin: 0; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt/120% Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.5in">(b)</TD><TD STYLE="text-align: justify"><I>Financial Statement Schedules</I></TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.5in">&nbsp;</P>

<P STYLE="font: 10pt/12pt Times New Roman, Times, Serif; margin: 0; text-indent: 20pt">All financial statement schedules are omitted because
the information called for is not required or is shown either in the financial statements or the notes thereto.</P>

<P STYLE="font: 10pt/120% Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

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    <DIV STYLE="break-before: page; margin-top: 6pt; margin-bottom: 6pt"><P STYLE="margin-top: 0pt; margin-bottom: 0pt; text-align: center; font-size: 8pt">&nbsp;</P></DIV>
    <!-- Field: /Page -->
<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt/12pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 1in"><B>Item 17.</B></TD><TD><B>Undertakings.</B></TD></TR></TABLE>

<P STYLE="font: 10pt/12pt Times New Roman, Times, Serif; margin: 0; text-indent: 20pt">&nbsp;</P>

<P STYLE="font: 10pt/12pt Times New Roman, Times, Serif; margin: 0; text-indent: 20pt">&#9;Insofar as indemnification for liabilities
arising under the Securities Act, 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 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 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 and will be governed by the final adjudication of such issue.</P>

<P STYLE="font: 10pt/12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 10pt/12pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in">The undersigned registrant hereby undertakes that:</P>

<P STYLE="font: 10pt/12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt/12pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in">(1)</TD><TD>For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part
of this Registration Statement in reliance upon Rule&nbsp;430A and contained in a form of prospectus filed by the Registrant pursuant
to Rule&nbsp;424(b)(1) or (4)&nbsp;or 497(h) under the Securities Act shall be deemed to be part of this Registration Statement as of
the time it was declared effective.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0"></P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt/12pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in">(2)</TD><TD>For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus
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.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0"></P>

<P STYLE="font: 10pt/12pt Times New Roman, Times, Serif; margin: 0; text-indent: 20pt"></P>

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    <DIV STYLE="break-before: page; margin-top: 6pt; margin-bottom: 6pt"><P STYLE="margin-top: 0pt; margin-bottom: 0pt; text-align: center; font-size: 8pt">&nbsp;</P></DIV>
    <!-- Field: /Page -->

<P STYLE="font: 10pt/12pt Times New Roman, Times, Serif; margin: 0; text-indent: 20pt">&#9;The undersigned registrant hereby undertakes
that, for purposes of determining any liability under the Securities Act, each filing of the registrant&rsquo;s annual report pursuant
to section 13(a) or section&nbsp;15(d) of the Securities Exchange Act of 1934 that is incorporated by reference in the 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.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 12pt; text-align: center"></P>

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    <DIV STYLE="break-before: page; margin-top: 6pt; margin-bottom: 6pt"><P STYLE="margin-top: 0pt; margin-bottom: 0pt; text-align: center; font-size: 8pt">&nbsp;</P></DIV>
    <!-- Field: /Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 12pt; text-align: center"><B>SIGNATURES</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 6pt; text-indent: 0.5in">Pursuant to the requirements of the Securities
Act of 1933, the registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Austin, State of Texas, on the 3rd day of June 2021.</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.05in; padding-left: 10pt; text-indent: -10pt">&nbsp;</TD>
    <TD COLSPAN="3" STYLE="padding-right: 0.05in; padding-left: 0.05in"><B>FALCONSTOR SOFTWARE, INC.</B></TD></TR>
  <TR STYLE="vertical-align: top">
    <TD STYLE="padding-bottom: 1pt; padding-left: 10pt; text-indent: -10pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.05in; padding-bottom: 1pt; padding-left: 0.05in">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="padding-right: 0.05in; padding-bottom: 1pt; padding-left: 0.05in">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: top">
    <TD STYLE="padding-bottom: 1pt; padding-left: 10pt; text-indent: -10pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.05in; padding-bottom: 1pt; padding-left: 0.05in">By:</TD>
    <TD COLSPAN="2" STYLE="padding-right: 0.05in; padding-left: 0.05in"> /s/ Todd Brooks<!-- Field: Rule-Page -->

<DIV STYLE="margin-top: 1pt; margin-bottom: 1pt; width: 100%"><DIV STYLE="font-size: 1pt; border-top: Black 0.5pt solid">&nbsp;</DIV></DIV><!-- Field: /Rule-Page --></TD></TR>
  <TR>
    <TD STYLE="vertical-align: top; width: 52%; padding-right: 0.05in; padding-left: 10pt; text-indent: -10pt">&nbsp;</TD>
    <TD STYLE="vertical-align: top; width: 4%; padding-right: 0.05in; padding-left: 0.05in">&nbsp;</TD>
    <TD STYLE="vertical-align: top; width: 6%; padding-right: 0.05in; padding-left: 0.05in">Name:</TD>
    <TD STYLE="vertical-align: bottom; width: 38%; padding-right: 0.05in; padding-left: 0.05in">Todd Brooks</TD></TR>
  <TR>
    <TD STYLE="vertical-align: top; padding-right: 0.05in; padding-left: 10pt; text-indent: -10pt">&nbsp;</TD>
    <TD STYLE="vertical-align: top; padding-right: 0.05in; padding-left: 0.05in">&nbsp;</TD>
    <TD STYLE="vertical-align: top; padding-right: 0.05in; padding-left: 0.05in">Title:</TD>
    <TD STYLE="vertical-align: bottom; padding-right: 0.05in; padding-left: 0.05in">President and Chief Executive Officer</TD></TR>
  </TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 12pt 0; text-align: center"><B>&nbsp;POWER OF ATTORNEY</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 12pt; text-indent: 0.5in">KNOW ALL PERSONS BY THESE PRESENTS, that each
person whose signature appears below constitutes and appoints Todd Brooks and Brad Wolfe, and each of them, as his true and lawful attorneys-in-fact
and agents, with full power of substitution and re-substitution, for him and in his name, place and stead, in any and all capacities,
to sign any and all amendments (including post-effective amendments) to this Registration Statement and to sign any registration statement
for the same offering covered by the Registration Statement that is to be effective upon filing pursuant to Rule&nbsp;462 promulgated
under the Securities Act of 1933, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in connection therewith and about the premises, as fully to
all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents,
or any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 12pt; text-indent: 0.5in">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 dates indicated:</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <TR STYLE="vertical-align: bottom">
    <TD STYLE="width: 17%; padding-right: 0.05in; padding-bottom: 1pt; padding-left: 0.05in; text-align: center">&nbsp;</TD>
    <TD STYLE="width: 9%; padding-right: 0.05in; padding-left: 0.05in">
    <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 1pt; text-align: center; border-bottom: Black 0.5pt solid"><B>Signature</B></P></TD>
    <TD STYLE="width: 10%; padding-right: 0.05in; padding-bottom: 1pt; padding-left: 0.05in; text-align: center">&nbsp;</TD>
    <TD STYLE="width: 6%; padding-right: 0.05in; padding-bottom: 1pt; padding-left: 0.05in; text-align: center">&nbsp;</TD>
    <TD STYLE="width: 5%; padding-right: 0.05in; padding-bottom: 1pt; padding-left: 0.05in; text-align: center">&nbsp;</TD>
    <TD STYLE="width: 5%; padding-right: 0.05in; padding-left: 0.05in">
    <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 1pt; text-align: center; border-bottom: Black 0.5pt solid"><B>Title</B></P></TD>
    <TD STYLE="width: 5%; padding-right: 0.05in; padding-bottom: 1pt; padding-left: 0.05in; text-align: center">&nbsp;</TD>
    <TD STYLE="width: 9%; padding-right: 0.05in; padding-bottom: 1pt; padding-left: 0.05in; text-align: center">&nbsp;</TD>
    <TD STYLE="width: 5%; padding-right: 0.05in; padding-bottom: 1pt; padding-left: 0.05in; text-align: center">&nbsp;</TD>
    <TD STYLE="width: 5%; padding-right: 0.05in; padding-bottom: 1pt; padding-left: 0.05in; text-align: center">&nbsp;</TD>
    <TD STYLE="width: 5%; padding-right: 0.05in; padding-bottom: 1pt; padding-left: 0.05in; text-align: center">&nbsp;</TD>
    <TD STYLE="width: 5%; padding-right: 0.05in; padding-left: 0.05in">
    <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 1pt; text-align: center; border-bottom: Black 0.5pt solid"><B>Date</B></P></TD>
    <TD STYLE="width: 5%; padding-right: 0.05in; padding-bottom: 1pt; padding-left: 0.05in; text-align: center">&nbsp;</TD>
    <TD STYLE="width: 5%; padding-right: 0.05in; padding-bottom: 1pt; padding-left: 0.05in; text-align: center">&nbsp;</TD>
    <TD STYLE="width: 4%; padding-right: 0.05in; padding-bottom: 1pt; padding-left: 0.05in; text-align: center">&nbsp;</TD></TR>
  <TR>
    <TD COLSPAN="3" STYLE="padding-right: 0.05in; padding-left: 0.05in">
    <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 1pt 10pt; text-align: center; text-indent: -10pt; border-bottom: Black 0.5pt solid">/s/
    Todd Brooks</P>
    <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 1pt 10pt; text-align: center; text-indent: -10pt">Todd Brooks</P></TD>
    <TD COLSPAN="5" STYLE="padding-right: 0.05in; padding-bottom: 1pt; padding-left: 0.05in">President, Chief Executive and Director Officer (<I>principal executive officer</I>)</TD>
    <TD COLSPAN="7" STYLE="padding-right: 0.05in; padding-bottom: 1pt; padding-left: 0.05in; text-align: center">June 3, 2021</TD></TR>
  <TR>
    <TD COLSPAN="3" STYLE="padding-bottom: 1pt; padding-left: 10pt; text-align: center; text-indent: -10pt">&nbsp;</TD>
    <TD COLSPAN="5" STYLE="padding-right: 0.05in; padding-bottom: 1pt; padding-left: 0.05in">&nbsp;</TD>
    <TD COLSPAN="7" STYLE="padding-right: 0.05in; padding-bottom: 1pt; padding-left: 0.05in; text-align: center">&nbsp;</TD></TR>
  <TR>
    <TD COLSPAN="3" STYLE="padding-right: 0.05in; padding-left: 0.05in">
    <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 1pt 10pt; text-align: center; text-indent: -10pt; border-bottom: Black 0.5pt solid">/s/
    Brad Wolfe</P>
    <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 1pt 10pt; text-align: center; text-indent: -10pt">Brad Wolfe</P></TD>
    <TD COLSPAN="5" STYLE="padding-right: 0.05in; padding-bottom: 1pt; padding-left: 0.05in">Executive Vice President, Chief Financial Officer and Treasurer (<I>principal financial and accounting officer</I>)</TD>
    <TD COLSPAN="7" STYLE="padding-right: 0.05in; padding-bottom: 1pt; padding-left: 0.05in; text-align: center">June 3, 2021</TD></TR>
  <TR>
    <TD COLSPAN="3" STYLE="padding-bottom: 1pt; padding-left: 10pt; text-align: center; text-indent: -10pt">&nbsp;</TD>
    <TD COLSPAN="5" STYLE="padding-right: 0.05in; padding-bottom: 1pt; padding-left: 0.05in">&nbsp;</TD>
    <TD COLSPAN="7" STYLE="padding-right: 0.05in; padding-bottom: 1pt; padding-left: 0.05in; text-align: center">&nbsp;</TD></TR>
  <TR>
    <TD COLSPAN="3" STYLE="padding-right: 0.05in; padding-left: 0.05in">
    <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 1pt 10pt; text-align: center; text-indent: -10pt; border-bottom: Black 0.5pt solid">/s/
    Martin Hale, Jr.</P>
    <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 1pt 10pt; text-align: center; text-indent: -10pt">Martin Hale, Jr.</P></TD>
    <TD COLSPAN="5" STYLE="padding-right: 0.05in; padding-bottom: 1pt; padding-left: 0.05in">Director</TD>
    <TD COLSPAN="7" STYLE="padding-right: 0.05in; padding-bottom: 1pt; padding-left: 0.05in; text-align: center">June 3, 2021</TD></TR>
  <TR>
    <TD COLSPAN="3" STYLE="padding-bottom: 1pt; padding-left: 10pt; text-align: center; text-indent: -10pt">&nbsp;</TD>
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    <TD COLSPAN="7" STYLE="padding-right: 0.05in; padding-bottom: 1pt; padding-left: 0.05in; text-align: center">&nbsp;</TD></TR>
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    <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 1pt 10pt; text-align: center; text-indent: -10pt; border-bottom: Black 0.5pt solid">/s/
    Michael Kelly</P>
    <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 1pt 10pt; text-align: center; text-indent: -10pt">Michael Kelly</P></TD>
    <TD COLSPAN="5" STYLE="padding-right: 0.05in; padding-bottom: 1pt; padding-left: 0.05in">Director</TD>
    <TD COLSPAN="7" STYLE="padding-right: 0.05in; padding-bottom: 1pt; padding-left: 0.05in; text-align: center">June 3, 2021</TD></TR>
  <TR>
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    <TD COLSPAN="5" STYLE="padding-right: 0.05in; padding-bottom: 1pt; padding-left: 0.05in">&nbsp;</TD>
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    Barry A. Rudolph</P>
    <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 1pt 10pt; text-align: center; text-indent: -10pt">Barry A. Rudolph</P></TD>
    <TD COLSPAN="5" STYLE="padding-right: 0.05in; padding-bottom: 1pt; padding-left: 0.05in">Director</TD>
    <TD COLSPAN="7" STYLE="padding-right: 0.05in; padding-bottom: 1pt; padding-left: 0.05in; text-align: center">June 3, 2021</TD></TR>
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    <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 1pt 10pt; text-align: center; text-indent: -10pt">William D. Miller</P></TD>
    <TD COLSPAN="5" STYLE="padding-right: 0.05in; padding-bottom: 1pt; padding-left: 0.05in">Director</TD>
    <TD COLSPAN="7" STYLE="padding-right: 0.05in; padding-bottom: 1pt; padding-left: 0.05in; text-align: center">June 3, 2021</TD></TR>
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As filed with the
Securities and Exchange Commission on June 3, 2021
Registration No. 333-
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-1
REGISTRATION STATEMENT
under the Securities Act of 1933
FalconStor Software, Inc.
(Exact Name of Registrant as Specified in its
Charter)
Delaware
(State or Other Jurisdiction of
Incorporation or Organization)
7310
(Primary Standard Industrial
Classification Number)
77-0216135
(I.R.S. Employer
Identification No.)
FalconStor Software, Inc.
701 Brazos Street, Suite 400
Austin, Texas 78701
(631) 777-5188
(Address, including zip code, and telephone number,
including area code, of Registrant's principal executive offices)
Todd Brooks
President and Chief Executive Officer
FalconStor Software, Inc.
701 Brazos Street, Suite 400
Austin, Texas 78701
(631) 777-5188
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies to:
Spencer G. Feldman, Esq.
Kenneth A. Schlesinger,
    Esq.
Olshan Frome Wolosky LLP
1325 Avenue of the Americas, 15
th
Floor
New York, New York 10019
(212) 451-2300
Jonathan J. Russo, Esq.
Pillsbury Winthrop Shaw Pittman LLP
31 West 52
nd
Street
New York, New York 10019-6131
(212) 858-1000
Approximate date of commencement of proposed
sale to the public:
As soon as practicable after the effective date
of this Registration Statement.
If any of the securities being registered on
this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following
box.
o
If this Form is filed to register additional
securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities
Act registration statement number of the earlier effective registration statement for the same offering.
o
If this Form is a post-effective amendment filed
pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number
of the earlier effective registration statement for the same offering.
o
If this Form is a post-effective amendment filed
pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number
of the earlier effective registration statement for the same offering.
o
Indicate by check mark whether the registrant is
a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.
See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company"
and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer
o
Accelerated Filer
o
Non-Accelerated Filer
x
Smaller Reporting Company
x
Emerging Growth Company
o
If an emerging growth company, indicate by check
mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting
standards provided pursuant to Section 7(a)(2)(B) of the Securities Act.
o
CALCULATION OF REGISTRATION FEE
Title of Each Class of Securities
to be Registered
Proposed Maximum
Aggregate Offering Price(1)
Amount of
Registration Fee(2)
Common Stock, par value $0.001 per share
$5,000,000
$   545.50
(1)
Includes shares of common stock the underwriter has the option to purchase to cover over-allotments, if any.
(2)
Calculated pursuant to Rule 457(o) under the Securities Act of 1933.
The Registrant hereby amends this Registration Statement
on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically
states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of
1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a)
may determine.
The information in this preliminary prospectus is
not complete and may be changed. We may not sell or accept an offer to buy these securities until the registration statement filed with
the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and we are not
soliciting offers to buy these securities in any jurisdiction where such offer or sale is not permitted.
Subject to Completion, dated
June 3, 2021
PRELIMINARY PROSPECTUS
Shares
FalconStor Software, Inc.
Common Stock
We are offering shares of our common stock, par
value $0.001 per share.
Our common stock is quoted by the OTCQB Venture
Market under the symbol "FALC." On June 2, 2021, the last reported sale price of our common stock was
$4.80 per share.
Investing in our common stock involves a
high degree of risk. You should carefully consider the matters set forth in "Risk Factors" beginning on page                
of this prospectus and under similar headings in the documents that are incorporated by reference into this prospectus before buying shares
of our common stock.
Neither the Securities and Exchange Commission
nor any other regulatory body has approved or disapproved these securities or determined if this prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
Per Share
Total
Public offering price
$
$
Underwriting discount (1)
$
$
Proceeds to us, before expenses (2)
$
$
(1)
Please see the section of this prospectus entitled "Underwriting" for additional information regarding underwriter compensation.
(2)
We estimate the total expenses payable by us, excluding the underwriting discount, will be approximately $               .
This offering is being underwritten
on a firm commitment basis. We have granted the underwriter an option to buy up to an additional shares of common stock from us to cover
over-allotments. The underwriter may exercise this option at any time and from time to time during the 30-day period from the date of
this prospectus.
The underwriter expects to deliver the shares
of our common stock to purchasers on or about                   ,
2021.
Roth Capital Partners
The date of this prospectus is                   ,
2021
TABLE OF CONTENTS
Page
Prospectus Summary
1
Risk Factors
11
Cautionary Note Regarding Forward-Looking Statements
26
Use of Proceeds
27
Dividend Policy
28
Capitalization
29
Dilution
30
Business
31
Board of Directors and Management
36
Description of Capital Stock
38
Underwriting
42
Legal Matters
49
Experts
49
Where You Can Find Additional Information
49
Incorporation of Certain Documents by Reference
50
About this Prospectus
This prospectus is part of a registration statement
that we filed with the SEC. As permitted by the rules and regulations of the SEC, the registration statement filed by us includes additional
information not contained in this prospectus. You may read the registration statement and the other reports we file with the SEC at the
SEC's website described below under the heading "Where You Can Find More Information."
Neither we nor the underwriter have authorized
anyone to provide you with information that is different from that contained in, or incorporated by reference into, this prospectus, any
amendment or supplement to this prospectus or in any free writing prospectus we may authorize to be delivered or made available to you.
We and the underwriter take no responsibility for, and can provide no assurance as to the reliability of, any other information that others
may give you. We and the underwriter are offering to sell shares of our common stock and seeking offers to buy shares of our common stock
only in jurisdictions where offers and sales are permitted. The information contained in, or incorporated by reference into, this prospectus
is accurate only as of its date, regardless of the time of delivery of this prospectus or any sale of shares of our common stock. Our
business, financial condition, results of operations and prospects may have changed since that date.
For investors outside the United States: Neither
we nor the underwriter have done anything that would permit this offering, or possession or distribution of this prospectus, in any jurisdiction
where action for that purpose is required, other than in the United States. Persons outside the United States who come into possession
of this prospectus must inform themselves about, and observe any restrictions relating to, the offering of the shares of common stock
and the distribution of this prospectus outside of the United States. See "Underwriting" for additional information on these
restrictions.
Industry and Market Data
Unless otherwise indicated, information in this
prospectus concerning economic conditions, our industry, our markets and our competitive position is based on a variety of sources, including
information from third-party industry analysts and publications and our own estimates and research. Some of the industry and market data
contained in this prospectus are based on third-party industry publications. This information involves a number of assumptions, estimates
and limitations, and you are cautioned not to give undue weight to these estimates.
The industry publications, surveys and forecasts
and other public information generally indicate or suggest that their information has been obtained from sources believed to be reliable.
None of the third-party industry publications used in this prospectus were prepared on our behalf. The industry in which we operate is
subject to a high degree of uncertainty and risk due to a variety of factors, including those described in "Cautionary Note Regarding
Forward-Looking Statements" and "Risk Factors" in this prospectus and in Item 1A of our Annual Report on Form 10-K for
the year ended December 31, 2020, which is incorporated by reference into this prospectus. See "Where You Can Find More Information"
and "Incorporation of Certain Documents by Reference." These and other factors could cause results to differ materially from
those expressed in these publications.
Trademarks
This prospectus contains references to our trademarks
and service marks and to those belonging to other entities. Solely for convenience, trademarks and trade names referred to in this prospectus
may appear without the ® or ™ symbols, but such references are not intended to indicate, in any way, that we will not assert,
to the fullest extent possible under applicable law, our rights or the rights of the applicable licensor to these trademarks and trade
names. We do not intend our use or display of other companies' trade names, trademarks or service marks to imply a relationship
with, or endorsement or sponsorship of us by any other companies.
PROSPECTUS SUMMARY
This summary highlights information contained
in this prospectus, or incorporated by reference into this prospectus, and does not contain all of the information that you should consider
in making your investment decision. Before investing in our common stock, you should carefully read this entire prospectus, including
the information set forth under the section "Risk Factors," "Management's Discussion and Analysis of Financial
Condition and Results of Operations," and our financial statements and the related notes thereto, in each case included in this
prospectus or incorporated by reference into this prospectus. Some of the statements in this prospectus constitute forward-looking statements.
See "Cautionary Note Regarding Forward-Looking Statements."
Unless the context requires otherwise, the
words "we," "us," "our," "our company," "the Company," and "our business"
refer to FalconStor Software, Inc., a Delaware corporation.
Our Company
Overview
We are a data protection
technology
company enabling enterprises to modernize their data backup and archival operations across
multiple
sites and public clouds.
Our products
deliver increased
data security and provide recovery solutions for cyber attacks. We have over an exabyte of data under management, 36 issued patents and
five patent applications and offer products that are used by more than 600 enterprise customers. Our products are offered through and
supported by a network of leading service providers, systems integrators, resellers, managed services providers ("MSPs") and
original equipment manufacturers ("OEMs").
Our products address a
demand for enterprise data protection driven by the manner in which consumers and businesses are increasingly interacting in a digital
space through multiple devices, networks and platforms. The onset of the
coronavirus pandemic accelerated this shift, as ongoing
remote work and work from home arrangements introduced novel challenges to maintaining enterprise data security. The adoption of increased
employee mobility and flexible remote work arrangements, such as a broader incorporation of cloud technology and the option for employees
to use their own devices, has introduced additional vulnerabilities that businesses must monitor and protect through solutions like ours
in order to maintain enterprise data integrity.
Our products are utilized by enterprises
and MSPs to address two key areas of enterprise data protection: (i) long-term data retention and recovery, and (ii) data replication
to preserve business continuity. Our integration with modern cloud-based data storage environments, such as Amazon Web Services ("AWS")
and Microsoft Azure, enables our enterprise customers to significantly reduce costs and improve the portability, security and accessibility
of their enterprise data. We believe this accessibility is key in our modern world, where data must be protected and intelligently leveraged
to facilitate learning, improve product design and drive competitive advantage. Our products can be used regardless of the underlying
hardware, cloud and source-data, which enables our enterprise customers to leverage their existing hardware and software investments.
We believe our long-term data
retention products are critical to the data protection plans of any enterprise. The foundation of any enterprise data protection
plan is the long-term data archive, as this segment represents up to 80% of an enterprise's data according to a 2019 Horizon
Information Strategies independent study (the "Horizon Study"). Whether in the form of application databases, documents, emails or
digital media files, enterprises must preserve this information for significant periods of time to fulfill operational, legal and
regulatory requirements. Expanding government and industry regulations also continue to increase mandated retention periods. In
addition to fundamental data retention, modern enterprises desire to leverage their long-term archives for strategic analysis and to
unlock new revenue streams. As a result, enterprises are challenged with secure and cost-effective data management, while also
adopting flexible and scalable cloud-based storage environments. Our long-term data retention products enable our enterprise
customers to reduce their data storage footprint while seamlessly transitioning data to a wide array of hybrid-cloud and
public-cloud storage systems, including AWS and Microsoft Azure. Our products have also been found to increase data backup speeds by
up to 600% based on the 2019 Evaluator Group Performance Analysis.
In addition to long-term data retention,
enterprises must maintain operational data redundancy to ensure business continuity in near real time. According to the Horizon Study, the remaining 20% of an enterprise's data is active and backed up, and such data is retained for
less than 90 days. Our data replication products and
associated technologies allow an enterprise to capture snapshots of selected data or entire systems at user-defined intervals, and include
the ability to replicate data as it is written or modified in real time. These solutions allow our enterprise customers to recover data
back to a specific point in time to completely recover from operational data loss or corruption, including ransomware. As is the case
with our long-term data retention products, our data replication products are designed to leverage existing enterprise hardware and software
investments, while enabling the use of new cloud-based data storage technologies.
Our
S
oftware
P
roducts and
S
upporting
T
echnology
Our software products create investment
protection, flexibility and leverage of modern cloud-based technologies through software-defined functionality that provides backup and
long-term retention, and business continuity driven data replication. As a result, our enterprise clients are able to utilize the underlying
storage hardware, media or environment (on-premise or cloud) that best aligns with their strategic needs, which can eliminate costly hardware-vendor,
cloud and form-factor lock-ins.
Long-Term Data
Retention and Recovery Products
●       FalconStor
Virtual Tape Library
–
We were
an early innovator in Virtual Tape Library ("VTL")
technology, which allows enterprise customers to emulate and replace cumbersome physical tape libraries with archive related data preservation,
without replacing their existing backup and archive software and associated processes.
We believe
our VTL product continues to be a leading virtual tape library solution in terms of performance and scalability. With VTL, our enterprise
customers are able to complete their data archive operations more reliably, with minimal changes to their legacy archive environment.
They are also able to leverage sophisticated physical tape emulation, advanced data security, data-deduplication, and public- or private-cloud
based virtual tape archive storage. We have subjected our VTL solution to independent performance testing, which at the time demonstrated
that our product was 25% faster than a competitor and could be executed on hardware that was
one-third
the
cost of that required by our closest competitor. We enable our customers to reduce the amount of data that needs to be archived by processing
their archive data through our integrated data deduplication engine. By eliminating redundant archive data, the archive storage capacity
required can be significantly reduced. Our technology allows our enterprise customers to significantly reduce the cost of storing the
ever-growing volume of data that is subject to long-term archive data protection mandates.
●       FalconStor
StorSafe
TM
("StorSafe")
–
Traditionally, enterprises have
had limited choice and have been forced to store their archive data on physical tape or within storage arrays installed in an internal
data center. Our newest and most innovative long-term archive data management software product, StorSafe, breaks these traditional storage
limitations and enables enterprises to securely and cost effectively leverage a wide array of storage options, including ultra-efficient
and scalable cloud-based storage environments, such as AWS and Microsoft Azure. Launched in 2020, StorSafe provides sophisticated physical
tape emulation and seamless integration with an enterprise's legacy backup and archive software and processes. By leveraging patent
pending industry-standard container technology to enable persistent long-term archive storage, our StorSafe solution dramatically improves
archive data portability, accessibility, security and integrity validation, especially as it relates to multi-cloud data storage leverage.
As a result, a full spectrum of archive data storage options is made available to our enterprise customers to utilize essentially any
storage environment, while confidently ensuring data security and efficient archive access. We have designed StorSafe to significantly
reduce long-term archive data storage and legal or regulatory mandated compliance costs.
Business Continuity
Driven Data Replication Products
●       
FalconStor Continuous Data Protector ("CDP")
–
In addition to retaining
long-term archive data, enterprises routinely maintain short-term copies, or backups, of data generated by various user applications
to protect against data loss or natural disaster. Moving beyond once-a-day backup models, CDP combines local and remote protection into
a cost-effective, unified, disk-based solution that allows enterprises to recover data back to the most recent transaction. Combining
application-aware snapshot agents and continuous journaling functions, CDP enables customers to recover data effectively at any point
in time. CDP delivers instant data availability and reliable recovery, with the capacity to bring business applications back online in
a matter of minutes after a failure. CDP protects application-specific data for Microsoft, Oracle, SAP and other business applications,
ensuring high performance and stability for complex business environments.
2
●       FalconStor
Network Storage Server ("NSS")
–
The expanding capacity of data
managed by enterprises creates a continual challenge in ensuring adequate amounts of available storage. NSS is a scalable solution that
enables data storage virtualization and business continuity in heterogeneous environments. Supporting existing third-party disk arrays,
NSS eliminates storage boundaries and vendor lock-in, providing fast and secure data storage provisioning and migration. Our core storage
virtualization technology provides a non-disruptive approach to data mobility across different storage area network protocols and vendors.
With NSS, it becomes a simple operation to move data from older platforms to newer ones or to introduce new storage capacity and tiers.
This allows enterprises to respond to evolving performance and capacity requirements, as well as changing data protection mandates.
Our
products are sold as stand-alone software, but can also be bundled with standard hardware configurations to simplify implementation for
our customers.
We are currently marketing our CDP
and NSS products under the name StorGuard™.
Supporting
Technology
●       FalconStor
StorSight
TM
("StorSight")
–
StorSight gives our enterprise
customers and MSPs the ability to administer long-term archive and business continuity driven data replication from one centralized management
point and to easily test our other products they may not be currently licensing. To simplify our development efforts and to enable broader
use of our products by our enterprise customers, we have unified all user management into our modern HTML-based console and rebranded
that unified tool as StorSight. As a result, StorSight is now our unified data protection console used to administer our VTL, StorSafe,
CDP, and NSS products.
Our StorSight user console provides deep analytics relative to each of
our products as they are utilized in production. StorSight also includes a full array of functionality key to our MSP customers, such
as multi-tenancy and charge-back.
StorSight usage licensing is included when customers and MSPs
license any of our products.
●       FalconStor RecoverTrac
TM
("RecoverTrac") Disaster Recovery Technology
–
O
ur patented RecoverTrac
technology streamlines the implementation, testing and execution of disaster recovery operations. It minimizes service failover time between
sites and reduces disaster recovery costs by offering full recovery from physical-to-physical, virtual-to-virtual and physical-to-virtual
server infrastructures. This technology is a disaster recovery automation service, and is included as a standard feature of our NSS and
CDP products to automate complex, time-consuming and error-prone failover and failback operations of systems, applications, services and
entire data centers. This technology can also work across those environments, enabling organizations to seamlessly migrate locally, remotely
or to and from cloud environments.
●       FalconStor MicroScan
TM
("MicroScan") Technology
–
Our
patented MicroScan technology
minimizes the amount of data transferred during replication by eliminating inefficiencies at the application and file system layer. Data
changes are replicated at the smallest possible level of granularity, reducing LAN/WAN bandwidth and associated storage costs for disaster
recovery ("DR"), and any time data is replicated from one source to another. MicroScan is an integral part of our replication
option for CDP and NSS.
Our Growth and Expansion
S
trategy
Our
software
products and supporting technology are licensed by enterprise information technology ("IT") organizations and MSPs worldwide.
The key elements of our growth and expansion strategy include the following
:
●       Accelerate
our marketing and distribution in our
best suited markets
–
We plan to
continue to focus our marketing and distribution efforts on enterprise customers, MSPs, cloud service providers ("CSPs"),
resellers, systems integrators and OEM partners. We believe these markets and distribution channels offer a significant opportunity and
are best suited to realize the value of our products, and provide an efficient and effective access to broad, worldwide markets.
●
Expand
our existing software product offerings
–
We intend to enhance our products to address ever-changing market dynamics to
allow us to be leader in the data protection marketplace. For example, through StorSafe, we have successfully adapted transient container
technology to deliver a persistent, long-term data protection container that is agnostic, heterogeneous and highly portable, as well as
backward compatible and compatible with future technology advancements. We believe these advancements are essential to meet the chain
of custody mandates that are inherent in long-term data retention plans subject to compliance, regulatory, legal discovery and privacy
laws that continue to evolve and mature.
3
●
Expand
software and hardware strategic alliances with industry leaders
–
The Flash/SSD, High-Density Single Disk and Cloud Data
Archival markets are key opportunities for us on two fronts: targeting customers wanting to integrate this new technology into existing
IT environments, and OEMs needing to enhance their software stack in order to offer data movement and protection services on their platform.
CSPs such as AWS, Microsoft Azure, Wasabi and Alibaba Cloud also represent a growth opportunity. Our mutual customers and partners need
help moving data from the customer site to their own facilities, as well as a way to deliver common data services across disparate and
often incompatible hardware typically found across the provider and end customer environments. We believe that we are positioned to continue
to take advantage of these key opportunities in the global marketplace.
●       Provide
a bridge to cloud-based data storage, while protecting customers' investments
–
We
intend
to continue leveraging the protocol-independent, unified architecture, analytics and open data services technology of our products to
maintain a competitive position in the enterprise storage software market. With the addition of StorSafe, and its associated storage container
technology, we have joined and are dedicated to the Open Source community, which has accelerated development and integration efforts across
our entire product suite. We intend to continue delivering technical innovation that creates investment protection, flexibility and leverage
of modern cloud-based technologies for our enterprise customers.
●       Enable
MSPs
–
As the managed service provider segment continues to grow, MSPs increasingly
have a need to support heterogeneous storage environments across their own data centers and their customers' environments. MSPs
often have different hardware and software capabilities, making it significantly challenging to offer consistent data services across
these environments. We believe that we offer strategic benefits for MSPs by (i)
enabling the seamless and non-disruptive movement
of data from the customer premises to the service provider's hosted environment, (ii) offering common data services across a customer's
environments regardless of underlying hardware or technology, (iii) allowing for the introduction and ability to monetize additional data
services they may not have previously been able to offer, (iv) providing a low-cost growth opportunity due to the flexibility of StorSight
licensing, while eliminating the need to have multiple feature licenses array by array, and (v) enabling reduced storage management complexity
and costs within their infrastructure by eliminating silos, reducing licensing costs and optimizing hardware.
I
ndustry
Background and Trends
Enterprises of all sizes are increasingly
challenged to securely archive, replicate and make available their data assets. This challenge is increased as business pressures to reduce
cost and increase efficiency push enterprises to adopt cloud-based technologies, which are critical to handling the growth in data and
strategic uses of enterprise data, despite an increasing amount of records and data that has been compromised over the past several years.
For example, according to the 2020 Year End Report published by RiskBased Security, approximately 37 billion records of sensitive data
were lost from various breaches, as compared to the approximately 15 billion and 5 billion that were lost in 2019 and 2018, respectively.
We believe long-term data archive
is the fastest-growing segment of an enterprise's data assets. This growth is accelerating as enterprises are increasingly subject
to complex regulatory compliance, such as that driven by the Food and Drug Administration, the Health Insurance Portability and Accountability
Act, European Union's General Data Protection Regulation and the Sarbanes-Oxley Act. As the volume of long-term archive continues
to expand, the need for enterprises to securely and cost-effectively store the associated data will only increase.
The introduction of new long-term
archive storage options has also given rise to a growth in MSPs remotely managing data protection, primarily to smaller enterprises with
a less complex array of data assets. The MSPs are able to leverage modern broadband connectivity and offer more scalable long-term storage
options, which will serve to reduce data protection costs for their customers. We believe this trend to outsourced long-term archive data
protection will continue.
New regulations and laws governing
the processing, storage, retention, protection and reinstatement of high-value information assets are driving significant growth in the
data protection markets. We believe that data archives will play an increasing role in training and validating artificial intelligence
and machine learning algorithms and optimizing strategic analytic model outcomes. Given our long history and deep skillset of the unique
challenges associated with long-term storage, we believe that we are in position to capitalize on data assets that are subject to new
protection requirements with our existing product portfolio. Our innovative StorSafe product is designed and architected to leverage the
scale-up and scale-out capabilities found in today's public and private clouds to support the expanding long-term data protection market
demand that is estimated to grow into the Zettabyte (10^21) range by 2030, according to market intelligence provider International Data
Corporation. We believe our innovative integration of long-term archive storage into modern cloud-based technologies will enable our customers
to dramatically improve the portability, security, and accessibility of their enterprise data.
4
Selected Risks Related to our Business
Our business is subject to numerous risks, including
risks that may prevent us from achieving our business objectives or may adversely affect our business, financial condition, results of
operations, cash flows and prospects that you should consider before making an investment decision. Below are the principal factors that
make an investment in our company speculative or risky. These investment factors are more fully described in the "Risk Factors"
section of this prospectus immediately following this prospectus summary, as well as in the documents incorporated by reference herein:
● We have had limited liquidity as evidenced
by our working capital deficiency of $3.6 million at March 31, 2021, and our future prospects are dependent on our ability to execute
our business plan.
● Our revenues decreased in 2020 compared to
2019. Though our revenues increased in the three months ended March 31, 2021 as compared to the three months ended March 31, 2020, there
is no guarantee that we will be able to maintain profitability.
● We have undertaken a restructuring and other
cost reduction initiatives to reduce our expenses and to better align our expenses with our business. There can be no assurance that we
have made enough reductions or the right reductions.
● We may not be able to fully utilize our net
operating loss ("NOL") and other tax carryforwards, including as a result of this offering and subsequent offerings, which
may have the effect of devaluing significant deferred tax assets of the company.
●
Our future business, financial and operating results are substantially dependent on market acceptance of our software products and supporting
technology.
● The effects of the COVID-19 pandemic have materially
affected, and will continue to materially affect, how we and our customers are operating our businesses, and the duration and extent to
which this will impact our future results of operations and overall financial performance remains uncertain.
● Due to the uncertain and shifting development
of the data protection and network storage software markets and our reliance on our resellers and our OEM partners, we may have difficulty
accurately predicting revenue for future periods and appropriately budgeting for expenses.
● If we are unable to develop new products that
achieve acceptance in the data protection and the network storage software markets, our operating results may suffer.
● Our products handle mission-critical data for
our end-customers and are highly technical in nature. If our products have defects, failures occur or end-customer data is lost or corrupted,
our reputation and business could be harmed.
● We face intense competition in our market,
especially from larger, well-established companies, and we may lack sufficient financial or other resources to maintain or improve our
competitive position.
● Our ability to sell our products 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 effect on our sales of our products and results of operations.
● The international nature of our business could
have an adverse effect on our operating results.
● Developments limiting the availability of Open
Source software could impact our ability to deliver products and could subject us to costly litigation.
● Our efforts to protect our intellectual property
may cause us to become involved in costly and lengthy litigation, which could seriously harm our business.
● To service our indebtedness, we will require
a significant amount of cash. We may not be able to generate sufficient cash to service our term notes or our other indebtedness, and
may be forced to take other actions to satisfy our obligations under our indebtedness, which may not be successful.
5
● Our agreements with the holders of our series A
preferred stock and/or our term loan contain covenants that could limit our ability to obtain financing using our equity. If we engage
in future financings, we may have to use the proceeds to redeem the preferred stock held by such holders. This could cause us to have
difficulty in obtaining capital necessary to run our business.
● The holders of our series A preferred
stock are entitled to dividends on our series A preferred stock they hold. Depending on whether these dividends are paid in cash
or stock, the payment of these dividends will either decrease cash that is available to us to invest in our business or dilute the holdings
of all other stockholders.
Recent Developments
First Quarter 2021 Results
The following unaudited information
reflects our results of operations for the three months ended March 31, 2021:
● total revenue of $3,828,326,
as compared to total revenue of $3,180,187 for the three months ended March 31, 2020;
● gross profit of $3,179,319,
as compared to gross profit of $2,632,807 for the three months ended March 31, 2020; and
● net income of $425,248,
which reflects a gain on debt extinguishment of $754,000 due to the SBA's forgiveness of the loan we received from Peapack-Gladstone
Bank pursuant to the Paycheck Protection Program un
der Title 1 of the Coronavirus Aid, Relief and
Economic Security Act (the "Paycheck Protection Program"). We incurred
a net loss of $719,840 for the three months
ended March 31, 2020.
Extension of Maturity
Date of Debt and Preferred Stock Redemption Date
As described further in the
 "Risk Factors" section of this prospectus, the holders of our outstanding series A redeemable convertible preferred stock
have a mandatory redemption right as of July 30, 2021 that may be exercised only with the approval of Hale Capital Partners, LP ("HCP")
and HCP-FVA, LLC ("HCP-FVA" and, together with HCP, "Hale Capital"). In connection with this offering, we entered
into a letter agreement, dated June 2, 2021, with Hale Capital, in which it agreed not to exercise this mandatory redemption right until
at least July 30, 2023, with such extension to be included in an amendment to the Certificate of Designation that will be proposed for
shareholder approval at our next annual shareholder meeting (the "Redemption Extension Letter Agreement"). We also entered
into a letter agreement with Hale Capital, dated June 2, 2021 (the "Loan Extension Letter Agreement"), that provides for an
extension of the maturity date on Hale Capital's portion of the outstanding indebtedness owed under the Amended and Restated Loan
Agreement to June 30, 2023, which constituted $2,176,621 of the $3,510,679 principal amount outstanding as of December 31, 2020.
Effects of COVID-19 on
our Company
Given the commercial
uncertainty caused by the novel coronavirus pandemic, or COVID-19, we developed and implemented an aggressive expense control plan in
March 2020, which we kept in place for the remainder of 2020. This plan reduced our annual cash expense run rate by $4.0 million or 29%.
We furloughed 21 positions worldwide, and 20 of these positions were reinstated by the fourth quarter of 2020. We believe the reduced
expense level should enable us to remain profitable during 2021, even with a prolonged impact of COVID-19 well into 2021.
Smaller Reporting Company
We are a "smaller reporting company"
as defined under U.S. federal securities laws and, as such, have elected to comply with certain reduced public company reporting requirements
for this prospectus, the documents incorporated by reference herein and future filings.
Corporate Information
We were incorporated in 1994 as a Delaware corporation
and changed our corporate name from Network Peripherals Inc. to FalconStor Software, Inc. in 2001 through the completion of a reverse
merger. Our principal executive offices are located at 701 Brazos Street, Suite 400, Austin, Texas 78701, and our telephone number is
(631) 777-5188. We have additional offices in Melville, New York, Munich, Germany and Taichung, Taiwan. We maintain a corporate website
at https://falconstor.com and social media accounts on Linkedin at https://www.linkedin.com/company/falconstor-software and Facebook at
https://www.facebook.com/falconstorsoftwareinc/. Information on our website or our social media accounts does not constitute part of this
prospectus, is not incorporated by reference into this prospectus and should not be relied upon with respect to this offering.
6
The Offering
The following summary contains general information
about this offering. The summary is not intended to be complete. You should read the full text and more specific details contained elsewhere
in this prospectus.
Common stock offered by us
shares.
Underwriter's over-allotment option
We have granted the underwriter a 30-day option to purchase up to an additional
           shares of our common stock from us at the price to public less the underwriting discount to cover
    over-allotments, if any.
Common stock to be outstanding after this offering
shares (or       
    shares if the underwriter's option to purchase additional shares from us is exercised in full).(1)
Use of proceeds
We estimate that the net proceeds from the sale of our common stock in
    this offering will be approximately $          million (or approximately $       
    million if the underwriter's option to purchase additional shares from us is exercised in full), based on an assumed public offering
    price of $ per share, which was the last reported sale price of our common stock on June     , 2021 as quoted
    by the OTCQB Venture Market, after deducting the underwriting discount and estimated offering expenses payable by us.
We intend to use the net proceeds of this offering to expand marketing
    and distribution of our software products and supporting technology in the United States and abroad, to enhance our ongoing product development
    programs, to finance potential acquisitions of complementary businesses, and for working capital and general corporate purposes. See "Use
    of Proceeds" for more information.
Dividend policy
We have never declared or paid any cash dividends on our common stock.
    We anticipate that we will retain any earnings to support operations and to finance the growth and expansion of our business. Accordingly,
    we do not expect to pay cash dividends on our common stock in the foreseeable future.
Risk factors
Investing in our common stock involves a high degree of risk. See "Risk
    Factors" and other information included in this prospectus or incorporated by reference into this prospectus for a discussion of
    factors you should carefully consider before deciding to invest in shares of our common stock.
OTCQB symbol
FALC
(1)
The number of shares of our common stock to be outstanding immediately after this offering, as shown above, is based on 5,949,463
shares outstanding as of June 3, 2021, and excludes, as of that date, the following:
•
87,815 shares of our common stock issuable upon the exercise of outstanding shares of series A redeemable convertible preferred stock;
•
9,780 shares of our common stock issuable upon the exercise of outstanding stock options having an average exercise price of $113.66
per share;
•
1,442,828 shares of our common stock issuable upon the vesting of outstanding restricted stock; and
•
up to an additional
46,029 shares of common stock currently reserved for issuance related to accrued dividends on the series A preferred stock.
Unless otherwise noted, the information in this prospectus reflects and assumes no exercise of the underwriter's over-allotment option to purchase additional shares.
7
Summary Financial Data
The following tables summarize our historical
consolidated financial data. We have derived the summary consolidated statements of operations data for the years ended December 31, 2020
and 2019 from our audited consolidated financial statements incorporated by reference into this prospectus. The summary consolidated statements
of operations data for the three months ended March 31, 2021 and 2020 and the summary consolidated balance sheet data as of March 31,
2021 are derived from the unaudited financial statements appearing in our Quarterly Report on Form 10-Q for the quarterly period ended
March 31, 2021, which is incorporated by reference into this prospectus. Our unaudited interim condensed financial statements have been
prepared on a basis consistent with our audited financial statements and, in the opinion of management, reflect all adjustments, consisting
solely of normal recurring adjustments, necessary for the fair presentation of the financial information in those statements. The summary
consolidated financial data in this section is not intended to replace our consolidated financial statements and related notes, and our
historical results are not necessarily indicative of the results we expect in the future. The following summary of consolidated financial
data should be read in conjunction with the section titled "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and our consolidated financial statements and related notes included in our Annual Report on Form 10-K for
the year ended December 31, 2020, which is incorporated by reference into this prospectus.
Years ended
December 31,
Three months
ended March 31,
2020
2019
2021
(unaudited)
2020
(unaudited)
Consolidated Statements of Operations Data:
Total revenue
$ 14,768,693
$ 16,543,571
$ 3,828,326
$ 3,180,187
Total cost of revenue
1,827,478
2,912,987
649,007
547,380
Total operating expenses
11,124,187
14,285,566
3,196,760
3,036,744
Interest and other expense
(692,838)
(604,647)
(266,695)
(245,839)
Gain on debt extinguishment
—
—
754,000
—
Net income (loss)
1,138,509
(1,751,954)
425,248
(719,840)
Net income (loss) attributable to common stockholders
(497,934)
(3,299,527)
(49,036)
(1,031,690)
Net income (loss) per common share - basic and diluted
(0.08)
(0.56)
(0.01)
(0.17)
Weighted average common shares outstanding - basic and diluted
5,920,517
5,900,621
5,949,463
5,919,643
As of March
    31, 2021
Actual(1)
(unaudited)
As Adjusted
    (2)
(unaudited)
Consolidated Balance Sheet Data:
Cash and cash equivalents
$ 2,020,989
Working capital
(3,642,575)
Total assets
13,447,444
Total liabilities
14,598,791
Redeemable convertible preferred stock
13,415,006
Total stockholders' equity (deficit)
(14,566,353)
(1)
Actual balance sheet data presents balance sheet data on an actual basis without any adjustments to reflect subsequent or anticipated
events.
(2)
As adjusted balance sheet data presents balance sheet data on an as adjusted basis reflecting the receipt by us of the net proceeds
from the sale of shares of common stock in this offering at an assumed public offering price of $         
per share, which was the last reported sale price of our common stock on              ,
2021 as quoted by the OTCQB Venture Market, after deducting the underwriting discount and estimated offering expenses payable by us.
8
RISK FACTORS
An investment in our common stock involves a
high degree of risk. You should carefully consider the risk factors contained in our periodic reports filed with the SEC, including the
risks, uncertainties and assumptions discussed in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2020
and in other documents that we subsequently file with the SEC that update, supersede or supplement such information, which are incorporated
by reference into this prospectus. Before deciding to invest in our common stock, you should carefully consider these risks, as well as
other information we include or incorporate by reference in this prospectus. See "Where You Can Find More Information" and
 "Incorporation of Certain Documents by Reference" of this prospectus.
If any of the events described in these risk
factors actually occurs, or if additional risks and uncertainties that are not presently known to us or that we currently deem immaterial
later materialize, then our business, prospects, results of operations and financial condition could be materially adversely affected.
In that event, the trading price of our common stock could decline, and you may lose all or part of your investment in our common stock.
The risks discussed below include forward-looking statements, and our actual results may differ substantially from those discussed in
these forward-looking statements. See "Cautionary Note Regarding Forward-Looking Statements."
Risks Related to Our Financial Condition
We have had limited liquidity as evidenced by our working capital
deficiency of $3.6 million at March 31, 2021, and our future prospects are dependent on our ability to execute our business plan
of which there can be no assurance.
We
have incurred operating losses in 10 of the previous 11 years and negative cash flow from operations in eight of the previous 11 years.
As of March 31, 2021, we had a working capital deficiency of $3.6 million, which is inclusive of current deferred revenue of $4.2
million, and a stockholders' deficit of $14.6 million. Our cash and cash equivalents at March 31, 2021 was $2.0 million, an increase
of $1.0 million compared to March 31, 2020.
There
is no assurance that we will be successful in executing our business plan either through generating sufficient revenue or continuing to
reduce operating costs. The failure to execute our business plan would have a material adverse effect on our results of operations and
or our ability to continue operations. In addition, to the extent that we continue to incur losses or want to expand our operations, we
may need to seek additional financing. There can be no assurance that we will be able to obtain additional financing. Moreover, it is
likely that the terms of the Amended and Restated Loan Agreement and series A preferred stock will make it more difficult for us to obtain
additional financing, and any additional financing could be dilutive to our stockholders.
Our revenues decreased in 2020 compared to 2019.
Though our revenues increased during the three months ended March 31, 2021 as compared to the three months ended March 31, 2020, there
is no guarantee that we will be able or to maintain, profitability.
Despite
generating $1.1 million in net income for the fiscal year ended December 31, 2020, our revenues decreased to $14.8 million for the
year ended December 31, 2020, as compared with $16.5 million for the year ended December 31, 2019. Though our net income for
the three months ended March 31, 2021 increased to $425,248 as compared with a loss of $
719,840
for the three months ended March 31, 2020, this increase reflected a gain on debt extinguishment of $754,000 due to the SBA's forgiveness
of the loan we received from Peapack-Gladstone Bank pursuant to the Paycheck Protection Program.
If we are unable to stabilize
or increase revenue, we will be unable to maintain profitability, we will deplete our available cash and we may not be able to continue
to fund effective sales and marketing or research and development activities on which we are dependent.
We have undertaken a restructuring and other
cost reduction initiatives to reduce our expenses and to better align our expenses with our business. There can be no assurance that we
have made enough reductions or the right reductions.
For the past several years, we have taken several
actions to reduce expenses significantly in an attempt to help return our company to profitability. These actions include a reduction
in personnel; closing offices in geographic locations where our expenses have continued to outpace our revenue; and reducing other expenditures.
To date, the reduction in expenses has not been sufficient to ensure that we can meet our ongoing cash needs for the foreseeable future.
In addition, there can be no assurance that the reductions we have made are the right reductions for our business going forward. There
is a risk that the restructuring, cost cutting initiatives and reduction in personnel will continue to make it more difficult to grow
the business and service our customers.
9
We may not be able to fully utilize our NOL
and other tax carryforwards, including as a result of this offering and subsequent offerings, which may have the effect of devaluing significant
deferred tax assets of the company.
As of March 31, 2021, we had approximately $86.4
million of federal NOL carryforwards, $81.8 million of which will begin to expire in 2030 if not used to reduce taxable income. Our ability
to utilize NOLs and other tax carryforwards to reduce taxable income in future years could be limited for various reasons, including as
a result of one or more ownership changes under Section 382 ("Section 382") of the Internal Revenue Code of 1986 ("Code"),
if future taxable income is insufficient to recognize the full benefit of such NOL carryforwards prior to their expiration and/or if the
IRS successfully asserts that a transaction or transactions were concluded with the principal purpose of evasion or avoidance of United
States federal income tax. There can be no assurance that we will have sufficient taxable income in later years to enable us to use the
NOLs before they expire, or that the IRS will not successfully challenge the use of all or any portion of the NOLs.
Section 382 subjects us to limitations in the
use of NOLs if we experience an "ownership change." For the purposes of Section 382, an ownership change occurs if the aggregate
stock ownership of certain stockholders (generally 5% stockholders, applying certain look through and aggregation rules) increases by
more than 50% over such stockholders' lowest percentage ownership during the "testing period". It is possible that this
or any subsequent offering could trigger an ownership change under Section 382. If an ownership change occurs, we will be limited in our
ability to realize a tax benefit from the use of our deferred tax assets, whether or not we are profitable in future years. These consequences
include, without limitation, limiting the amount of federal NOL that can be used to offset taxable income to the Section 382 annual limitation.
Generally, the annual limitation equals the product of (i) the fair market value of all of our outstanding equity immediately prior to
the ownership change, multiplied by (ii) the applicable federal long-term, tax exempt rate.
In addition, if we have a net unrealized built-in
gain (generally determined by comparing market capitalization plus total liabilities to the adjusted tax basis of assets) at the time
of the ownership change, certain built-in gains recognized within five years after the ownership change (the "recognition period")
may increase the amount of the otherwise available annual limitation. Any such recognized built-in gains that are unused may be carried
forward to later post-change years. Internal Revenue Service ("IRS") Notice 2003-65 provides an approach which treats built-in
gain assets of our Company as generating recognized built-in gain each year without regard to whether such assets are not disposed of
at a gain during the recognition period. However, in September 2019 the IRS released proposed Section 382 regulations that would eliminate
the beneficial provisions of IRS Notice 2003-65. If finalized as proposed, these regulations would limit the increase in the annual Section
382 limitation for recognized built-in gains to those gains that are actually realized through the disposition of built-in gain assets.
These regulations have not been finalized but provide for an effective date of 30 days after the final regulations are published. For
transactions that have been announced to the public or for which a binding commitment has been entered into when the final regulations
are published, the provisions of IRS Notice 2003- 65 should still be available.
The unused portion of the recognized built-in
gain carries forward to later post-change years. We have not calculated any recognized built-in gain with respect to the potential ownership
change but we expect to do so subsequent to such ownership change and would expect to apply for such recognition.
The Protective Provision (as defined below)
contained in our certificate of incorporation, which is intended to help preserve the value of certain income tax assets, primarily tax
net operating loss carryforwards, may have unintended negative effects.
Pursuant to Code Sections 382 and 383, use of
our NOLs may be limited by an "ownership change" as defined under Section 382 of the Code, and the Treasury Regulations thereunder.
In order to protect our company's significant NOLs, we included a provision to protect our NOLs in our certificate of incorporation
(the "Protective Provision").
The Protective Provision is designed to assist
us in protecting the long-term value of our accumulated NOLs by limiting certain transfers of our common stock. The Protective Provision's
transfer restrictions generally restrict any direct or indirect transfers (defined to exclude primary offerings of our common stock effected
by the company) of the common stock if the effect would be to increase the direct or indirect ownership of our common stock by any person
from less than 4.99% to 4.99% or more of our common stock, or increase the percentage of our common stock owned directly or indirectly
by a person owning or deemed to own 4.99% or more of our common stock (with percentage ownership determined under applicable United States
federal income tax rules). Any direct or indirect transfer attempted in violation of the Protective Provision will be void as of the date
of the prohibited transfer as to the purported transferee.
10
The Protective Provision may have an unintended
 "anti-takeover" effect because our board of directors may be able to prevent any future takeover. Similarly, any limits on
the amount of stock that a shareholder may own could have the effect of making it more difficult for shareholders to replace current management.
Additionally, because the Protective Provision may have the effect of restricting a shareholder's ability to dispose of or acquire
our common stock, the liquidity and market value of our common stock might suffer.
Risks Related to Our Business, Products and Operations
Our future business, financial and operating
results are substantially dependent on market acceptance of our products.
We have spent considerable resources, both financially
and in our research and development efforts, developing VTL, StorSafe, CDP and NSS. We currently do not have any other products in our
pipeline with the same expectations that we had or which we believe have the same potential for market acceptance as VTL, StorSafe, CDP
and NSS. If (i) either VTL, StorSafe, CDP and NSS do not gain additional market acceptance, (ii) sales of either VTL, StorSafe, CDP and
NSS do not increase, or (iii) the ongoing future feature/functionality sets of both products are delayed, our results may suffer and
it could have a material adverse effect on our business, financial condition and operating results.
The effects of the COVID-19 pandemic have materially affected and
will continue to materially affect how we and our customers are operating our businesses, and the duration and extent to which this will
impact our future results of operations and overall financial performance remains uncertain.
As a result of the COVID-19 pandemic, we temporarily
closed our office locations, introduced remote working for many of our employees that remains in effect, and implemented certain travel
restrictions, all of which has caused disruptions to how we operate our business. Our operations have been negatively affected by a range
of external factors related to the COVID-19 pandemic that are not within our control. Many of our customers are non-essential businesses
within the meaning of applicable regulations that have been forced, in some jurisdictions, to temporarily suspend or greatly reduce operations,
resulting in a lay off or termination of workers. This has had a direct impact on our revenue, as this results in a decrease in overall
product spend by our customers. Additionally, we have shifted certain of our customer events to virtual-only experiences and we may deem
it advisable to similarly alter, postpone or cancel entirely additional customer, employee or industry events in the future. The conditions
caused by the COVID-19 pandemic have affected and may continue to affect the rate of IT spending and our customer's ability or willingness
to attend our events or to purchase our offerings, our prospective customers' purchasing decisions, our ability to provide on-site consulting
services to our customers and the provisioning of our offerings, and may lengthen payment terms, reduce the value or duration of our contracts,
or affect attrition rates, all of which has and may continue to adversely affect our future sales, operating results and overall financial
information.
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,
and worldwide competition for skilled employees in the network storage software industry is intense. In particular, our success is dependent
on our executive management team, including Todd Brooks, our Chief Executive Officer. If we are unable to retain existing employees or
hire and integrate new employees, our business, financial condition and operating results could suffer.
Due to the uncertain and shifting development of the data protection
and network storage software markets 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 data protection
and network storage software markets 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.
If we are unable to develop new products that achieve acceptance
in the data protection and the network storage software markets, our operating results may suffer.
11
The data protection and the network storage software
markets continue to evolve, and as a result, there is continuing demand for new products. Accordingly, we may need to develop new products
that address additional data protection or 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 data protection or network storage software
products with our customers by meeting customer performance and quality specifications. 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 and we may be required to invest considerable resources to shifting our products to meet such industry standards, either of
which could adversely affect our business.
Our products handle mission-critical data for
our end-customers and are highly technical in nature. If our products have defects, failures occur or end-customer data is lost or corrupted,
our reputation and business could be harmed.
Our products are highly technical and complex
and are involved in storing and replicating mission-critical data for our end-customers. Our products may contain undetected defects and
failures when they are first introduced or as new versions are released. We have in the past and may in the future discover software errors
in new versions of our existing products, new products or product enhancements after their release or introduction, which could result
in lost revenue. Despite testing by us and by current and potential end-customers, errors might not be found in new releases or products
until after commencement of commercial shipments, resulting in loss of or delay in market acceptance. Our products may have security vulnerabilities
and be subject to intentional attacks by viruses that seek to take advantage of these bugs, errors or other weaknesses. If defects or
failures occur in our products, a number of negative effects in our business could result, including:
• lost revenue or lost end-customers;
• increased costs, including warranty expense
and costs associated with end-customer support;
• delays, cancellations, reductions or rescheduling
of orders or shipments;
• product returns or discounts;
• diversion of management resources;
• legal claims for breach of contract, product
liability, tort or breach of warranty; and
• damage to our reputation and brand.
Because
our end-customers use our products to manage and protect their data, we could face claims resulting from any loss or corruption of our
end-customers' data due to a product defect. While our sales contracts contain provisions relating to warranty disclaimers and liability
limitations, these provisions might not be upheld. Defending a lawsuit, regardless of its merit, is costly and may divert management's
attention from our business and could result in public perception that our products are not effective, even if the occurrence is unrelated
to the use of our products. In addition, our business liability insurance coverage might not be adequate to cover such claims. If any
data is lost or corrupted in connection with the use or support of our products, our reputation could be harmed and market acceptance
of our products could suffer.
We rely on our resellers and our OEM partners
for most of our sales.
The vast majority of our sales to end users come
from sales by our resellers and by our OEM partners. These resellers and OEM partners have limited resources and sales forces and sell
many different products, both in the data protection and the network storage software markets and in other markets. The resellers and
OEM partners may choose to focus their sales efforts on other products in the data protection and the network storage software markets
or other markets. The OEM partners might also choose not to continue to develop or to market products which include our products. This
would likely result in lower revenue to us and would impede our ability to grow our business.
The failure of our resellers to sell our products
effectively could have a material adverse effect on our revenue and results of operations.
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We rely significantly on our value-added resellers,
direct market resellers, systems integrators and corporate resellers, which we collectively refer to as resellers, for the marketing and
distribution of our software products and our 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 products that are competitive
with ours. These resellers may give a higher priority to other products, including those of our competitors, or may not continue to carry
our products 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 ours, it would have a material adverse effect on our future revenue. 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 revenue in the future.
Our growth depends in part on the success of
our strategic relationships with third parties.
Our future growth will depend on our ability to
enter into successful strategic relationships with third parties. For example, our strategic relationships with DSI, Fujitsu and Hitachi
Vantara are intended to enhance their software stack in order to offer data movement and protection services on their platform. In addition,
we work with global distributors to streamline and grow our sales channel. These relationships may not result in additional customers
or enable us to generate significant revenue. These relationships are typically non-exclusive and do not prohibit the other party from
working with our competitors or from offering competing services. If we are unsuccessful in establishing or maintaining our relationships
with these third parties, our ability to compete in the marketplace or to grow our revenue could be impaired and our operating results
could suffer.
We rely on channel partners to sell our solutions,
and disruptions to, or our failure to develop and manage our channel partners would harm our business.
Our future success is partially dependent upon
establishing and maintaining successful relationships with the right channel partners. A majority of our revenue is generated by sales
through our channel partners, and we expect channel sales to continue to make up the majority of our total revenue in the future. Accordingly,
our revenue is largely dependent on the effective sales and lead generation activities of these channel partners.
Recruiting and retaining qualified channel partners
and training them in our technology and product offerings requires significant time and resources. In order to develop and expand our
distribution channel, we must continue to scale and improve our processes and procedures that support our channel, including investment
in systems and training. Those processes and procedures may become increasingly complex and difficult to manage as we grow our organization.
We have no minimum purchase commitments from any of our channel partners, and our contracts with these channel partners do not prohibit
them from offering products or services that compete with ours. Our competitors may provide incentives to existing and potential channel
partners to favor their products or to prevent or reduce sales of our solutions. Our channel partners may choose not to offer our solutions
exclusively or at all. Establishing relationships with channel partners who have a history of selling our competitors' products
may also prove to be difficult. In addition, some of our channel partners are also competitors. Our failure to establish and maintain
successful relationships with channel partners would harm our business and operating results.
We face intense competition in our market, especially
from larger, well-established companies, and we may lack sufficient financial or other resources to maintain or improve our competitive
position.
A number of very large corporations have historically
dominated the data management market. We consider our primary competitors to be companies that provide enterprise storage products, including
Dell Inc., Hitachi Vantara, Hewlett-Packard Company, IBM, CommVault, DataCore and Nexenta. We also compete to a lesser extent with a number
of other private companies and certain other well-established companies. Some of our competitors have made acquisitions of businesses
that allow them to offer more directly competitive and comprehensive solutions than they had previously offered. In addition, the emergence
of cloud computing and software-defined-storage may impact both short-term and long-term growth patterns in the markets in which we compete.
We expect to encounter new competitors domestically and internationally as other companies enter our market or if we enter new markets.
13
Many of our existing competitors
have, and some of our potential competitors could have, substantial competitive advantages such as:
• potential for
broader market acceptance of their storage architectures and solutions;
• greater name
recognition and longer operating histories;
• larger sales
and marketing and customer support budgets and resources;
• broader distribution
and established relationships with distribution partners and end-customers;
• the ability
to bundle storage products with other technology products and services, or offer a broader range of storage solutions to better fit certain
customers' needs;
• lower labor
and development costs;
• larger and
more mature intellectual property portfolios;
• substantially
greater financial, technical and other resources; and
• greater resources
to make acquisitions.
Our ability to sell our products 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 effect
on our sales of our products and results of operations.
Our services include the assessment and design of
solutions to meet our customers' data protection and storage management requirements and the efficient installation and deployment
of our products based on specified business objectives. Further, once our products are deployed, our customers depend on us to resolve
issues relating to our products. A high level of service is critical for the successful marketing and sale of our software. If our partners
or we 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 our products 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 retention of key management, marketing and technical personnel, our ability to increase our
customer base and to increase the sales of our products and 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.
Adverse economic conditions or reduced IT spending
may adversely impact our business.
Our business depends on the overall demand for
IT and on the economic health of our current and prospective customers. In general, worldwide economic conditions remain unstable, and
these conditions make it difficult for our current and prospective customers and us to forecast and plan future business activities accurately,
and they could cause our customers or prospective customers to reevaluate their decision to purchase our products or services. Also, global
or national health concerns, including the outbreak of pandemic or contagious disease such as COVID-19, can negatively impact the global economy and
demand for our services. Weak global economic conditions, or a reduction in IT spending even if economic conditions improve, could adversely
impact our business and operating results in a number of ways, including longer sales cycles, lower prices for our products, reduced bookings
and lower or no growth.
Our future quarterly results may fluctuate significantly,
which could cause our stock price to decline.
Our previous results are not necessarily indicative
of our future performance and our future quarterly results may fluctuate significantly. Our future performance will depend on many factors,
including:
• fluctuations
in the economy;
• the timing
of securing software license contracts and the delivery of software and related revenue recognition;
• the seasonality
of information technology, including network storage products, spending;
• the average
unit selling price of our products;
• existing or
new competitors introducing better products at competitive prices before we do;
• our ability
to manage successfully the complex and difficult process of qualifying our products with our customers;
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• new products
or enhancements from us or our competitors;
• our ability
to release new and innovative products;
• import or export
restrictions on our proprietary technology; and
• 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.
The ability to 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 earnings or losses, changes in the valuation of our deferred tax assets and changes in tax laws, among other factors.
Our ability to correctly predict our future effective tax rates based upon these possible changes could significantly impact our forecasted
earnings.
Our business could be materially affected as
a result of a natural disaster, terrorist acts or other catastrophic events.
While our headquarter 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. 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.
We continually look for alternatives to help mitigate any supply chain disruptions due to natural disasters, terrorist acts or other catastrophic
events, including public health epidemics such as COVID-19, first identified in China. However, our failure to mitigate these supply chain
disruptions could impact our ability to procure and deliver products to our customers, which could adversely impact our overall financial
condition.
We are dependent on a variety of IT and telecommunications systems,
and any failure of these systems could adversely impact our business and operating results.
We depend on IT and telecommunications systems
for our operations. These systems support a variety of functions including order processing, shipping, shipment tracking, billing, support
center and internal information exchange. Failures or significant downtime of our IT or telecommunications systems could prevent us from
taking customer orders, shipping products, billing customers, handling support calls, or communication among our offices. The internet
and individual websites have experienced a number of disruptions and slowdowns, some of which were caused by organized attacks. In addition,
some websites have experienced security breakdowns. If we were to experience a security breakdown, disruption or breach that compromised
sensitive information, it could harm our relationship with our customers. Our support centers are dependent upon telephone and data services
provided by third party telecommunications service vendors and our IT and telecommunications system. Any significant increase in our IT
and telecommunications costs or temporary or permanent loss of our IT or telecommunications systems could harm our relationships with
our customers. The occurrence of any of these events could have an adverse effect on our operations and financial results.
United States government export restrictions
could impede our ability to sell our software to certain end users.
Certain of our products enable 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. As a result, certain of our products are subject to various levels of export restrictions, which could
negatively impact our business.
The international nature of our business could
have an adverse effect 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.
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 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.
15
Foreign currency fluctuations may impact our
revenue.
Our licenses and services in Japan are sold in
Yen. Many of our licenses and services in Australia, Canada, and in Europe are sold in Australian dollars, Canadian dollars and European
Monetary Units (or Euros), respectively. Changes in economic or political conditions globally and in any of the countries in which we
operate could result in exchange rate movements, new currency or exchange controls or other restrictions being imposed on our operations.
Fluctuations in the value of the U.S. dollar may
adversely affect our results of operations. Because our consolidated financial results are reported in U.S. dollars, translation of sales
or earnings generated in other currencies into U.S. dollars can result in a significant increase or decrease in the reported amount of
those sales or earnings. Significant changes in the value of these foreign currencies relative to the U.S. dollar could have a material
adverse effect on our financial condition or results of operations. Fluctuations in currencies relative to currencies in which our earnings
are generated make it more difficult to perform period-to-period comparisons of our reported results of operations. For purposes of accounting,
the assets and liabilities of our foreign operations, where the local currency is the functional currency, are translated using period-end
exchange rates, and the revenue, expenses and cash flows of our foreign operations are translated using average exchange rates during
each period.
In addition to currency translation risks, we
incur currency transaction risk whenever we enter into either a purchase or a sales transaction using a currency other than the local
currency of the transacting entity. Given the volatility of exchange rates, we cannot be assured we will be able to effectively manage
our currency transaction and/or translation risks. Volatility in currency exchange rates may have a material effect on our financial condition
or results of operations. Currency exchange rate fluctuations have not, in the past, resulted in a material impact on earnings. However,
we may experience at times in the future an impact on earnings as a result of foreign currency exchange rate fluctuations.
If we are unable to protect our intellectual
property, our business will suffer.
Our success is dependent upon our proprietary
technology. We have 36 issued patents, 5 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 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 and if we are unable to protect our intellectual
property our business and operating results may suffer.
FalconStor
generally enters into confidentiality or license agreements with employees, consultants, and corporate partners and generally controls
access to and distribution of its software, documentation, and other proprietary information. Despite the Company's efforts to protect
its proprietary rights, unauthorized parties may attempt to copy or otherwise obtain and use FalconStor's products or technology.
Monitoring unauthorized use of FalconStor's products is difficult, and there can be no assurance that the steps FalconStor has taken
will prevent misappropriation of its technology, particularly in foreign countries where laws may not protect its proprietary rights as
fully as do the laws of the United States.
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. Any 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 or our products could force us to take specific actions (any of which could have a material adverse effect on our business), including:
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• ceasing to
sell our products that use the challenged intellectual property;
• obtaining 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;
• redesigning
those products that use infringing intellectual property or ceasing to use an infringing product or trademark; or
• indemnifying
software licensees against allegations that our products infringe on a third party's intellectual property rights or misappropriates
trade secrets.
Cyberattacks and breaches could cause operational
disruptions, fraud or theft of sensitive information.
Aspects of our operations are reliant upon internet-based
activities, such as ordering supplies and back-office functions such as accounting and transaction processing, making and accepting payments,
processing payroll and other administrative functions. Although we have taken measures to protect our technology systems and infrastructure,
including employee education programs regarding cybersecurity, a breach of the security surrounding these functions could result in operational
disruptions, theft or fraud, or exposure of sensitive information to unauthorized parties. Such events could result in additional costs
related to operational inefficiencies, or damages, claims or fines.
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. In addition, United States courts have not interpreted the terms of many open source licenses, and there is a risk that such licenses
could be construed in a manner that could impose unanticipated conditions or restrictions on our ability to commercialize our appliances.
We could be required to seek licenses from third parties in order to continue offering our software, to re-engineer our software, to discontinue
the sale of our software in the event re-engineering cannot be accomplished on a timely basis or to litigate any disputes relating to
our use of open source software, any of which could harm our business. 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.
Risks Related to Our Preferred Stock and Debt
Our obligations under the series A preferred
stock and indebtedness could adversely affect our financial health.
The holders of our outstanding series A preferred
stock, the majority of which is held by Hale Capital, have a mandatory redemption right as of July 30, 2021, which, as of March 31, 2021,
would require the payment of approximately $13.6 million if the mandatory redemption right is exercised in full, provided that such redemption
right cannot be exercised without the approval of Hale Capital. As described further below, Hale Capital has agreed not to exercise the
mandatory redemption right of the series A preferred stock until at least July 30, 2023 pursuant to the Redemption Extension Letter Agreement.
In addition, as of March 31, 2021, we have outstanding principal indebtedness of $3,510,679 pursuant to the terms of our Amended and Restated
Term Loan Credit Agreement, dated as of February 23, 2018, as amended December 27, 2019, by and among our company, HCP-FVA, EW Capital,
LLC, the lenders party thereto and the other loan parties named therein, (as amended, the "Amended and Restated Loan Agreement"),
for which HCP-FVA agreed to extend the maturity date of the portion of the borrowings owed to HCP-FVA to June 30, 2023 pursuant to the
Loan Extension Letter Agreement.
In
connection with this offering, Hale Capital has agreed not to exercise the redemption of the series A preferred stock until at least July
30, 2023, with such extension to be included in an amendment to the Certificate of Designation to be proposed for shareholder approval
at our next annual shareholder meeting pursuant to the Redemption Extension Letter Agreement. In addition, Hale Capital has entered into
the Loan Extension Letter Agreement with us, which provides for an extension of the maturity date to June 30, 2023 on $2,176,621 principal
amount of indebtedness owed to Hale Capital under the Amended and Restated Loan Agreement to June 30, 2023 We believe our current cash
balances together with anticipated cash flows from operating activities, the extension of the maturity date of the borrowings owed to
HCP-FVA, and Hale Capital's agreement not to exercise the redemption of the series A preferred stock until at least July 30, 2023
will be sufficient to meet our working capital requirements for at least one year from the date of this prospectus.
17
Our obligations under the series A preferred stock
and indebtedness could have important consequences to you in the future. For example, it could:
• increase our
vulnerability to general adverse economic and industry conditions;
• make it more
difficult for us to satisfy our other financial obligations;
• restrict us
from making strategic acquisitions or cause us to make non-strategic divestitures;
• require us
to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness, thereby reducing the availability
of our cash flow to fund working capital, capital expenditures and other general corporate purposes;
• make it more
difficult for us to satisfy our obligations to our lenders, resulting in possible defaults on and acceleration of such indebtedness;
• limit our flexibility
in planning for, or reacting to, changes in our business and the industry in which we operate;
• place us at
a competitive disadvantage compared to our competitors that have less debt; and
• limit our ability
to borrow additional funds or increase our cost of borrowing.
In addition, the terms of the Amended and Restated
Loan Agreement contain restrictive covenants that limit our ability to engage in activities that may be in our long-term best interests
which could have a material adverse effect on our business, financial condition or prospects.
To service our indebtedness, we will require a significant
amount of cash. Our ability to generate cash depends on many factors beyond our control. As such, we may not be able to generate sufficient
cash to service our Term Notes (as defined below) or our other indebtedness, and may be forced to take other actions to satisfy our obligations
under our indebtedness, which may not be successful.
Our ability to make payments on and to refinance
the term notes under our Amended and Restated Loan Agreement (the "Term Notes") to fund planned capital expenditures, maintain
sufficient working capital and fund any redemption of our series A preferred stock will depend on our ability to generate cash in the
future. Our ability to generate cash is, to a certain extent, subject to general economic, financial, competitive, legislative, regulatory
and other factors that are beyond our control.
We cannot assure you that our business will generate
sufficient cash flow from operations or future borrowings from other sources in an amount sufficient to enable us to service our obligations
under the Amended and Restated Loan Agreement or our series A preferred stock, or to fund our other liquidity needs. If our cash flows
and capital resources are insufficient to allow us to make scheduled payments on our indebtedness, we may need to reduce or delay capital
expenditures, sell assets, seek additional capital, restructure or refinance the Term Notes, on or before the maturity thereof or seek
a waiver of any redemption rights under our series A preferred stock, any of which could have a material adverse effect on our operations.
We cannot assure you that we will be able to refinance the Term Notes, on commercially reasonable terms or at all, or that the terms of
that indebtedness will allow any of the above alternative measures or that these measures would satisfy our scheduled debt service obligations.
If we are unable to generate sufficient cash flow to repay or refinance our debt on favorable terms, it could significantly adversely
affect our financial condition, and our ability to make any required cash payments under our Term Notes or fund any redemption of our
series A preferred stock. Our ability to restructure or refinance our debt will depend on the condition of the capital markets and our
financial condition at that time. Any refinancing of our debt could be at higher interest rates and may require us to comply with more
onerous covenants, which could further restrict our business operations. In addition, any future credit facility may be secured by a priority
lien on substantially all of our assets. As such, our ability to refinance our Term Notes or seek additional financing could be impaired
as a result of such security interest.
We are subject to a number of covenants and
other conditions, which may restrict our business and financing activities.
The Amended and Restated Loan Agreement has customary
representations, warranties and affirmative and negative covenants. The Amended and Restated Loan Agreement also contains customary events
of default, including but not limited to payment defaults, cross defaults with certain other indebtedness, breaches of covenants, bankruptcy
events and a change of control. In the case of an event of default, as administrative agent under the Amended and Restated Loan Agreement,
HCP-FVA may (and upon the written request of lenders holding in excess of 50% of the Term Loan (as defined in the Amended and Restated
Loan Agreement), which must include HCP-FVA, is required to) accelerate payment of all obligations under the Amended and Restated Loan
Agreement, and seek other available remedies.
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The restrictions in the Amended and Restated Loan
Agreement may prevent us from taking actions that we believe would be in the best interests of our business, and may make it difficult
for us to successfully execute our business strategy or effectively compete with companies that are not similarly restricted. In addition,
our ability to comply with the financial and other covenants and restrictions in the Amended and Restated Loan Agreement will largely
depend on the pricing of our products and services, and our ability to successfully implement our overall business strategy. We cannot
assure you that we will be granted waivers or amendments to the Amended and Restated Loan Agreement if for any reason we are unable to
comply with these covenants and restrictions. The breach of any of these covenants and restrictions could result in a default under the
Amended and Restated Loan Agreement, which could result in an acceleration of our indebtedness.
Our agreements with the holders of our series A preferred stock
and/or the Amended and Restated Loan Agreement contain covenants that could limit our ability to obtain financing using our equity. In
addition, if we engage in future financings, we may have to use the proceeds to redeem the preferred stock held by such holders. This
could cause us to have difficulty in obtaining capital necessary to run our business.
Our agreements with the holders of our series A
preferred stock and the Amended and Restated Loan Agreement give such holders and lenders, as applicable, consent rights over certain
future financings, Because of these covenants, if we determine that we are in need of additional capital, we will require the prior consent
of the holders of our series A preferred stock and the lenders party to the Amended and Restated Loan Agreement to do so. In addition,
our agreements with the holders of the series A preferred stock provide that if, at the time of certain future debt or equity financings,
the proceeds of which exceed $5 million, the holders of the series A preferred stock still have outstanding series A preferred
stock, then we must offer to repurchase their series A preferred stock. The holders of the series A preferred stock have the
right to accept the offer or to retain their series A preferred stock. If we do a financing, and the holders of the series A
preferred stock elect to have their series A preferred stock repurchased, then the capital raised in excess of $5 million will go
to repurchase the holders' series A preferred stock, instead of being able to be used for our business.
Our agreements with the holders of our series A preferred stock
and the Amended and Restated Loan Agreement prevent us from undertaking certain transactions or incurring certain indebtedness without
such holders' consent or unless the series A preferred stock held by such holders is repurchased and/or the Term Loan is repaid.
This could hurt our ability to sell underperforming assets or lines of business or to obtain financing.
Our agreements with the holders of our series A
preferred stock and the Amended and Restated Term Loan Agreement prevent us from undertaking certain transactions or incurring certain
debt without such holders' consent or unless the series A preferred stock held by such holders' is repurchased and/or
the Term Loan is repaid. These transactions include, but are not limited to:
• a merger with, or
the sale of substantially all of our assets or capital stock, to a third party;
• assumption of indebtedness
in excess of 80% of our accounts receivable; and
• the sale, license
or other disposition of 10% or more of our tangible assets or capital stock.
This
could limit our ability to sell off underperforming assets or business lines. It could also prevent us from obtaining financing we may
need to run or to grow our business.
The holders of our series A preferred stock are entitled to
dividends on the series A preferred stock they hold. Depending on whether these dividends are paid in cash or stock, the payment
of these dividends will either decrease cash that is available to us to invest in our business or dilute the holdings of all other stockholders.
Our agreements with the holders of our series A
preferred stock provide that such holders will receive quarterly dividends on the series A preferred stock at prime rate plus 5%,
subject to a maximum dividend rate of 10%. We also have the ability to accrue and roll over dividends. Due to the lack of sufficient surplus
to pay dividends as required by the Delaware General Corporation Law, we were not permitted to pay the fourth quarter 2016 dividend in
cash or common stock and have been accruing the quarterly dividends since then. As of March 31, 2021, our liability for dividends to the
holders of the series A preferred stock totaled $4.6 million. While the Term Loan is outstanding, we are only permitted to pay in-kind
dividends on the series A preferred stock. If in the future we pay cash dividends on the series A preferred stock, it will reduce the
cash that we have available to invest in our business. There can be no assurance that we will have enough cash to pay future dividends
in cash. If future dividends are paid in kind, it will dilute the holdings of all other stockholders.
19
Risks Related to this Offering and our Common
Stock
Our stock price may be volatile and your investment could
decline in value.
The market price of our common stock has been
volatile in the past and may be volatile in the future. For example, during the quarter ended March 31, 2021, the closing market
price of our common stock as quoted by the OTCQB Venture Market fluctuated between a low of $3.77 and a high of $7.00 per share and, on
of June    , 2021, was $       per share. These fluctuations could cause you to lose all or part
of the value of your investment in our common stock. Factors that could cause fluctuations in the market price of our common stock include
the following:
• actual or anticipated
fluctuations in our operating results, including changes in the timing of when we recognize revenue;
• failure to
meet financial estimates;
• changes in
market valuations of other technology companies, particularly those in the network storage software market;
• the announcement
of any strategic alternatives;
• announcements
by us or our competitors of significant technical innovations, acquisitions, strategic partnerships, strategic alternatives, joint ventures
or capital commitments;
• loss of one
or more key customers;
• the conversion
or exercise into common stock of stock options, the vesting of restricted stock and the anticipated grant of equity to employees;
• the issuance
of additional shares of the series A preferred stock pursuant to dividend rights; and
• departures
of key personnel.
In addition, the stock market in general has experienced
significant price and volume fluctuations that have often been unrelated or disproportionate to operating performance of individual companies.
These broad market factors may seriously harm the market price of our common stock, regardless of our operating performance. In the past,
following periods of volatility in the market price of a company's securities, securities class action litigation has often been
instituted. A class action suit against us could result in significant liabilities and, regardless of the outcome, could result in substantial
costs and the diversion of our management's attention and resources.
There may be a limited public market for our securities; we presently
fail to qualify for listing on any national securities exchange.
Trading in our common stock is conducted in the
over-the-counter market. We currently
do not meet all of the requirements for an initial listing
on either the NASDAQ Capital Market or the NYSE American.
Specifically, the bid price
of our common stock is less than the minimum bid price required to obtain a listing.
As a result, the liquidity in our stock is
substantially lower than it would otherwise be and an investor may find it difficult to dispose of or to obtain accurate quotations as
to the market value of our common stock. Additionally, our common stock may be less attractive for margin loans for investment by larger
financial institutions or as consideration in possible future acquisition transactions.
This
reduces the general demand for our common stock despite any future positive trends to our business outlook, results of operations or financial
condition.
Investors purchasing common stock in this offering will experience
immediate dilution
.
The public offering price of shares of our common
stock is higher than the pro forma as adjusted net tangible book value per outstanding share of our common stock. You will incur immediate
dilution of $              per share in the pro forma as adjusted net
tangible book value of shares of our common stock, based on an assumed public offering price of $             
per share, which was the last reported sale price of our common stock on June    , 2021 as quoted by the OTCQB Venture
Market.
To the extent our outstanding stock options
are exercised, our outstanding restricted shares become vested and/or our outstanding series A preferred stock are converted into
common stock, there will be further dilution of the common stock sold in this offering. As of June    , 2021, these
stock options, restricted shares and series A preferred stock represent 1,586,452 additional shares of common stock that may be issued
in the future.
20
Future sales, or the perception of future sales, of a substantial
number of our shares of common stock could depress the trading price of our common stock.
If we or our stockholders sell a substantial
number of our shares of common stock in the public market following this offering or if the market perceives that these sales could occur,
the market price of shares of our common stock could decline. These sales may make it more difficult for us to sell equity or equity-linked
securities in the future at a time and price that we deem appropriate, or to use equity as consideration for future acquisitions.
If securities or industry analysts do not publish or cease
publishing research or reports about us, our business or our market, or if they change their recommendations regarding our stock adversely,
or if our actual results differ significantly from our guidance, our stock price and trading volume could decline.
The trading market for our common stock will
be influenced by the research and reports that industry or securities analysts may publish about us, our business, our market or our competitors.
If any of the analysts who may cover us change their recommendation regarding our stock adversely, or provide more favorable relative
recommendations about our competitors, our stock price would likely decline. If any analyst who may cover us were to cease coverage of
our company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause our
stock price or trading volume to decline.
In addition, from time to time, we may release
earnings guidance or other forward-looking statements in our earnings releases, earnings conference calls or otherwise regarding our future
performance that represent our management's estimates as of the date of release. Some or all of the assumptions of any future guidance
that we furnish may not materialize or may vary significantly from actual future results. Any failure to meet guidance or analysts'
expectations could have a material adverse effect on the trading price or volume of our stock.
The likelihood of a change of control in our
company could be impacted by the fact that we have a significant amount of authorized but unissued preferred stock, protective provisions
in our charter, outstanding series A preferred stock, a staggered board of directors and change of control agreements, as well as
certain provisions under Delaware law.
Our board of directors has the authority, without
further action by our common stockholders, to issue up to an additional 1,100,000 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 our common 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. Moreover, our outstanding series A preferred stock
provides the holders with certain rights in the event of a merger with a third party and if we are unable to redeem the series A
preferred stock prior to July 30, 2023 or if the holders of the series A preferred stock elect to exercise their rights to require
us to redeem the series A preferred stock due to our failure to comply with the financial covenants covering the series A preferred
stock.
As discussed above, our certificate of incorporation
includes certain provisions that restrict transfers of our common stock in order to protect our NOLs if the effect of such transfers would
be to increase the direct or indirect ownership of stockholders from less than 4.99% to 4.99% or more of our common stock, or increase
the ownership percentage of stockholders owning 4.99% or more of our common stock. Certain "anti-takeover" provisions of the
Delaware General Corporation Law, among other things, may also restrict the ability of our stockholders to authorize a merger, business
combination or change of control. Further, we have a staggered board of directors and have entered into change of control agreements through
employment agreements with certain executives. In addition, proceeds received upon a change of control will generally be used first to
repay outstanding principal and interest on the Term Loan and then to the holders of the series A preferred stock, prior to the holders
of the common stock, in an amount equal to the amount of unpaid principal and interest on the Term Loan and 100% of the stated value plus
accrued and unpaid dividends with respect to the series A preferred stock. As a result of the foregoing, our stockholders may lose opportunities
to dispose of their shares at favorable prices generally available in takeover attempts or that may be available under a merger proposal,
and the market price of our common stock and the voting and other rights of our stockholders may also be affected.
The conversion and exercise of our outstanding
securities and the anticipated grant of restricted stock to our employees will dilute the then-existing stockholders' percentage
ownership of our common stock.
We have outstanding stock options to purchase
9,780 shares of our common stock, an aggregate of 1,442,828 outstanding unvested restricted shares and outstanding series A preferred
stock convertible into 87,815 shares of our common stock. Over the next several years a significant number of shares of common stock are
potentially issuable as dividends with respect to the series A preferred stock, including 87,815 shares of common stock reserved
for issuance related to accrued dividends as of March 31, 2021.
21
The exercise of all of the outstanding stock options,
vesting of all outstanding restricted shares and/or conversion of our outstanding series A preferred stock into common stock, the
payment of dividends on our series A preferred stock through the issuance of common stock and/or the grant and exercise of additional
stock options and/or the grant and vesting of restricted stock to our employees 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.
The potential concentration of equity ownership by Hale Capital and
ESW Capital LLC may limit your ability to influence corporate matters.
Hale Capital currently owns approximately 60.5%
of our outstanding common stock, or         % of our outstanding common stock immediately after
the consummation of this offering, and ESW currently owns approximately 21.6% of our outstanding common stock, or         %
of our outstanding common stock immediately after the consummation of this offering. In addition, the beneficial ownership of Hale Capital
and ESW Capital LLC is higher when calculated in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") due to their ownership of derivative securities. In addition, Hale Capital and ESW have additional rights
through their ownership of our series A preferred stock and their holdings of our outstanding indebtedness.
This ownership could enable Hale Capital and ESW
to exert significant influence over all corporate activities, including the election or removal of directors and the outcome of tender
offers, mergers, proxy contests or other purchases of common stock that could give our stockholders the opportunity to realize a premium
over the then-prevailing market price for their shares of common stock. This concentrated control will limit your ability to influence
corporate matters and, as a result, we may take actions that our stockholders do not view as beneficial. In addition, such concentrated
control could discourage others from initiating changes of control. In such cases, the perception of our prospects in the market may be
adversely affected and the market price of our common stock may decline.
We will have broad discretion as to the use of the proceeds
from this offering, and we may not use the proceeds effectively.
Although we intend to use the net proceeds in
the offering to finance our growth strategy, and for working capital and general corporate purposes, we will have broad discretion as
to the application of the net proceeds and could use them for purposes other than those contemplated at the time of this offering. Our
stockholders may not agree with the manner in which our management chooses to allocate and spend the net proceeds. Moreover, our management
could use the net proceeds for corporate purposes that may not necessarily increase our market value or improve our results of operations.
We have not paid dividends in the past and do
not expect to pay dividends in the future. The terms of our series A preferred stock and the Amended and Restated Loan Agreement also
restrict our ability to pay dividends on our common stock, and any return on investment may be limited to the value of our common stock.
We have never paid cash dividends on our
common stock and do not anticipate doing so in the foreseeable future. The payment of dividends on our common stock will depend on earnings,
financial condition and other business and economic factors affecting us at such time as our board of directors may consider relevant.
In addition, the terms of our series A preferred stock and the Amended and Restated Loan Agreement restrict our ability to pay dividends
on our common stock. If we do not pay dividends, our common stock may be less valuable because a return on your investment will only occur
if our stock price appreciates.
If you are not an institutional investor, you
may purchase securities in this offering only if you reside within the states in which we will apply to have the securities registered
or are exempt from registration, and, if required, meet any requisite suitability standards.
Because our common stock is quoted by
the OTCQB Venture Market and not listed on a national securities exchange, this offering must be registered, or be exempt from registration,
in any state in which the securities are to be offered or sold. We will apply to register securities, or will seek to obtain an exemption
from registration, only in certain states. If you are not an "institutional investor," you must be a resident of these jurisdictions
to purchase our securities in the offering. The definition of an "institutional investor" varies from state to state, but
generally includes financial institutions, broker-dealers, banks, insurance companies and other qualified entities. If you are not an
institutional investor, you may purchase securities in this offering only if you reside in the jurisdictions where there is an effective
registration or exemption, and, if required, meet any requisite suitability standards.
22
CAUTIONARY NOTE REGARDING FORWARD-LOOKING
STATEMENTS
This prospectus and the documents incorporated
by reference contain "forward-looking statements" intended to qualify for the safe harbor from liability established by the
Private Securities Litigation Reform Act of 1995. The statements, which are not historical facts contained in this report, particularly
those that utilize terminology such as "may," "will," "would," "could," "should,"
 "expects," "anticipates," "anticipates," "estimates," "believes," "intends,"
 "likely," "projects," "plans," "pursue," "strategy" or "future," or the
negative of these words or other words or expressions of similar meaning, are forward-looking statements. Such statements are based on
currently available operating, financial and competitive information, and are subject to inherent risks, uncertainties and changes in
circumstances that are difficult to predict and many of which are outside of our control. Future events and our actual results and financial
condition may differ materially from those reflected in these forward-looking statements. Therefore, you should not rely on any of these
forward-looking statements. Important factors that could cause these differences include, but are not limited to, the following:
•
our limited liquidity and working capital deficiency;
•
the success of our cost reduction initiatives;
•
the continuing impact of COVID-19 on our operations and financial condition;
•
our ability to raise additional funding;
•
customer and distributor cancellations;
•
our ability to maintain and grow our business;
•
the successful integration of acquired companies, products and technologies into our portfolio of software and services and into
our current operations;
•
our ability to pay for our acquisition liabilities in cash or to issue common stock as payment;
•
variability of operating results;
•
the timing and outcome of pending or potential claims and litigation, including without limitation, the pending
shareholder derivative lawsuits;
•
our ability to maintain effective disclosure controls and procedures and internal control over financial reporting;
•
our ability to maintain and enhance our brand;
•
our development and introduction of new products and services;
•
marketing and other business development initiatives;
•
competition in the industry;
•
general government regulation;
•
economic conditions;
•
dependence on key personnel;
•
the ability to attract, hire and retain personnel who possess the technical skills and experience necessary to meet the service
requirements of our customers;
•
our ability to protect our intellectual property;
•
the potential liability with respect to actions taken by our existing and past employees;
•
risks associated with international sales; and
•
other risks and uncertainties described under the heading "Risk Factors" in this prospectus and under the heading "Item
1A. Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2020, which is incorporated by reference into
this prospectus.
Given these risks and uncertainties, you are
cautioned not to place undue reliance on such forward-looking statements. All forward-looking statements contained or incorporated by
reference in this prospectus are based on our current expectations, intentions and beliefs using information currently available to us
only as of the date of such statement, and we assume no obligation to update any forward-looking statements, except as required by U.S.
federal securities laws. Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the
actual results to differ materially from any future results, performance or achievements expressed or implied by such forward-looking
statements.
23
USE OF PROCEEDS
We estimate that the net proceeds from the sale
of our common stock in this offering will be approximately $                            
(or approximately $                            
if the underwriter's option to purchase additional shares from us is exercised in full), based upon an assumed public offering price
of $              per share, which was the last reported sale price of
our common stock as quoted by the OTCQB Venture Market on June    , 2021, after deducting the underwriting discount
and estimated offering expenses payable by us.
We intend to use the net proceeds of this offering
to expand marketing and distribution of our software products and supporting technology in the United States and abroad, to enhance our
ongoing product development programs and for working capital and general corporate purposes. As part of our growth and expansion strategy,
we may also use a portion of the net proceeds of this offering for acquisitions of complementary businesses, products and technologies.
We currently have no commitments with respect to any potential acquisitions.
The intended use of net proceeds from this offering
represents our expectations based upon our present plans and business conditions. We cannot predict with certainty all of the particular
uses for the proceeds of this offering or the amounts that we will actually spend on the uses described in this prospectus. Accordingly,
our management will have significant flexibility in applying the net proceeds of this offering. The timing and amount of our actual expenditures
will be based on many factors, including cash flows from operations and the anticipated growth of our business. Pending their use, we
intend to invest the net proceeds of this offering in a variety of capital-preservation investments, including short- and intermediate-term,
interest-bearing, investment-grade securities.
24
DIVIDEND POLICY
We have not previously declared
or paid any cash dividends on our common stock since inception. We anticipate that we will retain earnings to support operations and finance
the growth of our business, as described in this prospectus. In addition, the terms of our series A preferred stock and our Amended and
Restated Loan Agreement restrict our ability to pay dividends on our common stock. Accordingly, it is not anticipated that any cash dividends
will be paid on our common stock in the foreseeable future.
Holders of our series A preferred
stock are entitled to receive quarterly dividends at the Prime Rate (Wall Street Journal Eastern Edition), plus 5% (up to a maximum amount
of 10%), payable in cash, provided, that if we will not have at least $1.0 million in positive cash flow for any calendar quarter after
giving effect to the payment of such dividends, we, at our election, can pay such dividends in whole or in part in cash, provided that
cash flow from operations is not negative, and the remainder can be accrued or paid in common stock to the extent certain equity conditions
are satisfied. Due to the lack of sufficient surplus to pay dividends as required by the Delaware General Corporation Law, we were not
permitted to pay the fourth quarter 2016 dividend in cash or common stock and have been accruing the quarterly dividends since then. As
of March 31, 2021, our liability for dividends to the holders of the series A preferred stock totaled $4.6 million. While the Term
Loan is outstanding, we are only permitted to pay in-kind dividends on the series A preferred stock.
25
CAPITALIZATION
The following table
sets forth our cash and capitalization as of March 31, 2021 (a) on an actual basis, and (b) on an as adjusted basis to give effect
to the sale by us of shares of our common stock in this offering at the public offering price of
$                per share, which was the last reported
sale price of our common stock on June    , 2021 as quoted by the OTCQB Venture Market, after deducting the
underwriting discount and estimated offering expenses payable by us.
This table
should be read with "Use of Proceeds" in this prospectus, as well as "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and our financial statements and related notes included in our Quarterly Report on
Form 10-Q for the three months ended March 31, 2021, which is incorporated by reference into this prospectus.
As of March 31, 2021
Actual
(unaudited)
As Adjusted
(unaudited)
Cash and cash equivalents
$
2,020,989
$
Total Debt:
Short-term loan, net of debt issuance costs and discounts
$
3,396,568
$
Series A redeemable convertible preferred stock, $0.001 par value,   2,000,000 shares authorized; 900,000 shares issued and outstanding,  redemption value of $13,623,747
$
13,415,006
$
Stockholders' equity:
Common stock - $0.001 par value, 30,000,000 shares authorized, 5,949,463 shares issued and outstanding, actual;              shares issued and outstanding, as adjusted
$
5,949
$
Additional paid-in capital
$
109,637,357
$
Accumulated deficit
$
(122,308,096
)
$
Accumulated other comprehensive loss, net
$
(1,901,563
)
$
Total stockholders' equity (deficit)
$
(14,566,353
)
$
Total capitalization
$
2,245,221
$
$
The outstanding historical share
information and additional paid-in capital in the table above is based on 5,949,463 shares of common stock outstanding as of March 31,
2020 and excludes, as of that date, the following:
•
87,815 shares of our common stock issuable upon the exercise of outstanding shares of series A redeemable convertible preferred stock;
•
9,780 shares of our common stock issuable upon the exercise of outstanding stock options having an average exercise price of $113.66
per share;
•
1,442,828 shares of our common stock issuable upon the vesting of outstanding restricted stock; and
•
up to an additional 45,115 shares of common stock currently reserved for issuance related to accrued dividends on the series A preferred
stock.
26
DILUTION
If you purchase shares of our common stock
in this offering, you will experience dilution to the extent of the difference between the public offering price per share in this offering
and our as adjusted net tangible book value per share immediately after this offering. Net tangible book value per share is equal to the
amount of our total tangible assets, less total liabilities, divided by the number of outstanding shares of our common stock. As of March 31,
2021, our net tangible book value (deficit) was approximately $(5,403,377), or $(0.91) per share.
After giving effect to the sale of shares of
our common stock in this offering at the public offering price of $ per share, which was the last reported sale price of our common stock
on June       , 2021 as quoted by the OTCQB Venture Market, after deducting the underwriting discount and
estimated offering expenses payable by us, our as adjusted net tangible book value as of March 31, 2021 would have been approximately
$ . This represents an immediate increase in net tangible book value of $      per share to existing stockholders
and an immediate dilution of $              per share to new investors
purchasing shares of our common stock in this offering at the public offering price. The following table illustrates this per share dilution:
Public offering price per share
$
Net tangible book value (deficit) per share as of March 31, 2021
$
(0.91
)
Increase in net tangible book value per share after giving effect to this offering
$
—
As adjusted tangible book value per share after giving effect to this offering
$
Dilution per share to new investors in this offering
$
If the underwriter's option to purchase
additional shares of our common stock from us is exercised in full, the as adjusted net tangible book value per share of our common stock,
as adjusted to give effect to this offering, would be $   per share, and the dilution in net tangible book value per share to new
investors purchasing shares of our common stock in this offering would be $ per share.
The foregoing discussion and table do not take
into account further dilution to new investors that could occur upon the exercise of outstanding stock options having a per share exercise
price less than the per share offering price to the public in this offering. In addition, we may choose to raise additional capital due
to market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans.
To the extent that additional capital is raised through the sale of equity or equity-linked securities, the issuance of these securities
could result in further dilution to our stockholders.
The table and discussion above are based on 5,949,463
shares of common stock outstanding as of March 31, 2021 and excludes, as of that date, the following:
•
87,815 shares of our common stock issuable upon the exercise of outstanding shares of series A redeemable convertible preferred stock;
•
9,780 shares of our common stock issuable upon the exercise of outstanding stock options having an average exercise price of $113.66
per share;
•
1,442,828 shares of our common stock issuable upon the vesting of outstanding restricted stock; and
•
up to an additional 45,115 shares of common stock currently reserved for issuance related to accrued dividends on the series A preferred
stock.
27
BUSINESS
Overview
We are a data protection
technology
company enabling enterprises to modernize their data backup and archival operations across
multiple
sites and public clouds.
Our products
deliver increased
data security and provide recovery solutions for cyber attacks. We have over an exabyte of data under management, 36 issued patents and
five patent applications and offer products that are used by more than 600 enterprise customers. Our products are offered through and
supported by a network of leading service providers, systems integrators, resellers, MSPs and OEMs.
Our products address a
demand for enterprise data protection driven by the manner in which consumers and businesses are increasingly interacting in a digital
space through multiple devices, networks and platforms. The onset of the
coronavirus pandemic accelerated this shift, as ongoing
remote work and work from home arrangements introduced novel challenges to maintaining enterprise data security. The adoption of increased
employee mobility and flexible remote work arrangements, such as a broader incorporation of cloud technology and the option for employees
to use their own devices, has introduced additional vulnerabilities that businesses must monitor and protect through solutions like ours
in order to maintain enterprise data integrity.
Our products are utilized by enterprises
and MSPs to address two key areas of enterprise data protection: (i) long-term data retention and recovery, and (ii) data replication
to preserve business continuity. Our integration with modern cloud-based data storage environments, such as AWS and Microsoft Azure, enables
our enterprise customers to significantly reduce costs and improve the portability, security and accessibility of their enterprise data.
We believe this accessibility is key in our modern world, where data must be protected and intelligently leveraged to facilitate learning,
improve product design and drive competitive advantage. Our products can be used regardless of the underlying hardware, cloud and source-data,
which enables our enterprise customers to leverage their existing hardware and software investments.
We believe our long-term data retention
products are critical to the data protection plans of any enterprise. The foundation of any enterprise data protection plan is the long-term
data archive, as this segment represents up to 80% of an enterprise's data according to the Horizon Study. Whether in the form of application databases, documents, emails or digital media files, enterprises must preserve this information
for significant periods of time to fulfill operational, legal and regulatory requirements. Expanding government and industry regulations
also continue to increase mandated retention periods. In addition to fundamental data retention, modern enterprises desire to leverage
their long-term archives for strategic analysis and to unlock new revenue streams. As a result, enterprises are challenged with secure
and cost-effective data management, while also adopting flexible and scalable cloud-based storage environments. Our long-term data retention
products enable our enterprise customers to reduce their data storage footprint while seamlessly transitioning data to a wide array of
hybrid-cloud and public-cloud storage systems, including AWS and Microsoft Azure. Our products have also been found to increase data backup
speeds by up to 600% based on the 2019 Evaluator Group Performance Analysis.
In addition to long-term data retention,
enterprises must maintain operational data redundancy to ensure business continuity in near real time. According to the Horizon Study, the remaining 20% of an enterprise's data is active and backed up, and such data is retained for
less than 90 days. Our data replication products and
associated technologies allow an enterprise to capture snapshots of selected data or entire systems at user-defined intervals, and include
the ability to replicate data as it is written or modified in real time. These solutions allow our enterprise customers to recover data
back to a specific point in time to completely recover from operational data loss or corruption, including ransomware. As is the case
with our long-term data retention products, our data replication products are designed to leverage existing enterprise hardware and software
investments, while enabling the use of new cloud-based data storage technologies.
Our
S
oftware
P
roducts and
S
upporting
T
echnology
Our software products create investment
protection, flexibility and leverage of modern cloud-based technologies through software-defined functionality that provides backup and
long-term retention, and business continuity driven data replication. As a result, our enterprise clients are able to utilize the underlying
storage hardware, media or environment (on-premise or cloud) that best aligns with their strategic needs, which can eliminate costly hardware-vendor,
cloud and form-factor lock-ins.
Long-Term Data
Retention and Recovery Products
28
●       FalconStor
Virtual Tape Library
–
We were
an early innovator in VTL technology, which allows
enterprise customers to emulate and replace cumbersome physical tape libraries with archive related data preservation, without replacing
their existing backup and archive software and associated processes.
We believe our VTL product
continues to be a leading virtual tape library solution in terms of performance and scalability. With VTL, our enterprise customers are
able to complete their data archive operations more reliably, with minimal changes to their legacy archive environment. They are also
able to leverage sophisticated physical tape emulation, advanced data security, data-deduplication, and public- or private-cloud based
virtual tape archive storage. We have subjected our VTL solution to independent performance testing, which at the time demonstrated that
our product was 25% faster than a competitor and could be executed on hardware that was
one-third
the
cost of that required by our closest competitor. We enable our customers to reduce the amount of data that needs to be archived by processing
their archive data through our integrated data deduplication engine. By eliminating redundant archive data, the archive storage capacity
required can be significantly reduced. Our technology allows our enterprise customers to significantly reduce the cost of storing the
ever-growing volume of data that is subject to long-term archive data protection mandates.
●       FalconStor
StorSafe
TM
–
Traditionally, enterprises have had limited choice and
have been forced to store their archive data on physical tape or within storage arrays installed in an internal data center. Our newest
and most innovative long-term archive data management software product, StorSafe, breaks these traditional storage limitations and enables
enterprises to securely and cost effectively leverage a wide array of storage options, including ultra-efficient and scalable cloud-based
storage environments, such as AWS and Microsoft Azure. Launched in 2020, StorSafe provides sophisticated physical tape emulation and seamless
integration with an enterprise's legacy backup and archive software and processes. By leveraging patent pending industry-standard
container technology to enable persistent long-term archive storage, our StorSafe solution dramatically improves archive data portability,
accessibility, security and integrity validation, especially as it relates to multi-cloud data storage leverage. As a result, a full spectrum
of archive data storage options is made available to our enterprise customers to utilize essentially any storage environment, while confidently
ensuring data security and efficient archive access. We have designed StorSafe to significantly reduce long-term archive data storage
and legal or regulatory mandated compliance costs.
Business Continuity
Driven Data Replication Products
● FalconStor
Continuous Data Protector
–
In addition to retaining long-term archive data,
enterprises routinely maintain short-term copies, or backups, of data generated by various user applications to protect against data loss
or natural disaster. Moving beyond once-a-day backup models, CDP combines local and remote protection into a cost-effective, unified,
disk-based solution that allows enterprises to recover data back to the most recent transaction. Combining application-aware snapshot
agents and continuous journaling functions, CDP enables customers to recover data effectively at any point in time. CDP delivers instant
data availability and reliable recovery, with the capacity to bring business applications back online in a matter of minutes after a failure.
CDP protects application-specific data for Microsoft, Oracle, SAP and other business applications, ensuring high performance and stability
for complex business environments.
●       FalconStor
Network Storage Server
–
The expanding capacity of data managed by enterprises
creates a continual challenge in ensuring adequate amounts of available storage. NSS is a scalable solution that enables data storage
virtualization and business continuity in heterogeneous environments. Supporting existing third-party disk arrays, NSS eliminates storage
boundaries and vendor lock-in, providing fast and secure data storage provisioning and migration. Our core storage virtualization technology
provides a non-disruptive approach to data mobility across different storage area network protocols and vendors. With NSS, it becomes
a simple operation to move data from older platforms to newer ones or to introduce new storage capacity and tiers. This allows enterprises
to respond to evolving performance and capacity requirements, as well as changing data protection mandates.
Our
products are sold as stand-alone software, but can also be bundled with standard hardware configurations to simplify implementation for
our customers.
Supporting
Technology
●       FalconStor
StorSight
TM
–
StorSight gives our enterprise customers and MSPs the
ability to administer long-term archive and business continuity driven data replication from one centralized management point and to
easily test our other products they may not be currently licensing. To simplify our development efforts and to enable broader use of
our products by our enterprise customers, we have unified all user management into our modern HTML-based console and rebranded that unified
tool as StorSight. As a result, StorSight is now our unified data protection console used to administer our VTL, StorSafe, CDP, and NSS
products.
Our StorSight user console provides deep analytics relative to each of our products
as they are utilized in production. StorSight also includes a full array of functionality key to our MSP customers, such as multi-tenancy
and charge-back.
StorSight usage licensing is included when customers and MSPs license any of
our products.
29
●       FalconStor RecoverTrac
TM
Disaster Recovery Technology
–
O
ur patented RecoverTrac technology streamlines
the implementation, testing and execution of disaster recovery operations. It minimizes service failover time between sites and reduces
disaster recovery costs by offering full recovery from physical-to-physical, virtual-to-virtual and physical-to-virtual server infrastructures.
This technology is a disaster recovery automation service, and is included as a standard feature of our NSS and CDP products to automate
complex, time-consuming and error-prone failover and failback operations of systems, applications, services and entire data centers. This
technology can also work across those environments, enabling organizations to seamlessly migrate locally, remotely or to and from cloud
environments.
●       FalconStor MicroScan
TM
Technology
–
Our
patented MicroScan technology minimizes the amount of
data transferred during replication by eliminating inefficiencies at the application and file system layer. Data changes are replicated
at the smallest possible level of granularity, reducing LAN/WAN bandwidth and associated storage costs for disaster recovery ("DR"),
and any time data is replicated from one source to another. MicroScan is an integral part of our replication option for CDP and NSS.
Our Growth and Expansion
S
trategy
Our
software
products and supporting technology are licensed by enterprise IT organizations and MSPs worldwide. The key elements of our growth and
expansion strategy include the following
:
●       Accelerate
our marketing and distribution in our
best suited markets
–
We plan to
continue to focus our marketing and distribution efforts on enterprise customers, MSPs, CSPs, resellers, systems integrators and OEM partners.
We believe these markets and distribution channels offer a significant opportunity and are best suited to realize the value of our products,
and provide an efficient and effective access to broad, worldwide markets.
●
Expand
our existing software product offerings
–
We intend to enhance our products to address ever-changing market dynamics to
allow us to be leader in the data protection marketplace. For example, through StorSafe, we have successfully adapted transient container
technology to deliver a persistent, long-term data protection container that is agnostic, heterogeneous and highly portable, as well as
backward compatible and compatible with future technology advancements. We believe these advancements are essential to meet the chain
of custody mandates that are inherent in long-term data retention plans subject to compliance, regulatory, legal discovery and privacy
laws that continue to evolve and mature.
●
Expand
software and hardware strategic alliances with industry leaders
–
The Flash/SSD, High-Density Single Disk and Cloud Data
Archival markets are key opportunities for us on two fronts: targeting customers wanting to integrate this new technology into existing
IT environments, and OEMs needing to enhance their software stack in order to offer data movement and protection services on their platform.
CSPs such as AWS, Microsoft Azure, Wasabi and Alibaba Cloud also represent a growth opportunity. Our mutual customers and partners need
help moving data from the customer site to their own facilities, as well as a way to deliver common data services across disparate and
often incompatible hardware typically found across the provider and end customer environments. We believe that we are positioned to continue
to take advantage of these key opportunities in the global marketplace.
●       Provide
a bridge to cloud-based data storage, while protecting customers' investments
–
We
intend
to continue leveraging the protocol-independent, unified architecture, analytics and open data services technology of our products to
maintain a competitive position in the enterprise storage software market. With the addition of StorSafe, and its associated storage container
technology, we have joined and are dedicated to the Open Source community, which has accelerated development and integration efforts across
our entire product suite. We intend to continue delivering technical innovation that creates investment protection, flexibility and leverage
of modern cloud-based technologies for our enterprise customers.
●       Enable
MSPs
–
As the managed service provider segment continues to grow, MSPs increasingly
have a need to support heterogeneous storage environments across their own data centers and their customers' environments. MSPs
often have different hardware and software capabilities, making it significantly challenging to offer consistent data services across
these environments. We believe that we offer strategic benefits for MSPs by (i)
enabling the seamless and non-disruptive movement
of data from the customer premises to the service provider's hosted environment, (ii) offering common data services across a customer's
environments regardless of underlying hardware or technology, (iii) allowing for the introduction and ability to monetize additional data
services they may not have previously been able to offer, (iv) providing a low-cost growth opportunity due to the flexibility of StorSight
licensing, while eliminating the need to have multiple feature licenses array by array, and (v) enabling reduced storage management complexity
and costs within their infrastructure by eliminating silos, reducing licensing costs and optimizing hardware.
30
I
ndustry
Background and Trends
Enterprises of all sizes are increasingly
challenged to securely archive, replicate and make available their data assets. This challenge is increased as business pressures to reduce
cost and increase efficiency push enterprises to adopt cloud-based technologies, which are critical to handling the growth in data and
strategic uses of enterprise data, despite an increasing amount of records and data that has been compromised over the past several years.
For example, according to the 2020 Year End Report published by RiskBased Security, approximately 37 billion records of sensitive data
were lost from various breaches, as compared to the approximately 15 billion and 5 billion that were lost in 2019 and 2018, respectively.
We believe long-term data archive
is the fastest-growing segment of an enterprise's data assets. This growth is accelerating as enterprises are increasingly subject
to complex regulatory compliance, such as that driven by the Food and Drug Administration, the Health Insurance Portability and Accountability
Act, European Union's General Data Protection Regulation and the Sarbanes-Oxley Act. As the volume of long-term archive continues
to expand, the need for enterprises to securely and cost-effectively store the associated data will only increase.
The introduction of new long-term
archive storage options has also given rise to a growth in MSPs remotely managing data protection, primarily to smaller enterprises with
a less complex array of data assets. The MSPs are able to leverage modern broadband connectivity and offer more scalable long-term storage
options, which will serve to reduce data protection costs for their customers. We believe this trend to outsourced long-term archive data
protection will continue.
New regulations and laws governing
the processing, storage, retention, protection and reinstatement of high-value information assets are driving significant growth in the
data protection markets. We believe that data archives will play an increasing role in training and validating artificial intelligence
and machine learning algorithms and optimizing strategic analytic model outcomes. Given our long history and deep skillset of the unique
challenges associated with long-term storage, we believe that we are in position to capitalize on data assets that are subject to new
protection requirements with our existing product portfolio. Our innovative StorSafe product is designed and architected to leverage the
scale-up and scale-out capabilities found in today's public and private clouds to support the expanding long-term data protection market
demand that is estimated to grow into the Zettabyte (10^21) range by 2030, according to market intelligence provider International Data
Corporation. We believe our innovative integration of long-term archive storage into modern cloud-based technologies will enable our customers
to dramatically improve the portability, security, and accessibility of their enterprise data.
Competition
Long-Term Data
Retention and Recovery
We
believe our VTL and StorSafe products are positioned well in the marketplace. Given the fact that these products are designed to integrate
with an enterprise's legacy backup and archive software and processes, the level of competition we believe we typically face is
limited to DellEMC's Data Domain virtual tape library product.
We
also compete with legacy backup and archive vendors such as Veritas, and Commvault; however, in practice, we believe our products are
more complimentary to their solutions than competitive, as our solutions do not require their solutions to be retired or replaced. In
fact, our enterprise customers view the ability to maintain their legacy software solutions and processes as a key differentiator for
selecting FalconStor products, as it is common for them to use backup and archive products from multiple vendors. By inserting our VTL
or StorSafe product, customers are able to aggregate all of their archive data easily and control global data deduplication and archive
storage from one central point.
We
believe our enterprise customers also view the fact that our VTL and StorSafe products operate effectively with Windows, Linux, and IBM
i operating system environments as a key differentiator. As a result, we execute specific go-to-market efforts to identify enterprise
customers that have multiple OS environments in production.
Beyond the
differentiation our VTL and StorSafe products provide related to existing infrastructure integration, we also believe the innovations
we are delivering to improve backup and long-term retention and will serve as important competitive differentiators for FalconStor over
the next several years. This belief is founded on the fact that our new innovations are designed to significantly improve archive data
portability, security, and integrity validation. In addition, our new innovations are designed to allow our enterprise customers to seamlessly
leverage multiple private- or public-clouds at one time to significantly reduce archive data storage costs.
Business Continuity
Driven Data Replication
31
Competition
within the business continuity driven data replication space is significant and includes products from Veeam, Rubrik, Cohesity, Commvault,
Veritas, DellEMC, DataCore, and others. As a result, it is imperative that we carefully select the areas in which we will compete to ensure
they are aligned with our key product differentiations. Accordingly, our two areas of
focus within
this space are on-premise storage virtualization and granular application-aware data replication snapshots that enable our enterprise
customers to recover data back to a specific point in time for near real-time recovery time objectives.
Intellectual Property
FalconStor's
success is dependent in part upon its proprietary technology. We currently have 36 patents and five pending patent applications. The Company
has multiple registered trademarks - including "FalconStor Software", "StorSight", "StorSafe", and
 "Intelligent Abstraction" - as well as pending trademark applications related to FalconStor and its products.
FalconStor
seeks to protect its proprietary rights and other intellectual property through a combination of copyright, patents, trademark, and trade
secret protection, as well as through contractual protections such as proprietary information agreements and nondisclosure agreements.
The technological and creative skills of its personnel, new product developments, frequent product enhancements, and reliable product
maintenance are essential to establishing and maintaining a technology leadership.
Major Customers
For
each of the three months ended March 31, 2021 and 2020, we had two customers that accounted for 10% or more of total revenue,
respectively. As of March 31, 2021, we had two customers that accounted for 10% or more of the gross accounts receivable
balance. As of December 31, 2020, we had one customer that accounted for 10% or more of the gross accounts receivable balance.
Employees
As of
March 31, 2021, we had 45 full-time and part-time employees, consisting of 15 in research & development, 12 in sales & marketing,
13 in service, and 5 in general and administrative. We are not subject to any collective bargaining agreements and we believe that our
employee relations are good.
Internet Address and Availability
of Filings
Our
internet address is www.falconstor.com. The Company makes available free of charge, on or through its Internet website, the Company's
Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports filed or furnished
pursuant to Sections 13(a) or (15)(d) of the Exchange Act, as soon as reasonably practicable after the Company electronically files such
material with, or furnishes it to, the Securities and Exchange Commission. The Company complied with this policy for every Exchange Act
report filed during the year ended December 31, 2020.
32
BOARD OF DIRECTORS AND
MANAGEMENT
The
names and ages of our directors and executive officer, and their positions with our company, are as follows:
Name
Position
Age
Todd Brooks
President, Chief Executive Officer and Director
56
Martin M. Hale, Jr.
Director
49
Michael P. Kelly
Director
73
William D. Miller
Director
60
Barry A. Rudolph
Director
67
Brad Wolfe
Executive Vice President, Chief Financial Officer and Treasurer
61
Additional
information with respect to each of our directors and our executive officer, and their principal occupations, is set forth below:
Todd Brooks
is the Company's President
and Chief Executive Officer. Prior to joining the Company in 2017, Mr. Brooks was the Chief Operating Officer at Aurea Software, and Chief
Executive Officer of Update Software, a publicly traded company in Europe.  Previously, Mr. Brooks was the Chief Operating Officer
at Trilogy where he was responsible for the strategic and operational leadership of the firm's Automotive, Financial Services and
Telecom, and Technology & Media business units.  Earlier in his career, Mr. Brooks co-founded and managed two technology
consulting firms, including eFuel, an early innovator and leader in logistics optimization software for the automotive industry. In addition,
Mr. Brooks held leadership roles at FedEx. Mr. Brooks earned a Bachelor's of Science degree in Aerospace and Ocean Engineering from
Virginia Tech, and currently serves on the Advisory Board at Virginia Tech's Apex Center for Innovation and Entrepreneurship. Mr.
Brooks has been a director of the Company since 2019.
Martin M. Hale, Jr.
has served as the founder
and Chief Executive Officer of Hale Capital Partners, LP, an investment firm that applies a private equity skill set and focus to investing
in small and micro-cap public companies, since 2007. Mr. Hale has 24 years of experience in venture capital and private equity as a board
member and an investor helping public and private companies grow. Mr. Hale currently serves as a director of Culmen International, Dynasil
Corporation, Galois, QL2 Software and Patch Media. Mr. Hale has also served as a director of publicly-traded technology companies including
Lantronix Inc., Adept Technology, Inc. (acquired by Omron Global), Analex Corporation (acquired by QinetiQ North America), Paradigm Holdings
(acquired by CACI International, Inc.), Telanetix, Inc. (acquired by Intermedia) and Top Image Systems (acquired by Kofax). Before joining
Hale Capital Partners, Mr. Hale was a Managing Director and member of the founding team of Pequot Ventures, an associate at Geocapital
Partners, and an analyst with Broadview International. Mr. Hale received a B.A. from Yale University. Mr. Hale has been a director of
the Company since September 2013.
Michael P. Kelly
has served as a director
at Adept Technology, Inc. from April 1997 to October 22, 2015 and also served as Chairman of the Board of Adept from November 2008 to
October 22, 2015. Mr. Kelly has also served as Chief Executive Officer of merchant bank, Kinsale Associates, Inc., since October 2005.
From July 2005 to October 2005, he was the Chief Executive Officer of Cape Semiconductor Inc., a fabless semiconductor company. From 1994
to 2005, Mr. Kelly held the positions of Vice-Chairman and Senior Managing Director of Broadview International, LLC, an international
merger and acquisitions advisory firm and a division of Jefferies Inc. Additionally, he has served as a director of Epicor Software Corporation
(EPIC), a provider of enterprise business software solutions, since September 2005. Mr. Kelly received a B.A. in Accounting from Western
Illinois University, a M.B.A. from St. Louis University, and is also a Certified Public Accountant. Mr. Kelly has been a director of the
Company since October 2014 and our Chairman of the Board since March 2018.
W
illiam
D. Miller
has served as Chairman and Chief Executive Officer of Axellio Inc., an edge computing systems company, since November
2018 and has been General Partner of FirstMile Ventures (previously Miller Investment Management), a venture capital fund manager making
investments in early stage companies, since 2010. He previously served as Chief Executive Officer of X-IO Technologies, Inc., an enterprise
storage company, from February 2015 to October 2018. Mr. Miller is a director of the following private entities: Axellio Inc., Violin
Sytems LLC, Chromatic Technologies, Inc., New Planet Technologies, Inc., Wanamaker Corp., BurstIQ Inc., and Altia Inc. Mr. Miller was
a cofounder and Chief Technology Officer of StorageNetworks. Mr. Miller holds a B.S. in Chemistry from the University of Illinois. Mr.
Miller has been a director of the Company since December 2016.
33
Barry A. Rudolph
has served as Chief Executive
Officer of VelociData, Inc., a firm that specializes in high performance data transformation and process offload in large corporations,
since July 2014, and as a director since December 2012. Mr. Rudolph has also served as a director of Spectra Logic Corporation, a computer
data storage company, since December 2015. Previously, Mr. Rudolph served as a director of Dot Hill Systems Corp., a provider of high
performance storage arrays, from February 2012 until its sale to Seagate Technology in October 2015. Mr. Rudolph began his career in January
1978 and held numerous senior level positions with IBM until his retirement in November 2010 in a variety of functional areas, including
operations, engineering, product development, test and assurance, program management, field support and direct manufacturing. Most recently
he was Vice President, System Networking, for IBM with responsibility for delivering overall networking product strategy, portfolio management
and profit and loss management over each of the products in the group. Prior to this position, Mr. Rudolph was Vice President, Storage
Strategy, responsible for the development and integration of the storage strategy for IBM including market segmentation and opportunity
identification. Prior to that, Mr. Rudolph was Vice President, Stack Integration, responsible for the definition and execution of horizontal
solutions and solution selling. Prior positions Mr. Rudolph held at IBM include Vice President and Business Executive, Disk Storage and
Software Systems, where he was responsible for all aspects of disk storage and related software business within IBM. He also held an identical
role with responsibility for IBM's tape storage business. Mr. Rudolph holds a B.S. in Engineering and a Master of Science in Electrical
Engineering from San Diego State University and an MBA from Santa Clara University. Mr. Rudolph has been a director of the Company since
December 2016.
Brad Wolfe
is the Company's Executive
Vice President, Chief Financial Officer and Treasurer. Prior to joining the Company in April 2018, Mr. Wolfe served as Chief Financial
Officer for Asure Software (NASDAQ: ASUR) from October 2014 to July 2017. Prior to joining Asure Software, Mr. Wolfe spent most of the
preceding 14 years with DCI Group and their related entities and investments, a private equity and investment organization, where he served
in consulting, office and executive finance and operational roles for the firm's subsidiary and portfolio companies to promote their
growth and profitability. Before that, he was Chief Financial Officer and Executive Vice President at AON Corporation, a Fortune 200 company.
He holds an MBA degree from Northwestern University's Kellogg School of Business, a J.D. degree from the Kent Law School executive
program, and a B.B.A. degree in accounting and information systems from Southern Methodist University.
34
DESCRIPTION OF CAPITAL STOCK
General
We have 32,000,000 authorized shares of capital stock,
par value $0.001 per share, of which 30,000,000 shares are common stock and 2,000,000 shares are preferred stock.
We have the following issued and outstanding
capital stock as of the date of this prospectus:
•
5,949,463 shares of common stock;
•
series A preferred stock convertible into 87,815 shares of common stock;
•
stock options to purchase an aggregate of 9,780 shares of common stock;
•
1,442,828 unvested shares of restricted stock.
On June 2, 2021, the last reported
sale price of our common stock as quoted by the OTCQB Venture Market was $4.80
per share. As of June 2, 2021, there were 46 holders of record of our common stock.
Common Stock
Voting Rights and Requirements
. Each share of
our common stock entitles its record holder to one vote on all matters to be voted on by our common stockholders. Except as otherwise
provided by law, actions by the common stockholders of our company may be approved by a majority vote of the stockholders present at a
duly called meeting of the stockholders at which a quorum is present (with the series A preferred stock generally voting on an as-converted
basis with the common stock); however, an amendment to our bylaws by the stockholders requires the affirmative vote of the holders of
at least 66-2/3% of the voting power of all of the then outstanding shares of our capital stock entitled to vote generally in the election
of directors, voting together as a single class, as well as approval by the holders of series A preferred stock. Our board may amend the
bylaws with the majority vote of the total number of authorized directors. Our board is classified and currently consists of four directors
divided into three classes, each class with a term of office expiring the third succeeding annual meeting of stockholders after election
of such class. At all meetings of stockholders for the election of directors, a plurality of the votes cast is sufficient to elect. No
provision of our charter or bylaws provides for cumulative voting in the case of the election of directors or on any other matter.
Dividends and Liquidation Rights
. Each holder
of our common stock is entitled to share pro rata in any dividends paid on the common stock out of assets legally available for that purpose,
when, and if declared by the board. Upon the liquidation, dissolution or winding up of our company, the assets will be distributed pro
rata among the holders of common stock. However, the aforementioned dividend and liquidation rights are limited and qualified by the series
A preferred stock, which has a preference to any such distribution of the assets or funds. Other than the rights described above, the
holders of our common stock have no redemption, preemptive, subscription or conversion rights, nor any rights to payment from any sinking
or similar fund, and are not subject to any calls or assessments. There are no restraints in our charter or bylaws on the right of holders
of shares of common stock to sell or otherwise alienate their shares of stock, and there are no provisions discriminating against any
existing or prospective holder of shares of common stock as a result of such security holder owning a substantial amount of securities.
In addition to our outstanding common stock, we have
outstanding stock options to purchase common stock and unvested shares of restricted stock held by our employees and directors and additional
shares available for issuance under our 2018 Incentive Stock Plan, as further described in our periodic reports filed with the SEC.
We refer you to our certificate of incorporation, bylaws
and the applicable statutes of the State of Delaware for a more complete description of the rights and liabilities of holders of our securities.
Preferred Stock
Our certificate of incorporation authorizes the issuance
of up to 2,000,000 shares of preferred stock with designations, rights and preferences as may be determined from time to time by our board
of directors.
35
Series A Preferred Stock
Conversion.
Pursuant
to our Amended and Restated Certificate of Designations, Preferences and Rights of Series A Convertible Preferred Stock (the "Certificate
of Designations"), each share of series A preferred stock can be converted into shares of our common stock, at an initial conversion
price equal to $102.488 per share, subject to appropriate adjustments for any stock dividend, stock split, stock combination, reclassification
or similar transaction, (i) at any time at the option of the holder or (ii) by us if, following the first anniversary of the issuance
of the series A preferred stock (subject to extension under certain circumstances), the volume weighted average trading price per share
of our common stock for 60 consecutive trading days exceeds 250% of the conversion price and continues to exceed 225% of the conversion
price through the conversion date, subject at all times to the satisfaction of, and the limitations imposed by, the equity conditions
set forth in the Certificate of Designations (including, without limitation, the volume limitations set forth therein).
Dividends.
Pursuant
to the Certificate of Designations, the holders of the series A preferred stock are entitled to receive quarterly dividends at the prime
rate (provided in the Wall Street Journal), plus 5% (up to a maximum dividend rate of 10%), payable in cash or in kind (i.e., through
the issuance of additional shares of series A preferred stock), except that we are not permitted to pay such dividends in cash while any
indebtedness and our Amendment and Restated Loan Agreement remains outstanding without the consent of the holders of the series A preferred
stock. In addition, the declaration and payment of dividends is subject to compliance with applicable law and unpaid dividends will accrue.
A holder's right to convert its shares of series A preferred stock and receive dividends in the form of common stock is subject
to certain limitations including, among other things, that the shares of common stock issuable upon conversion or as dividends will not
result in any holder beneficially owning greater than 9.99% of our currently outstanding shares of common stock.
The series A preferred stock
dividends will accrue whether or not the declaration or payment of such series A preferred stock dividends are prohibited by applicable
law, whether or not we have earnings, whether or not there are funds legally available for the payment of such dividends and whether or
not such dividends are authorized or declared.
Redemption Rights.
Upon certain triggering events, such as bankruptcy, insolvency or a material adverse effect or our failure to issue shares of common stock
upon conversion of the series A preferred stock in accordance with our obligations, the holders may require us to redeem all or some of
the series A preferred stock at a price per share equal to the greater of (i) the sum of 100% of the stated value of a share of series
A preferred stock plus accrued and unpaid dividends with respect thereto, and (ii) the product of the number of shares of common stock
underlying a share of series A preferred stock and the closing price as of the occurrence of the triggering event. On or after July 30,
2021, each holder of series A preferred stock can also require us to redeem its series A preferred stock in cash at a per share price
equal to 100% of the stated value of a share of series A preferred stock plus accrued and unpaid dividends with respect thereto. Notwithstanding
the forgoing, no holder of series A preferred stock is permitted to exercise any rights or remedies upon a Breach Event or to exercise
any redemption rights under the Certificate of Designations, unless approved by the holders of a majority of the then outstanding shares
of series A preferred stock. Hale Capital, as the holder of the majority of the currently outstanding shares of series A preferred stock,
has agreed not to approve or to exercise the redemption of the series A preferred stock until at least July 30, 2023, with such extension
to be included in an amendment to the Certificate of Designation that will be proposed for shareholder approval at our next annual shareholder
meeting.
Fundamental Sale.
Upon consummation of a fundamental sale transaction, the series A preferred stock will be redeemed at a per share redemption price equal
to the greater of (y) 250% of the per share purchase price of the series A preferred stock and (z) the price payable in respect of such
share of series A preferred stock if such share of series A preferred stock had been converted into such number of shares of common stock
in accordance with the Certificate of Designations (but without giving effect to any limitations or restrictions contained therein) immediately
prior to such fundamental sale transaction; provided that the 250% threshold is changed to 100% if the fundamental sale transaction is
approved by the two Series A Directors (as defined in the Certificate of Designations). In addition, if we consummate an equity or debt
financing that results in more than $5.0 million of net proceeds to us and/or our subsidiaries, the holders of series A preferred stock
will have the right, but not the obligation, to require us to use the net proceeds in excess of $5.0 million to repurchase all or a portion
of the series A preferred stock at a per share price equal to the greater of (i) the sum of 100% of the stated value of such share of
series A preferred stock plus accrued and unpaid dividends with respect thereto, and (ii) the number of shares of common stock into which
such share of series A preferred stock is then convertible multiplied by the greater of (y) the closing price of the common stock on
the date of announcement of such financing or (z) the closing price of the common stock on the date of consummation of such financing.
36
Voting.
Each holder
of series A preferred stock has a vote equal to the number of shares of common stock into which its series A preferred stock would be
convertible as of the record date. In addition, the holders of a majority of the series A preferred stock must approve certain actions,
including approving any amendments to our charter or bylaws that adversely affects the voting powers, preferences or other rights of the
series A preferred stock, payment of dividends or distributions, any liquidation, capitalization, reorganization or any other fundamental
transaction of our company, issuance of any equity security senior to or on parity with the series A preferred stock as to dividend rights,
redemption rights, liquidation preference and other rights, issuances of equity below the conversion price, any liens or borrowings other
than non-convertible indebtedness from standard commercial lenders which does not exceed 80% of our accounts receivable, and the redemption
or purchase of any of our capital stock.
The holders of the series
A preferred stock have the exclusive right, voting separately as a class, to elect two directors to our board, for so long as at least
85% of the series A preferred stock purchased under the September 16, 2013 Purchase Agreement relating to the series A preferred stock
remains outstanding, which will be reduced to one director at such time as less than 85% but greater than 15% of the series A preferred
stock purchased under the Purchase Agreement remains outstanding. Currently, Martin M. Hale, Jr. and Michael P. Kelly have been designated
for election by the holders of the series A preferred stock to serve as members of our board of directors.
Certain Anti-Takeover Provisions
The provisions of our restated certificate of incorporation
and Delaware law may have the effect of delaying, deferring or preventing another party from acquiring control of the company. These provisions
may discourage and prevent coercive takeover practices and inadequate takeover bids.
Our board of directors has the authority,
without further action by our common stockholders, to issue up to an additional 1,100,000 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 our common 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. Moreover, our outstanding series A preferred
stock provides the holders with certain rights in the event of a merger with a third party and if we are unable to redeem the series A
preferred stock prior to July 30, 2023 or if the holders of the series A preferred stock elect to exercise their rights to require
us to redeem the series A preferred stock due to our failure to comply with the financial covenants covering the series A preferred
stock.
Our restated certificate of incorporation, as
amended, includes certain provisions that restrict transfers of our common stock in order to protect our NOLs if the effect of such transfers
would be to increase the direct or indirect ownership of stockholders from less than 4.99% to 4.99% or more of our common stock, or increase
the ownership percentage of stockholders owning 4.99% or more of our common stock.
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. We are subject to Section 203 of the Delaware General Corporation Law, which prohibits a Delaware corporation,
such as our company, from engaging in a wide variety of specified transactions with any person who becomes a 15% stockholder, under certain
circumstances, within three years after such person became an "interested stockholder."
We have a staggered board of directors and have
entered into change of control agreements through employment agreements with certain executives.
In addition, generally proceeds received upon
a change of control will be used first to repay outstanding principal and interest on the Term Loan and then to the holders of the series
A preferred stock, prior to the holders of the common stock, in an amount equal to the amount of unpaid principal and interest on the
Term Loan and 100% of the stated value plus accrued and unpaid dividends with respect to the series A preferred stock. As a result of
the foregoing, our stockholders may lose opportunities to dispose of their shares at favorable prices generally available in takeover
attempts or that may be available under a merger proposal and the market price of our common stock and the voting and other rights of
our stockholders may also be affected.
Over-the-Counter Market
Our common stock is quoted by the OTCQB Venture Market
under the symbol "FALC."
Transfer Agent and Registrar
37
The transfer agent and registrar for our common stock
is Computershare, Inc.
38
UNDERWRITING
We are offering the shares of common stock
described in this prospectus through Roth Capital Partners, LLC ("Roth Capital" or the "underwriter"). Roth Capital
has agreed to buy, subject to the terms of the underwriting agreement, the number of shares of common stock listed opposite its name below.
The underwriter is committed to purchase and pay for all of the shares if any are purchased, other than the shares covered by the over-allotment
option described below unless and until this option is exercised.
Underwriter
Number of Shares
Roth Capital Partners, LLC
Total
We have granted to the underwriter a 30-day
option to purchase up to an additional               shares of our common
stock from us at the same price to the public, and with the same underwriting discount, as set forth in the table below. The underwriter
may exercise this option any time during the 30-day period after the date of this prospectus, but only to cover over-allotments, if any.
To the extent the underwriter exercises the option, the underwriter will become obligated, subject to certain conditions, to purchase
the securities for which it exercised the option.
Discounts, Commissions and Expenses
The underwriter has advised us that it
proposes to offer the shares of common stock to the public at a public offering price of $          per
share. The underwriter proposes to offer the shares of common stock to certain dealers at the same price less a concession of not more
than $             per share. After the offering, these figures may be
changed by the underwriter. No such change shall change the amount of proceeds to be received by us as set forth on the cover page of
this prospectus.
The shares sold in this offering are expected
to be ready for delivery against payment in immediately available funds on or about                                        ,
2021, subject to customary closing conditions. The underwriter may reject all or part of any order.
In connection with the sale of the common
stock to be purchased by the underwriter, the underwriter will be deemed to have received compensation in the form of underwriting commissions
and discounts. The underwriting commissions and discounts will be 7% of the gross proceeds of this offering, or $            
per share of common stock, based on the public offering price per share set forth on the cover page of this prospectus. The underwriting
discount is equal to the public offering price per share of common stock, less the amount paid by the underwriter to us per share.
The following table shows the per share
and total underwriting discount to be paid by us to the underwriter in this offering, assuming both no exercise and full exercise of the
over-allotment option.
Per Share
Total with
No Over-Allotment
Total with
Over-Allotment
Underwriting discount to be paid by us
We estimate that the total expenses
of this offering, excluding the underwriting discount, will be approximately $              .
We have also agreed to reimburse the underwriter for legal expenses incurred by it in connection with the offering up to a maximum of
$100,000, which includes all fees of counsel for the underwriter incident to any required review and approval by FINRA of the sale of
the shares. In addition, we have agreed to reimburse the underwriter for fees of counsel for the underwriter incurred in connection with
the qualification of the shares for offering and sale under state securities or blue-sky laws, up to a maximum of $15,000. We have also
agreed to pay or reimburse the underwriter's counsel for all filing fees incident to any required review and approval by FINRA of
the sale of the shares and all filing fees in connection with the qualification of the shares for offering and sale under state securities
or blue-sky laws. In accordance with FINRA Rule 5110, the $100,000 reimbursement fee described in this paragraph is deemed underwriting
compensation for this offering.
We have also agreed to indemnify the underwriter
against certain liabilities, including civil liabilities under the Securities Act of 1933 (the "Securities Act") or to contribute
to payments that the underwriter may be required to make in respect of those liabilities.
Except as disclosed in this prospectus,
the underwriter has not received, and will not receive, from us any other item of compensation or expense in connection with this offering
considered by FINRA to be underwriting compensation under its rule of fair price. The underwriting discount was determined through an
arms' length negotiation between us and the underwriter.
39
Lock-Up Agreements
Without the prior written consent
of Roth Capital, for a period of 90 days following the date of this prospectus (the "Lock-Up Period"), we have agreed not
to (i) offer, pledge, issue, sell, contract to sell, purchase, contract to purchase, lend or otherwise transfer or dispose of, directly
or indirectly, any shares of common stock or any securities convertible into or exercisable or exchangeable for common stock of the Company,
(ii) enter into any swap or other arrangement that transfers, in whole or in part, any of the economic consequences of ownership of shares
of common stock or (iii) file any registration statement with the SEC relating to the offering of any shares of common stock or any securities
convertible into or exercisable or exchangeable for shares of common stock, except for (a) the issuance of the shares of our common stock
in this offering, (b) the issuance of shares of our common stock pursuant to our existing stock option plan and (c) the issuance of shares
in connection with any acquisition consummated by us during the Lock-Up Period, as long as the aggregate number of shares issued or issuable
does not exceed 5% of the number of shares of common stock outstanding immediately after giving effect to this offering and certain other
restrictions are met.
In addition, each of our directors
and executive officers has entered into a lock-up agreement with Roth Capital. Under the lock-up agreements, without the prior written
consent of Roth Capital, the foregoing persons may not, directly or indirectly, (i) sell, assign, transfer, pledge, offer to sell, contract
to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option for sale (including any short
sale), right or warrant to purchase, lend, establish an open "put equivalent position" (within the meaning of Rule 16a-1(h)
under the Exchange Act), or otherwise dispose of, or enter into any transaction which is designed to or could be expected to result in
the disposition of, any shares of common stock or securities convertible into or exercisable or exchangeable for any equity securities
of the Company (including, without limitation, shares of common stock or any such securities which may be deemed to be beneficially owned
by such persons in accordance with the rules and regulations promulgated by the SEC from time to time (such shares or securities, the
 "Beneficially Owned Shares")), or publicly announce any intention to do any of the foregoing, other than the exercise of options
or warrants so long as there is no sale or disposition of the common stock underlying such options or warrants during the Lock-Up Period,
(ii) enter into any swap, hedge or other agreement or arrangement that transfers in whole or in part, the economic risk of ownership of
any Beneficially Owned Shares, common stock or securities convertible into or exercisable or exchangeable for any equity securities of
the Company, or (iii) engage in any short selling of any Beneficially Owned Shares, common stock or securities convertible into or exercisable
or exchangeable for any equity securities of the Company, whether any such transaction described in clause (i), (ii) or (iii) above is
to be settled by delivery of shares of common stock or such other securities, in cash or otherwise, for a period of 90 days from the date
of this prospectus. This consent may be given at any time without public notice. These restrictions on future dispositions by our directors
and executive officers are subject to certain exceptions for transfers of Beneficially Owned Shares, including, but not limited to, transfers
(i) as a bona fide gift or gifts, (ii) by operation of law, including pursuant to a qualified domestic order or in connection with a divorce
settlement, (iii) to the immediate family of the transferor, (iv) to any trust for the direct or indirect benefit of such person or the
immediate family of the transferor, (v) to any beneficiary of the transferor pursuant to a will or other testamentary document or applicable
laws of descent and (vi) to any corporation, partnership, limited liability company or other entity all of the beneficial ownership interests
of which are held by the transferor or the immediate family of the transferor.
Price Stabilization, Short Positions and Penalty Bids
In connection with the offering,
the underwriter may engage in stabilizing transactions, over-allotment transactions, syndicate covering transactions and penalty bids
in accordance with Regulation M under the Exchange Act:
o
Stabilizing transactions permit bids to purchase the underlying security so long as the stabilizing bids
do not exceed a specified maximum.
o
Over-allotment involves sales by the underwriter of shares in excess of the number of shares the underwriter is obligated to purchase,
which creates a syndicate short position. The short position may be either a covered short position or a naked short position. In a covered
short position, the number of shares over-allotted by the underwriter is not greater than the number of shares that it may purchase pursuant
to the over-allotment option. In a naked short position, the number of shares involved is greater than the number of shares that the underwriter
may purchase pursuant to the over-allotment option. The underwriter may close out any covered short position by either exercising the
over-allotment option and/or purchasing shares in the open market.
40
o
Syndicate covering transactions involve purchases of the common stock in the open market after the distribution has been completed
in order to cover syndicate short positions. In determining the source of shares to close out the short position, the underwriter will
consider, among other things, the price of shares available for purchase in the open market as compared to the price at which it may purchase
shares through the over-allotment option. A naked short position occurs if the underwriter sells more shares than could be covered by
the over-allotment option. This position can only be closed out by buying shares in the open market. A naked short position is more likely
to be created if the underwriter is concerned that there could be downward pressure on the price of the shares in the open market after
pricing that could adversely affect investors who purchase in the offering.
o
Penalty bids permit the underwriter to reclaim a selling concession from a syndicate member when the common stock originally sold
by the syndicate member is purchased in a stabilizing or syndicate covering transaction to cover syndicate short positions.
These stabilizing transactions,
syndicate covering transactions and penalty bids may have the effect of raising or maintaining the market price of our common stock or
preventing or retarding a decline in the market price of the common stock. As a result, the price of our common stock may be higher than
the price that might otherwise exist in the open market. These transactions may be effected on the OTCQB Venture Market or otherwise and,
if commenced, may be discontinued at any time.
In connection with this offering, the underwriter
and selling group members, if any, may also engage in passive market making transactions in our common stock on the OTCQB Venture Market.
Passive market making consists of displaying bids on the OTCQB Venture Market by the prices of independent market makers and effecting
purchases limited by those prices in response to order flow. Rule 103 of Regulation M promulgated by the SEC limits the amount of net
purchases that each passive market maker may make and the displayed size of each bid. Passive market making may stabilize the market price
of our common stock at a level above that which might otherwise prevail in the open market and, if commenced, may be discontinued at any
time.
Neither we nor the underwriter make any representation
or prediction as to the direction or magnitude of any effect that the transactions described above may have on the price of our common
stock. In addition, neither we nor the underwriter make any representation that the underwriter will engage in these transactions or that
any transaction, if commenced, will not be discontinued without notice.
Affiliations
The underwriter and its affiliates are
full service financial institutions engaged in various activities, which may include securities trading, commercial and investment banking,
financial advisory, investment management, investment research, principal investment, hedging, financing and brokerage activities. The
underwriter may in the future engage in investment banking and other commercial dealings in the ordinary course of business with us or
our affiliates. The underwriter may in the future receive customary fees and commissions for these transactions.
In the ordinary course of its business
activities, the underwriter and its affiliates may make or hold a broad array of investments and actively trade debt and equity securities
(or related derivative securities) and financial instruments (including bank loans) for its own account and for the accounts of its customers,
and such investment and securities activities may involve securities and/or instruments of the issuer. The underwriter and its affiliates
may also make investment recommendations and/or publish or express independent research views in respect of such securities or instruments
and may at any time hold, or recommend to clients that they acquire, long and/or short positions in such securities and instruments.
Electronic Offer, Sale and Distribution
In connection with this offering, the underwriter
or certain of the securities dealers may distribute prospectuses by electronic means, such as e-mail. In addition, the underwriter may
facilitate Internet distribution for this offering to certain of its internet subscription customers. The underwriter may allocate a limited
number of shares for sale to its online brokerage customers. An electronic prospectus is available on the Internet website maintained
by the underwriter. Other than the prospectus in electronic format, the information on the website of the underwriter is not part of this
prospectus.
Over-the-Counter Market
Our common stock is quoted by the OTCQB
Venture Market under the symbol "FALC."
Selling Restrictions
Australia
41
This prospectus is not a disclosure
document under Chapter 6D of the Australian Corporations Act, has not been lodged with the Australian Securities and Investments Commission
and does not purport to include the information required of a disclosure document under Chapter 6D of the Australian Corporations Act.
Accordingly, (i) the offer of the securities under this prospectus is only made to persons to whom it is lawful to offer the securities
without disclosure under Chapter 6D of the Australian Corporations Act under one or more exemptions set out in section 708 of the Australian
Corporations Act, (ii) this prospectus is made available in Australia only to those persons as set forth in clause (i) above, and (iii)
the offeree must be sent a notice stating in substance that by accepting this offer, the offeree represents that the offeree is such a
person as set forth in clause (i) above, and, unless permitted under the Australian Corporations Act, agrees not to sell or offer for
sale within Australia any of the securities sold to the offeree within 12 months after its transfer to the offeree under this prospectus.
Canada
The securities may be sold in
Canada only to purchasers purchasing, or deemed to be purchasing, as principal that are accredited investors, as defined in National Instrument
45-106 Prospectus Exemptions or subsection 73.3(1) of the Securities Act (Ontario), and are permitted clients, as defined in National
Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations. Any resale of the securities must be made
in accordance with an exemption from, or in a transaction not subject to, the prospectus requirements of applicable securities laws. Securities
legislation in certain provinces or territories of Canada may provide a purchaser with remedies for rescission or damages if this prospectus
(including any amendment thereto) contains a misrepresentation, provided that the remedies for rescission or damages are exercised by
the purchaser within the time limit prescribed by the securities legislation of the purchaser's province or territory. The purchaser
should refer to any applicable provisions of the securities legislation of the purchaser's province or territory for particulars
of these rights or consult with a legal advisor. Pursuant to section 3A.3 of National Instrument 33-105 Underwriting Conflicts (NI 33-105),
the underwriter is not required to comply with the disclosure requirements of NI33-105 regarding underwriter's conflicts of interest
in connection with this offering.
China
The information in this document
does not constitute a public offer of the securities, whether by way of sale or subscription, in the People's Republic of China
(excluding, for purposes of this paragraph, Hong Kong Special Administrative Region, Macau Special Administrative Region and Taiwan).
The securities may not be offered or sold directly or indirectly in the PRC to legal or natural persons other than directly to "qualified
domestic institutional investors."
European Economic Area
In relation to each Member State
of the European Economic Area (each a "Relevant State"), none of the shares of our common stock have been offered or will
be offered pursuant to this offering to the public in that Relevant State prior to the publication of a prospectus in relation to such
shares which has been approved by the competent authority in that Relevant State or, where appropriate, approved in another Relevant State
and notified to the competent authority in that Relevant State, all in accordance with the Prospectus Regulation, except that it may make
an offer to the public in that Relevant State of the shares of our common stock at any time under the following exemptions under the Prospectus
Regulation:
·
to any legal entity which is a qualified investor as defined in the Prospectus Regulation;
·
to fewer than 150 natural or legal persons (other than qualified investors as defined in the Prospectus
Regulation), subject to obtaining the prior consent of the underwriter; or
·
in any other circumstances falling within Article 1(4) of the Prospectus Regulation,
provided that no such offer of shares of
our common stock shall require us or the underwriter to publish a prospectus pursuant to Article 3 of the Prospectus Regulation or supplement
a prospectus pursuant to Article 23 of the Prospectus Regulation.
In the case of any
shares of our common stock being offered to a financial intermediary as that term is used in Article 5(1) of the Prospectus Regulation,
each such financial intermediary will be deemed to have represented, acknowledged and agreed that the shares of our common stock acquired
by it in the offer have not been acquired on a non-discretionary basis on behalf of, nor have they been acquired with a view to their
offer or resale to, persons in circumstances which may give rise to an offer of any shares of our common stock to the public other than
their offer or resale in a Relevant State to qualified investors as so defined or in circumstances in which the prior consent of the underwriter
has been obtained to each such proposed offer or resale.
42
For the purposes of
this provision, the expression an "offer of shares of our common stock to the public" in relation to any shares of our common
stock in any Relevant State means the communication in any form and by means of sufficient information on the terms of the offer and the
shares of our common stock to be offered so as to enable an investor to decide to purchase shares of our common stock, and the expression
 "Prospectus Regulation" means Regulation (EU) 2017/1129.
France
This document is not
being distributed in the context of a public offering of financial securities (offre au public de titres financiers) in France within
the meaning of Article L.411-1 of the French Monetary and Financial Code (Code monétaire et financier) and Articles 211-1 et seq.
of the General Regulation of the French Autorité des marchés financiers ("AMF"). The securities have not been
offered or sold and will not be offered or sold, directly or indirectly, to the public in France.
This document and any
other offering material relating to the securities have not been, and will not be, submitted to the AMF for approval in France and, accordingly,
may not be distributed or caused to distributed, directly or indirectly, to the public in France.
Such offers, sales
and distributions have been and shall only be made in France to (i) qualified investors (investisseurs qualifiés) acting for their
own account, as defined in and in accordance with Articles L.411-2-II-2 and D.411-1 to D.411-3, D. 744-1, D.754-1 and D.764-1 of the French
Monetary and Financial Code and any implementing regulation and/or (ii) a restricted number of non-qualified investors (cercle restreint
d'investisseurs) acting for their own account, as defined in and in accordance with Articles L.411-2-II-2° and D.411-4, D.744-1,
D.754-1 and D.764-1 of the French Monetary and Financial Code and any implementing regulation.
Pursuant to Article
211-3 of the General Regulation of the AMF, investors in France are informed that the securities cannot be distributed (directly or indirectly)
to the public by the investors otherwise than in accordance with Articles L.411-1, L.411-2, L.412-1 and L.621-8 to L.621-8-3 of the French
Monetary and Financial Code.
Ireland
The information in this
document does not constitute a prospectus under any Irish laws or regulations and this document has not been filed with or approved by
any Irish regulatory authority as the information has not been prepared in the context of a public offering of securities in Ireland within
the meaning of the Irish Prospectus (Directive 2003/71/EC) Regulations 2005 (the "Prospectus Regulations"). The securities
have not been offered or sold, and will not be offered, sold or delivered directly or indirectly in Ireland by way of a public offering,
except to (i) qualified investors as defined in Regulation 2(l) of the Prospectus Regulations and (ii) fewer than 100 natural or legal
persons who are not qualified investors.
Israel
The securities offered
by this prospectus have not been approved or disapproved by the Israeli Securities Authority (the ISA), or ISA, nor have such securities
been registered for sale in Israel. Shares of our common stock may not be offered or sold, directly or indirectly, to the public in Israel,
absent the publication of a prospectus. The ISA has not issued permits, approvals or licenses in connection with this offering or publishing
the prospectus; nor has it authenticated the details included herein, confirmed their reliability or completeness, or rendered an opinion
as to the quality of the securities being offered. Any resale in Israel, directly or indirectly, to the public of the securities offered
by this prospectus is subject to restrictions on transferability and must be effected only in compliance with the Israeli securities laws
and regulations.
Italy
The offering of the securities
in the Republic of Italy has not been authorized by the Italian Securities and Exchange Commission (Commissione Nazionale per le Società
e la Borsa, "CONSOB" pursuant to the Italian securities legislation and, accordingly, no offering material relating to the
securities may be distributed in Italy and such securities may not be offered or sold in Italy in a public offer within the meaning of
Article 1.1(t) of Legislative Decree No. 58 of 24 February 1998 ("Decree No. 58"), other than:
·
to Italian qualified investors, as defined in Article 100 of Decree no. 58 by reference to Article 34-ter
of CONSOB Regulation no. 11971 of 14 May 1999 ("Regulation no. 1197l") as amended ("Qualified Investors"); and
·
in other circumstances that are exempt from the rules on public offer pursuant to Article 100 of Decree
No. 58 and Article 34-ter of Regulation No. 11971 as amended.
Any offer, sale or
delivery of the securities or distribution of any offer document relating to the securities in Italy (excluding placements where a Qualified
Investor solicits an offer from the issuer) under the paragraphs above must be:
43
·
made by investment firms, banks or financial intermediaries permitted to conduct such activities in Italy
in accordance with Legislative Decree No. 385 of 1 September 1993 (as amended), Decree No. 58, CONSOB Regulation No. 16190 of 29 October
2007 and any other applicable laws; and
·
in compliance with all relevant Italian securities, tax and exchange controls and any other applicable
laws.
Any subsequent distribution
of the securities in Italy must be made in compliance with the public offer and prospectus requirement rules provided under Decree No.
58 and the Regulation No. 11971 as amended, unless an exception from those rules applies. Failure to comply with such rules may result
in the sale of such securities being declared null and void and in the liability of the entity transferring the securities for any damages
suffered by the investors.
Japan
The securities have not
been and will not be registered under Article 4, paragraph 1 of the Financial Instruments and Exchange Law of Japan (Law No. 25 of 1948),
as amended (the "FIEL") pursuant to an exemption from the registration requirements applicable to a private placement of securities
to Qualified Institutional Investors (as defined in and in accordance with Article 2, paragraph 3 of the FIEL and the regulations promulgated
thereunder). Accordingly, the securities may not be offered or sold, directly or indirectly, in Japan or to, or for the benefit of, any
resident of Japan other than Qualified Institutional Investors. Any Qualified Institutional Investor who acquires securities may not resell
them to any person in Japan that is not a Qualified Institutional Investor, and acquisition by any such person of securities is conditional
upon the execution of an agreement to that effect.
New Zealand
The shares of our common
stock offered hereby have not been offered or sold, and will not be offered or sold, directly or indirectly in New Zealand and no offering
materials or advertisements have been or will be distributed in relation to any offer of shares in New Zealand, in each case other than:
·
to persons whose principal business is the investment of money or who, in the course of and for the purposes
of their business, habitually invest money;
·
to persons who in all the circumstances can properly be regarded as having been selected otherwise than
as members of the public;
·
to persons who are each required to pay a minimum subscription price of at least NZ$500,000 for the shares
of our common stock before the allotment of those shares (disregarding any amounts payable, or paid, out of money lent by the issuer or
any associated person of the issuer); or
·
in other circumstances where there is no contravention of the Securities Act 1978 of New Zealand (or any
statutory modification or reenactment of, or statutory substitution for, the Securities Act 1978 of New Zealand).
Portugal
This document is not
being distributed in the context of a public offer of financial securities (oferta pública de valores mobiliários) in Portugal,
within the meaning of Article 109 of the Portuguese Securities Code (Código dos Valores Mobiliários). The securities have
not been offered or sold and will not be offered or sold, directly or indirectly, to the public in Portugal. This document and any other
offering material relating to the securities have not been, and will not be, submitted to the Portuguese Securities Market Commission
(Comissăo do Mercado de Valores Mobiliários) for approval in Portugal and, accordingly, may not be distributed or caused
to distributed, directly or indirectly, to the public in Portugal, other than under circumstances that are deemed not to qualify as a
public offer under the Portuguese Securities Code. Such offers, sales and distributions of securities in Portugal are limited to persons
who are "qualified investors" (as defined in the Portuguese Securities Code). Only such investors may receive this document
and they may not distribute it or the information contained in it to any other person.
Sweden
This document has not
been, and will not be, registered with or approved by Finansinspektionen (the Swedish Financial Supervisory Authority). Accordingly, this
document may not be made available, nor may the securities be offered for sale in Sweden, other than under circumstances that are deemed
not to require a prospectus under the Swedish Financial Instruments Trading Act (1991:980) (Sw. lag (1991:980) om handel med finansiella
instrument). Any offering of securities in Sweden is limited to persons who are "qualified investors" (as defined in the Financial
Instruments Trading Act). Only such investors may receive this document and they may not distribute it or the information contained in
it to any other person.
Switzerland
44
The securities may not
be publicly offered in Switzerland and will not be listed on the SIX Swiss Exchange ("SIX") or on any other stock exchange
or regulated trading facility in Switzerland. This document has been prepared without regard to the disclosure standards for issuance
prospectuses under art. 652a or art. 1156 of the Swiss Code of Obligations or the disclosure standards for listing prospectuses under
art. 27 ff. of the SIX Listing Rules or the listing rules of any other stock exchange or regulated trading facility in Switzerland. Neither
this document nor any other offering material relating to the securities may be publicly distributed or otherwise made publicly available
in Switzerland.
Neither this document
nor any other offering material relating to the securities have been or will be filed with or approved by any Swiss regulatory authority.
In particular, this document will not be filed with, and the offer of securities will not be supervised by, the Swiss Financial Market
Supervisory Authority (FINMA). This document is personal to the recipient only and not for general circulation in Switzerland.
United Arab Emirates
Neither this document
nor the securities have been approved, disapproved or passed on in any way by the Central Bank of the United Arab Emirates or any other
governmental authority in the United Arab Emirates, nor have we received authorization or licensing from the Central Bank of the United
Arab Emirates or any other governmental authority in the United Arab Emirates to market or sell the securities within the United Arab
Emirates. This document does not constitute and may not be used for the purpose of an offer or invitation. We may not render services
relating to the securities within the United Arab Emirates, including the receipt of applications and/or the allotment or redemption of
such shares.
No offer or invitation
to subscribe for securities is valid or permitted in the Dubai International Financial Centre.
United Kingdom
The communication of
this prospectus and any other documents or materials relating to the issue of the shares of our common stock offered hereby is not being
made, and such documents and/or materials have not been approved, by an authorised person for purposes of
S
ection 21 of the United
Kingdom's Financial Services and Markets Act 2000, as amended (the "FSMA"). Accordingly, such documents and/or materials
are not being distributed to, and must not be passed on to, the general public in the United Kingdom.
In the United Kingdom,
this prospectus is being distributed only to, and are directed only at, persons who: (i) have professional experience in matters relating
to investments falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended
(the "Order"); and/or (ii) are high net worth entities (or persons to whom they may otherwise lawfully be communicated) falling
within Article 49(2)(a) to (d) of the Order (all such persons together being referred to as "relevant persons"). Any person
in the United Kingdom that is not a relevant person should not act or rely on the information included in this prospectus or use it as
basis for taking any action. In the United Kingdom, any investment or investment activity to which this prospectus relates is only available
to, and will be engaged in with, relevant persons.
Any invitation or
inducement to engage in investment activity (within the meaning of Section 21 of the FSMA) in connection with the issue or sale of the
shares of our common stock may only be communicated or caused to be communicated in circumstances in which Section 21(1) of the FSMA
does not apply to us.
45
LEGAL MATTERS
Olshan Frome Wolosky LLP, New York, New York, will
pass upon the validity of the issuance of the common stock offered by this prospectus as our counsel. Pillsbury Winthrop Shaw Pittman
LLP, New York, New York, is acting as counsel for the underwriter in connection with this offering.
EXPERTS
Marcum LLP, an
independent registered public accounting firm, has audited our consolidated financial statements at December 31, 2020 and 2019 and for
each of the two years in the period ended December 31, 2020, in each case, as set forth in its report included in our annual report on
Form 10-K for the year ended December 31, 2020, which is incorporated by reference into this prospectus and elsewhere in the registration
statement of which this prospectus is a part. Our consolidated financial statements are incorporated by reference in reliance on Marcum
LLP's reports, given on their authority as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement
on Form S-1, including exhibits and schedules, under the Securities Act, with respect to the shares of common stock being offered by this
prospectus. This prospectus, which constitutes part of the registration statement, does not contain all of the information in the registration
statement and its exhibits. For further information with respect to us and the common stock offered by this prospectus, we refer you to
the registration statement and its exhibits. Statements contained in this prospectus as to the contents of any contract or any other document
referred to are not necessarily complete and, in each instance, we refer you to the copy of the contract or other document filed as an
exhibit to the registration statement. Each of these statements is qualified in all respects by this reference.
We file annual, quarterly and current reports, proxy
statements and other information with the SEC. Our SEC filings, including the registration statement, are available to the public over
the Internet at the SEC's website at www.sec.gov.   Our annual reports on Form 10-K, quarterly reports
on Form 10-Q and current reports on Form 8-K, including any amendments to those reports, and other information
that we file with or furnish to the SEC pursuant to Section 13 or 15(d) of the Exchange Act, can also be accessed free of charge
in the Investor Relations section of our website, which is located at https://falconstor.com. These filings will be available as soon
as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. Information contained on our website
is not incorporated by reference into this prospectus and you should not consider information contained on our website to be part of this
prospectus.
46
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The SEC allows us to incorporate by reference information
that we file with them. Incorporation by reference allows us to disclose important information to you by referring you to those other
documents. The information incorporated by reference is an important part of this prospectus, and information that we file later with
the SEC will automatically update and supersede this information. We filed a registration statement on Form S-1 under the Securities Act
with the SEC with respect to the securities being offered pursuant to this prospectus. This prospectus omits certain information contained
in the registration statement, as permitted by the SEC. You should refer to the registration statement, including the exhibits, in addition
to the information incorporated by reference, for further information about us and the securities being offered pursuant to this prospectus.
Statements in this prospectus regarding the provisions of certain documents filed with, or incorporated by reference in, the registration
statement are not necessarily complete and each statement is qualified in all respects by that reference. Copies of all or any part of
the registration statement, including the documents incorporated by reference or the exhibits, may be obtained upon payment of the prescribed
rates at the offices of the SEC listed above in "Where You Can Find More Information." We are incorporating by reference the
documents listed below, which we have already filed with the SEC, and all documents subsequently filed by us pursuant to Sections 13(a),
13(c), 14 or 15(d) of the Exchange Act, except as to any portion of any future report or document that is not deemed filed under such
provisions, prior to the termination of the offering:
•
our Annual Report on Form 10-K for the year ended December 31, 2020, filed with the SEC on March 10, 2021, as amended by Form
10-K/A, filed with the SEC on April 23, 2021;
•
our Definitive Proxy Statement on Schedule 14A, filed with the SEC on June 1, 2021;
•
our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2021, filed with the SEC on May 5, 2021; and
•
the description of our common stock set forth in Exhibit 4.6 of our Annual Report on Form 10-K for the year ended December 31,
2019, filed with the SEC on March 19, 2020.
Any statement contained in this prospectus or in
a document incorporated or deemed to be incorporated by reference into this prospectus will be deemed to be modified or superseded for
purposes of this prospectus to the extent that a statement contained in this prospectus or other subsequently filed document that also
is or is deemed to be incorporated by reference herein modifies or supersedes the statement. Any statement so modified or superseded will
not be deemed, except as so modified or superseded, to constitute a part of this prospectus.
We will furnish without charge to you, on written
or oral request, a copy of any filing or report incorporated by reference, including exhibits to the document. You should direct any
requests for documents to FalconStor Software, Inc., 701 Brazos Street, Suite 400, Austin, Texas 78701, tel.: (631) 777-5188, Attention:
Corporate Secretary.
47
Shares
FalconStor Software, Inc.
Common Stock
PROSPECTUS
Roth Capital Partners
The date of this prospectus is , 2021
PART II.
INFORMATION
NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The following table provides information regarding
the various actual and anticipated expenses payable by us in connection with the issuance and distribution of the securities being registered
hereby. All amounts shown are estimates except the Securities and Exchange Commission registration fee and FINRA filing fee.
Nature of Expense
Amount
SEC registration fee
$
546
FINRA filing fee
1,250
Accounting fees and expenses
20,000
Legal fees and expenses
80,000
Blue sky fees and expenses
15,000
Printing and EDGAR expenses
10,000
Miscellaneous
23,204
Total
$
150,000
Item 14. Indemnification of Directors and Officers.
Our directors and officers are indemnified
as provided by the Delaware General Corporation Law and our bylaws. We have agreed to indemnify each of our directors and certain officers
against certain liabilities, including liabilities under the Securities Act. Insofar as indemnification for liabilities arising under
the Securities Act may be permitted to our directors, officers and controlling persons pursuant to the provisions described above, or
otherwise, we have been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy
as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities
(other than our payment of expenses incurred or paid by our director, officer or controlling person 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, we
will, unless in the opinion of our counsel the matter has been settled by 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 and will be governed by the
final adjudication of such issue.
We have been advised that in the opinion of
the Securities and Exchange Commission indemnification for liabilities arising under the Securities Act is against public policy as expressed
in the Securities Act, and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities is asserted
by one of our directors, officers, or controlling persons in connection with the securities being registered, we will, unless in the opinion
of our legal counsel the matter has been settled by controlling precedent, submit the question of whether such indemnification is against
public policy to a court of appropriate jurisdiction. We will then be governed by the court's decision.
Our Restated Certificate of Incorporation provides
that, to the fullest extent permitted by the Delaware General Corporation Law, no director of the company will be personally liable to
the company or its stockholders for monetary damages for breach of fiduciary duty as a director.
Item 15. Recent Sales of Unregistered Securities.
The following is a summary of transactions
in the past three years involving sales of our securities that were not registered under the Securities Act, all of which were consummated
pursuant to the exemption set forth in Section 4(a)(2) of the Securities Act:
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On October 9, 2018, our
company closed on the final tranche of a previously-announced private placement. As part of such private placement, our company issued
warrants pursuant to which (i) certain eligible stockholders were entitled to purchase 1,859,420 shares of our common stock, and (ii)
HCP-FVA was entitled to purchase 3,033,790 shares of our common stock (the "Warrants"). On December 19, 2018, we issued 3,033,790
shares of our common stock to HCP-FVA pursuant to the exercise of its Warrants. Between December 6, 2018 and December 27, 2018, we issued
an additional 1,859,420 shares of our common stock pursuant to the exercise of the Warrants by the eligible stockholders. The Warrants
and all such shares of our common stock were issued pursuant to the exemption set forth in Section 4(a)(2) of the Securities Act.
On May 21, 2019, HCP-FVA
exercised its warrant to purchase 1,543,630 shares of Common Stock on a cashless exercise basis and was issued 1,518,107 shares of Common
Stock.
On May 31, 2019, we issued
an aggregate of 1,251,154 restricted shares of our common stock. Such restricted stock did not bestow any voting or dispositive power
and is not deemed outstanding until they vest. The restricted stock generally vests as follows: 2.5% vested immediately upon grant on
May 31, 2019 (the "2019 Grant Date"); 2.5% vested on the first anniversary of the 2019 Grant Date; 2.5% shall vest on the
second anniversary of the 2019 Grant Date; 2.5% shall vest on the third anniversary of the 2019 Grant Date; 45% shall vest based on the
return of invested capital in accordance with the terms of the restricted stock agreement between our company and the grantee; and 45%
shall vest upon a change of control of our company.
On September 30, 2020,
we issued an aggregate of 316,480 restricted stock awards. Such restricted stock awards do not bestow any voting or dispositive power
and are not deemed outstanding until they vest. The restricted stock awards generally vest as follows: 2.5% vested immediately upon grant
on September 30, 2020 (the "2020 Grant Date"); 2.5% shall vest on the first anniversary of the 2020 Grant Date; 2.5% shall
vest on the second anniversary of the 2020 Grant Date; 2.5% shall vest on the third anniversary of the 2020 Grant Date; 45% shall vest
based on the return of invested capital in accordance with the terms of the restricted stock award agreement between our company and the
grantee; and 45% shall vest upon a change of control of our company.
Item 16. Exhibits and Financial Statement Schedules.
(a) Exhibits
The exhibits listed in the following Exhibit
Index are part of this Registration Statements or, as indicated, incorporated by reference.
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2
Exhibit
No.
Description
1.1
*
Form of Underwriting Agreement.
3.
1
Restated Certificate
    of Incorporation, incorporated herein by reference to Exhibit 3.1 to the Registrant's registration statement on Form S-1 (File
    no. 33-79350), filed on April 28, 1994.
3.2
Amended and Restated By-Laws of FalconStor Software, Inc., incorporated herein by reference to Exhibit 3.2 to the Registrant's annual report on Form 10-K for the year ended December 31, 2010, filed on March 14, 2011.
3.3
Certificate of Amendment to the Restated Certificate of Incorporation, incorporated herein by reference to Exhibit 3.3 to the Registrant's the quarterly report on Form 10-Q for the period ended June 30, 2000 filed on August 11, 2000.
3.4
Certificate of Amendment to the Restated Certificate of Incorporation, incorporated herein by reference to Exhibit 3.4 to the Registrant's annual report on Form 10-K for the year ended December 31, 2001, filed on March 27, 2002.
3.5
Certificate of Designations, Preferences and Rights of Series A Convertible Preferred Stock, incorporated herein by reference to Exhibit 4.1 to the Registrant's report on Form 8-K dated September 16, 2013.
3.6
Certificate of Amendment of the Restated Certificate of Incorporation of FalconStor Software, Inc,, incorporated by reference to Exhibit 3.1 to the Registrant's report on Form 8-K dated June 25, 2018.
3.7
Amended and Restated Certificate of Designations, Preferences and Rights of Series A Convertible Preferred Stock of FalconStor Software, Inc., incorporated by reference to Exhibit 3.2 to the Registrant's report on Form 8-K dated June 25, 2018.
3.8
Certificate of Amendment to the Restated Certificate of Incorporation incorporated herein by reference to Exhibit 3.1 to the Registrant's current report on Form 8-K filed on June 25, 2019.
3.9
Certificate of Amendment to the Restated Certificate of Incorporation incorporated herein by reference to Exhibit 3.1 to the Registrant's quarterly report on Form 10-Q for the period ended June 30, 2019 filed on August 14, 2019.
4.1
Amended and Restated 2006 Incentive Stock Plan incorporated herein by reference to Exhibit 4.1 to the Registrant's quarterly report on Form 10-Q for the quarter ended March 31, 2007, filed on May 10, 2007.
4.2
Intentionally omitted.
4.3
Form of Restricted Stock Letter Agreement, incorporated herein by reference to Exhibit 4.1 to the Registrant's current report on Form 8-K filed on April 7, 2014.
4.4
Intentionally omitted.
4.5
FalconStor Software, Inc. 2016 Incentive Stock Plan, incorporated by reference to Exhibit A to the Proxy Statement on Schedule 14A dated March 18, 2016.
4.6
Description of Registered Securities of FalconStor Software, Inc. , incorporated by reference to Exhibit 4.6 of the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 2019.
5.1
**
Opinion of Olshan Frome Wolosky LLP.
10.1
Intentionally omitted.
10.2
Agreement of Lease between Huntington Quadrangle 2 LLC and FalconStor Software, Inc. dated May 30, 2013, with a commencement date of March 1, 2014, incorporated herein by reference to Exhibit 99.1 to the Registrant's quarterly report on Form 10-Q for the period ended June 30, 2013 filed on August 9, 2013.
10.3
Preferred Stock Purchase Agreement dated as of September 16, 2013 between FalconStor Software, Inc. and Hale Capital Partners, LP, incorporated herein by reference to Exhibit 10.1 to the Registrant's report on Form 8-K dated September 16, 2013.
10.4
Intentionally omitted.
10.5
Agreement between FalconStor Software, Inc. and Todd Brooks, dated August 14, 2017, incorporated by reference to Exhibit 10.2 to the Registrant's current report on Form 8-K filed August 17, 2017.
10.6
Intentionally omitted.
10.7
Intentionally omitted.
10.8
Intentionally omitted.
10.9
Intentionally omitted.
10.10
Intentionally omitted.
10.11
Amended and Restated Term Loan Credit Agreement, dated as of February 23, 2018, by and among FalconStor Software, Inc., HCP-FVA, LLC, as Administrative Agent and as a Lender, and the other Loan Parties named therein, incorporated herein by reference to Exhibit 10.1 to Registrant's current report on Form 8-K filed on February 26, 2018.
10.12
Intentionally omitted.
10.13
Intentionally omitted.
10.14
Agreement between FalconStor Software, Inc. and Brad Wolfe, dated April 4, 2018, incorporated by reference to Exhibit 10.2 to the Registrant's current report on Form 8-K filed April 11, 2018.
10.15
Falconstor Software Inc. 2018 Stock Incentive Plan, incorporated by reference to the Definitive Proxy Statement on Schedule 14A filed on June 5, 2018.
10.16
Joinder to Amended and Restated Term Loan Credit Agreement, dated as of February 23, 2018, by and among FalconStor Software, Inc., HCP-FVA, LLC, as Administrative Agent and as a Lender, and the other Loan Parties named therein, incorporated by reference to Exhibit 10.2 to the Registrant's current report on Form 8-K filed October 11, 2018.
10.17
Amendment No. 1 to Amended and Restated Term Loan Credit Agreement dated December 27, 2019 by and among FalconStor Software, Inc., HCP-FVA, LLC, EW Capital, LLC, the lenders party thereto and the other loan parties named therein, incorporated by reference to Exhibit 10.1 to the Registrant's current report on Form 8-K, filed on January 3, 2020.
10.18
Promissory Note between the Company and Peapack-Gladstone Bank, dated April 28, 2020, incorporated by reference to Exhibit 10.1 of the Company's Quarterly Report on Form 10-Q for the three months ended March 31, 2020.
21.1
Subsidiaries of Registrant – FalconStor, Inc., FalconStor AC, Inc., FalconStor Software (Korea), Inc.
23.1
*
Consent
    of Marcum LLP, independent registered public accounting firm.
23.1
**
Consent of Olshan
    Frome Wolosky LLP (included in the opinion filed as Exhibit 5.1).
24.1
*
Power of Attorney (set forth on the Signature
    Page of this Registration Statement).
*
Filed herewith.
**
To be filed by amendment.
(a)
Denotes management contract or compensatory plan or arrangement.
(b)
Financial Statement Schedules
All financial statement schedules are omitted because
the information called for is not required or is shown either in the financial statements or the notes thereto.
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Item 17.
Undertakings.
Insofar as indemnification for liabilities
arising under the Securities Act, 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 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 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 and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1)
For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant
to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this Registration Statement as of
the time it was declared effective.
(2)
For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus
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.
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4
The undersigned registrant hereby undertakes
that, for purposes of determining any liability under the Securities Act, each filing of the registrant's annual report pursuant
to section 13(a) or section 15(d) of the Securities Exchange Act of 1934 that is incorporated by reference in the 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.
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5
SIGNATURES
Pursuant to the requirements of the Securities
Act of 1933, the registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Austin, State of Texas, on the 3rd day of June 2021.
FALCONSTOR SOFTWARE, INC.
By:
/s/ Todd Brooks
Name:
Todd Brooks
Title:
President and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each
person whose signature appears below constitutes and appoints Todd Brooks and Brad Wolfe, and each of them, as his true and lawful attorneys-in-fact
and agents, with full power of substitution and re-substitution, for him and in his name, place and stead, in any and all capacities,
to sign any and all amendments (including post-effective amendments) to this Registration Statement and to sign any registration statement
for the same offering covered by the Registration Statement that is to be effective upon filing pursuant to Rule 462 promulgated
under the Securities Act of 1933, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in connection therewith and about the premises, as fully to
all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents,
or any of them, or their or his substitute or substitutes, 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 dates indicated:
Signature
Title
Date
/s/
    Todd Brooks
Todd Brooks
President, Chief Executive and Director Officer (
principal executive officer
)
June 3, 2021
/s/
    Brad Wolfe
Brad Wolfe
Executive Vice President, Chief Financial Officer and Treasurer (
principal financial and accounting officer
)
June 3, 2021
/s/
    Martin Hale, Jr.
Martin Hale, Jr.
Director
June 3, 2021
/s/
    Michael Kelly
Michael Kelly
Director
June 3, 2021
/s/
    Barry A. Rudolph
Barry A. Rudolph
Director
June 3, 2021
/s/
    William D. Miller
William D. Miller
Director
June 3, 2021
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