FalconStor Software,
Inc. (the “Company”) is relying on the U.S. Securities and Exchange Commission’s Order under Section 36 of the
Securities Exchange Act of 1934, as amended, Granting Exemptions From Specified Provisions of the Exchange Act and Certain Rules
Thereunder dated March 25, 2020 (Release No. 34-88465) (the “Order”) to delay the filing of its Amendment No.
1 to Form 10-K on Form 10-K/A (the “Form 10-K/A”), including the information omitted from the Company’s Annual
Report on Form 10-K for the year ended December 31, 2019 pursuant to General Instruction G(3) of the Form 10-K (the “Part
III Information”), which it will include in the Form 10-K/A, due to the circumstances related to the COVID-19 pandemic. In
particular, COVID-19 has caused the Company’s office in Austin, Texas to close and the Company issued a work from home policy
to protect its employees and their families from potential virus transmission among co-workers. The office closures and work from
home policy have in turn caused a delay in the completion of our Form 10-K/A process and the Company is in the process of working
on a remote basis to file the Form 10-K/A, including the Part III Information, as quickly as possible. Notwithstanding the foregoing,
the Company expects to file the Form 10-K/A, including the Part III Information, no later than June 14, 2020 (which is 45
days from the Form 10-K/A’s original filing deadline of April 29, 2020).
The Company is supplementing
the risk factors previously disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019
with the following risk factor:
Our results of operations may be negatively impacted
by the coronavirus outbreak.
We are closely monitoring
the impact of the 2019 novel coronavirus, or COVID-19, on all aspects of our business. In March 2020, the World Health
Organization characterized COVID-19 as a pandemic and the President of the United States declared the COVID-19 outbreak
a national emergency. Since then, the COVID-19 pandemic has rapidly spread across the globe and has already resulted in significant
volatility, uncertainty and economic disruption. The outbreak of COVID-19 has caused and may continue to cause travel bans or disruptions,
and in some cases, prohibitions of non-essential activities, disruption and shutdown of businesses and greater uncertainty in global
financial markets. The impact of COVID-19 is fluid and uncertain, but it has caused and may continue to cause various negative
effects, including an inability to meet with actual or potential customers, our end customers deciding to delay or abandon their
planned purchases or failing to make payments, and delays or disruptions in our or our partners’ supply chains. As a result,
we may experience extended sales cycles, our ability to close transactions with new and existing customers and partners may be
negatively impacted, our ability to recognize revenue from software transactions we do close may be negatively impacted, our demand
generation activities, and the efficiency and effect of those activities, may be negatively affected, and it has been and, until
the COVID-19 outbreak is contained, will continue to be more difficult for us to forecast our operating results. These uncertainties
have, and may continue to, put pressure on global economic conditions and overall IT spending and may cause our end customers to
modify spending priorities or delay or abandon purchasing decisions, thereby lengthening sales cycles and potentially lowering
prices for our solutions, and may make it difficult for us to forecast our sales and operating results and to make decisions about
future investments, any of which could materially harm our business, operating results and financial condition.
Further, our management
team is focused on addressing the impacts of COVID-19 on our business, which has required and will continue to require, a
large investment of their time and resources and may distract our management team or disrupt our 2020 operating plans. The extent
to which COVID-19 ultimately impacts our results of operations, cash flow and financial position will depend on future developments,
which are uncertain and cannot be predicted, including, but not limited to, the duration and spread of the outbreak, its severity,
the actions taken by governments and authorities to contain the virus or treat its impact, and how quickly and to what extent
normal economic and operating conditions can resume. Even after the COVID-19 pandemic has subsided, we may continue to experience
materially adverse impacts to our business as a result of its global economic impact, including as a result of any recession that
may occur.