FalconStor Software (FALC) 10-Q 7 Nov 13 2013 Q3 Quarterly report Financial data

Document_and_Entity_Informatio

Document and Entity Information	9 Months Ended
	Sep. 30, 2013	Oct. 31, 2013
Document And Entity Information	'	'
Entity Registrant Name	'FALCONSTOR SOFTWARE INC	'
Entity Central Index Key	'0000922521	'
Document Type	'10-Q	'
Document Period End Date	30-Sep-13	'
Amendment Flag	'false	'
Current Fiscal Year End Date	'--12-31	'
Is Entity a Well-known Seasoned Issuer?	'No	'
Is Entity a Voluntary Filer?	'No	'
Is Entity's Reporting Status Current?	'Yes	'
Entity Filer Category	'Accelerated Filer	'
Entity Common Stock, Shares Outstanding	'	48,031,737
Document Fiscal Period Focus	'Q3	'
Document Fiscal Year Focus	'2013	'

CONDENSED_CONSOLIDATED_BALANCE

CONDENSED CONSOLIDATED BALANCE SHEETS (USD $)	Sep. 30, 2013	Dec. 31, 2012
Current assets:	'	'
Cash and cash equivalents	$22,950,643	$18,651,468
Restricted cash	750,000	750,000
Marketable securities	5,764,839	10,530,942
Accounts receivable, net of allowances of $236,695 and $940,101, respectively	8,683,369	14,130,302
Prepaid expenses and other current assets	2,123,561	2,796,665
Inventory	752,440	642,819
Deferred tax assets, net	410,440	464,031
Total current assets	41,435,292	47,966,227
Property and equipment, net of accumulated depreciation of $17,848,663 and $16,131,570, respectively	3,384,709	3,980,679
Deferred tax assets, net	86,465	86,465
Software development costs, net	1,745,934	1,161,822
Other assets	2,475,753	2,185,148
Goodwill	4,150,339	4,150,339
Other intangible assets, net	183,645	174,426
Total assets	53,462,137	59,705,106
Current liabilities:	'	'
Accounts payable	1,727,307	2,801,372
Accrued expenses	13,512,497	16,720,582
Deferred revenue, net	16,947,868	17,831,653
Total current liabilities	32,187,672	37,353,607
Other long-term liabilities	766,869	2,618,818
Deferred tax liabilities, net	179,612	167,875
Deferred revenue, net	8,345,416	6,311,865
Total liabilities	41,479,569	46,452,165
Commitments and contingencies	'	'
Series A redeemable convertible preferred stock, $.001 par value, 2,000,000 shares authorized, 900,000 shares issued and outstanding, redemption value of $9,000,000	6,627,136	0
Stockholders' equity:	'	'
Common stock - $.001 par value, 100,000,000 shares authorized, 56,036,972 and 55,615,972 shares issued, respectively and 48,031,737 and 47,610,737 shares outstanding, respectively	56,037	55,616
Additional paid-in capital	166,571,184	162,673,833
Accumulated deficit	-112,717,520	-100,910,119
Common stock held in treasury, at cost (8,005,235 and 8,005,235 shares, respectively	-46,916,339	-46,916,339
Accumulated other comprehensive loss, net	-1,637,930	-1,650,050
Total stockholders' equity	5,355,432	13,252,941
Total liabilities and stockholders' equity	$53,462,137	$59,705,106

CONDENSED_CONSOLIDATED_BALANCE1

CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $)	Sep. 30, 2013	Dec. 31, 2012
Statement of Financial Position [Abstract]	'	'
Allowances on accounts receivable	$236,695	$940,101
Accumulated depreciation on Property and equipment	17,848,663	16,131,570
Redeemable convertible preferred stock, par value	$0.00	$0.00
Redeemable convertible preferred stock, shares authorized	2,000,000	2,000,000
Redeemable convertible preferred stock, shares issued	900,000	0
Redeemable convertible preferred stock, shares outstanding	900,000	0
Redeemable convertible preferred stock, redemption value	$9,000,000	$0
Common stock, par value	$0.00	$0.00
Common stock, shares authorized	100,000,000	100,000,000
Common stock, shares issued	56,036,972	55,615,972
Common stock, shares outstanding	48,031,737	47,610,737
Common Stock held in treasury, shares	8,005,235	8,005,235

CONDENSED_CONSOLIDATED_STATEME

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
Revenues:	'	'	'	'
Product revenues	$6,584,876	$8,550,551	$20,886,761	$27,049,072
Support and services revenues	8,145,162	8,538,462	23,102,233	25,874,214
Total revenues	14,730,038	17,089,013	43,988,994	52,923,286
Cost of revenues:	'	'	'	'
Product	1,202,489	1,562,359	3,465,245	5,370,031
Support and service	2,566,471	3,318,558	8,436,866	9,570,969
Total cost of revenues	3,768,960	4,880,917	11,902,111	14,941,000
Gross profit	10,961,078	12,208,096	32,086,883	37,982,286
Operating expenses:	'	'	'	'
Research and development costs	3,645,283	4,722,658	12,689,715	14,350,333
Selling and marketing	6,070,697	8,193,417	19,790,583	27,068,015
General and administrative	3,018,091	3,461,880	9,627,039	9,590,909
Investigation, litigation, and settlement related costs	99,316	-1,353,571	275,774	-1,793,368
Restructuring Costs	2,290,831	770,749	2,290,831	770,749
Total operating expenses	15,124,218	15,795,133	44,673,942	49,986,638
Operating loss	-4,163,140	-3,587,037	-12,587,059	-12,004,352
Interest and other (loss) income, net	-3,212	102,059	-821,178	-142,805
Loss before income taxes	-4,166,352	-3,484,978	-13,408,237	-12,147,157
(Benefit)/Provision for income taxes	-1,946,689	83,073	-1,600,836	490,888
Net loss	-2,219,663	-3,568,051	-11,807,401	-12,638,045
Less: Accrual of preferred stock dividends	28,875	0	28,875	0
Less: Accretion to redemption value of Series A preferred stock	17,061	0	17,061	0
Net loss attributable to common stockholders	($2,265,599)	($3,568,051)	($11,853,337)	($12,638,045)
Basic net loss per share attributable to common stockholders	($0.05)	($0.08)	($0.25)	($0.27)
Diluted net loss per share attributable to common stockholders	($0.05)	($0.08)	($0.25)	($0.27)
Weighted average basic shares outstanding	48,024,916	47,542,304	47,961,853	47,353,922
Weighted average diluted shares outstanding	48,024,916	47,542,304	47,961,853	47,353,922

CONDENSED_CONSOLIDATED_STATEME1

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (Unaudited) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
Statement of Comprehensive Income [Abstract]	'	'	'	'
Net Loss	($2,219,663)	($3,568,051)	($11,807,401)	($12,638,045)
Other comprehensive income (loss), net of taxes (benefits):	'	'	'	'
Foreign currency translation	-932	-159,351	13,858	-323,211
Net unrealized gains on marketable securities	-2,307	29,677	-3,757	88,034
Net minimum pension liability	2,965	4,236	2,019	11,356
Total other comprehensive income (loss), net of taxes (benefits):	-274	-125,438	12,120	-223,821
Total comprehensive loss, net	-2,219,937	-3,693,489	-11,795,281	-12,861,866
Less: Accrual of preferred stock dividends	28,875	0	28,875	0
Less: Accretion to redemption value of Series A preferred stock	17,061	0	17,061	0
Total comprehensive loss, net attributable to common stockholders	($2,265,873)	($3,693,489)	($11,841,217)	($12,861,866)

CONDENSED_CONSOLIDATED_STATEME2

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (USD $)	9 Months Ended
	Sep. 30, 2013		Sep. 30, 2012
Cash flows from operating activities:	'		'
Net loss	($11,807,401)		($12,638,045)
Adjustments to reconcile net loss to net cash from operating activities:	'		'
Depreciation and amortization	2,056,664		2,445,434
Share-based payment compensation	1,258,000		3,566,265
Non-cash professional services expenses	36,942		27,891
Realized gain on marketable securities	-3,545		-546
Provision for returns and doubtful accounts	-391,371		205,437
Deferred income tax provision	-11,737		11,892
Changes in operating assets and liabilities:	'		'
Accounts receivable	5,851,286		8,169,755
Prepaid expenses and other current assets	663,592		-2,809,510
Inventory	-109,621		1,047,180
Other assets	-32,900		81,066
Accounts payable	-1,075,552		-1,372,792
Accrued expenses and other long-term liabilities	-5,267,189		-4,762,389
Deferred revenue	1,339,297		-3,523,142
Net cash used in operating activities	-7,493,535		-9,551,504
Cash flows from investing activities:	'		'
Sales of marketable securities	20,806,642		26,158,050
Purchases of marketable securities	-16,044,295		-18,255,770
Purchases of property and equipment	-1,124,170		-2,147,191
Capitalized software development costs	-830,301		-461,555
Security deposits	-250,000		-39,622
Purchase of intangible assets	-100,556		-86,958
Net cash provided by investing activities	2,457,320		5,166,954
Cash flows from financing activities:	'		'
Proceeds from exercise of stock options	697,500		624,155
Proceeds from issuance of Series A preferred stock, net of issuance costs	8,731,677		0
Net cash provided by financing activities	9,429,177		624,155
Effect of exchange rate changes on cash and cash equivalents	-93,787		-342,890
Net (decrease) increase in cash and cash equivalents	4,299,175		-4,103,285
Cash and cash equivalents, beginning of period	18,651,468		16,257,694
Cash and cash equivalents, end of period	22,950,643		12,154,409
Supplemental disclosures:	'		'
Cash paid/(refund received) for income taxes, net	59,023	[1]	568,646
Non-cash financing activities:	'		'
Undistributed preferred stock dividends	$28,875		$0
[1]	The Company did not pay any interest for the nine months ended September 30, 2013 and 2012.

1_Summary_of_Significant_Accou

(1) Summary of Significant Accounting Policies	9 Months Ended
	Sep. 30, 2013
Notes to Financial Statements	'
(1) Summary of Significant Accounting Policies	'
	(a) The Company and Nature of Operations
	FalconStor Software, Inc., a Delaware Corporation (the "Company"), develops, manufactures and sells data protection solutions and provides the related maintenance, implementation and engineering services.
		(b)	Principles of Consolidation
	The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.
		(c)	Reclassifications
	Certain prior year’s amounts have been reclassified to conform to the current year presentation. Certain costs previously recorded within “selling and marketing” are now presented within “research and development” to better align these costs with functions performed.
	(d) Use of Estimates
	The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company’s significant estimates include those related to revenue recognition, accounts receivable allowances, share-based payment compensation, cost-based investments, marketable securities, valuation of embedded derivatives, software development costs, goodwill and other intangible assets and income taxes. Actual results could differ from those estimates.
	The financial market volatility in many countries where the Company operates has impacted and may continue to impact the Company’s business. Such conditions could have a material impact to the Company’s significant accounting estimates discussed above.
	(e) Unaudited Interim Financial Information
	The accompanying unaudited interim condensed consolidated financial statements have been prepared, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations relating to interim financial statements.
	In the opinion of management, the accompanying unaudited interim condensed consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the financial position of the Company at September 30, 2013, and the results of its operations for the three and nine months ended September 30, 2013 and 2012. The results of operations of any interim period are not necessarily indicative of the results of operations to be expected for the full fiscal year.
	(f) Cash Equivalent, Restricted Cash and Marketable Securities
	The Company considers all highly liquid investments with maturities of three months or less when purchased to be cash equivalents. The Company records its cash equivalents and marketable securities at fair value in accordance with the authoritative guidance issued by the Financial Accounting Standards Board (“FASB”) on fair value measurements and disclosures. As of September 30, 2013 and December 31, 2012, the Company’s cash equivalents consisted of money market funds. At September 30, 2013 and December 31, 2012, the fair value of the Company’s cash equivalents amounted to approximately $12.6 million and $4.3 million, respectively.
	As of September 30, 2013 and December 31, 2012, the Company had $0.8 million of restricted cash. The restricted cash serves as collateral related to deposit service indebtedness with the Company’s commercial bank. As of September 30, 2013 and December 31, 2012, the Company did not have any debt service indebtedness with the Company’s bank.
	As of September 30, 2013 and December 31, 2012, the Company’s marketable securities consisted of corporate bond and government securities. As of September 30, 2013 and December 31, 2012, the fair value of the Company’s current marketable securities was approximately $5.8 million and $10.5 million, respectively. All of the Company’s marketable securities are classified as available-for-sale, and accordingly, unrealized gains and losses on marketable securities, net of tax, are reflected as a component of accumulated other comprehensive loss in stockholders’ equity. Any other-than-temporary impairments are recorded within interest and other (loss) income, net in the condensed consolidated statement of operations. See Note (5) Marketable Securities for additional information.
	(g) Fair Value of Financial Instruments
	Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. To increase the comparability of fair value measurements, a three-tier fair value hierarchy, which prioritizes the inputs used in the valuation methodologies, is as follows:
	Level 1—Valuations based on quoted prices for identical assets and liabilities in active markets.
	Level 2—Valuations based on observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.
	Level 3—Valuations based on unobservable inputs reflecting our own assumptions, consistent with reasonably available assumptions made by other market participants. These valuations require significant judgment.
	As of September 30, 2013 and December 31, 2012, the fair value of the Company’s financial instruments including cash and cash equivalents, accounts receivable, accounts payable, and accrued expenses, approximated carrying value due to the short maturity of these instruments. See Note (4) Fair Value Measurements for additional information.
	(h) Derivative Financial Instruments
	The Company does not use derivative instruments to hedge exposures to cash flow, market or foreign currency risk. Terms of convertible preferred stock are reviewed to determine whether or not they contain embedded derivative instruments that are required under FASB ASC 815 “Derivatives and Hedging” (“ASC 815”) to be accounted for separately from the host contract, and recorded on the balance sheet at fair value. The fair value of derivatives are required to be revalued at each reporting date, with corresponding changes in fair value recorded in current period operating results.
	(i) Revenue Recognition
	The Company derives its revenue from sales of its products, support and services. Product revenue consists of the Company’s software integrated with industry standard hardware and sold as complete turn-key integrated solutions. Product revenue also consists of stand-alone software applications. Support and services revenue consists of both maintenance revenues and professional services revenues. Revenue is recorded net of applicable sales taxes.
	In accordance with the authoritative guidance issued by the FASB on revenue recognition, the Company recognizes revenue from product sales when persuasive evidence of an arrangement exists, the fee is fixed and determinable, the product is delivered, and collection of the resulting receivable is deemed probable. Products delivered to a customer on a trial basis are not recognized as revenue until a permanent key code is delivered to the customer. Reseller customers typically send the Company a purchase order when they have an end user identified. For bundled arrangements that include either maintenance or both maintenance and professional services, the Company uses the residual method to determine the amount of product revenue to be recognized. Under the residual method, consideration is allocated to the undelivered elements based upon vendor-specific objective evidence (“VSOE”) of the fair value of those elements, with the residual of the arrangement fee allocated to and recognized as product revenue. The long-term portion of deferred revenue relates to maintenance contracts with terms in excess of one year. The Company provides an allowance for product returns as a reduction of revenue, based upon historical experience and known or expected trends.
	Revenues associated with maintenance services are deferred and recognized as revenue ratably over the term of the contract. Revenues associated with software implementation and software engineering services are recognized when the services are performed. Costs of providing these services are included in cost of support and services.
	The Company has entered into various distribution, licensing and joint promotion agreements with OEMs, whereby the Company has provided to the OEM a non-exclusive software license to install the Company’s software on certain hardware or to resell the Company’s software in exchange for payments based on the products distributed by these OEMs. Such payments from these OEMs or distributors are recognized as revenue in the period reported by the OEM.
	From time to time the Company will enter into funded software development arrangements. Under such arrangements, revenue recognition will not commence until final delivery and/or acceptance of the product. For arrangements where the Company has VSOE for the undelivered elements, the Company will follow the residual method and recognize product revenue upon final delivery and/or acceptance of the product. For arrangements where the Company does not have VSOE for the undelivered elements, the Company will recognize the entire arrangement fee ratably commencing at the time of final delivery and/or acceptance through the end of the service period in the arrangement.
	(j) Property and Equipment
	Property and equipment are recorded at cost. Depreciation is recognized using the straight-line method over the estimated useful lives of the assets (3 to 7 years). For the three months ended September 30, 2013 and 2012, depreciation expense was $570,711 and $631,009, respectively. For the nine months ended September 30, 2013 and 2012, depreciation expense was $1,719,139 and $2,137,809, respectively. Leasehold improvements are amortized on a straight-line basis over the term of the respective leases or over their estimated useful lives, whichever is shorter.
	(k) Goodwill and Other Intangible Assets
	Goodwill represents the excess of the purchase price over the estimated fair value of net tangible and identifiable intangible assets acquired in business combinations. The Company has not amortized goodwill related to its acquisitions, but instead tests the balance for impairment. The Company evaluates goodwill for impairment annually or more frequently when an event occurs or circumstances change that indicate that the carrying value may not be recoverable. The Company tests goodwill for impairment by first comparing the book value of net assets to the fair value of the reporting unit. If the fair value is determined to be less than the book value or qualitative factors indicate that it is more likely than not that goodwill is impaired, a second step is performed to compute the amount of impairment as the difference between the estimated fair value of goodwill and the carrying value.
	The Company’s annual impairment assessment is performed during the fourth quarter of each year, and the Company has determined there to be no impairment for any of the periods presented. Identifiable intangible assets include (i) assets acquired through business combinations, which include customer contracts and intellectual property, and (ii) patents amortized over three years using the straight-line method.
	For the three months ended September 30, 2013 and 2012, amortization expense was $34,108 and $30,175, respectively. For the nine months ended September 30, 2013 and 2012, amortization expense was $91,337 and $88,424, respectively. The gross carrying amount and accumulated amortization of other intangible assets as of September 30, 2013 and December 31, 2012 are as follows:
			September 30,		December 31,
			2013		2012
	Goodwill		$        4,150,339		$        4,150,339
	Other intangible assets:
	Gross carrying amount		$        3,229,144		$        3,128,588
	Accumulated amortization		(3,045,499)		(2,954,162)
	Net carrying amount		$           183,645		$           174,426
	(l) Software Development Costs
	In accordance with the authoritative guidance issued by the FASB on costs of software to be sold, leased, or marketed, costs associated with the development of new software products and enhancements to existing software products are expensed as incurred until technological feasibility of the product has been established. Based on the Company’s product development process, technological feasibility is established upon completion of a working model. Amortization of software development costs is recorded at the greater of the straight-line basis over the product’s estimated life, or the ratio of current revenue of the related products to total current and anticipated future revenue of these products. During the three and nine months ended September 30, 2013, the Company capitalized $582,872 and $830,301, respectively, of costs associated with software development projects. During the three and nine months ended September 30, 2012, the Company capitalized $0 and $461,555, respectively, of costs associated with software development projects. During the three months ended September 30, 2013 and 2012, the Company recorded $82,063 and $82,063, respectively, of amortization expense related to capitalized software costs. During the nine months ended September 30, 2013 and 2012, the Company recorded $246,188 and $219,201, respectively, of amortization expense related to capitalized software costs.
	(m) Income Taxes
	The Company records income taxes under the liability method. Deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be realized or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. In determining the period in which related tax benefits are realized for financial reporting purposes, excess share-based compensation deductions included in net operating losses are realized after regular net operating losses are exhausted.
	The Company accounts for uncertain tax positions in accordance with the authoritative guidance issued by the FASB on income taxes, which addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return, should be recorded in the financial statements. Pursuant to the authoritative guidance, the Company may recognize the tax benefit from an uncertain tax position only if it meets the “more likely than not” threshold that the position will be sustained on examination by the taxing authority, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. In addition, the authoritative guidance addresses de-recognition, classification, interest and penalties on income taxes, accounting in interim periods, and also requires increased disclosures. The Company includes interest and penalties related to its uncertain tax positions as part of income tax expense within its consolidated statement of operations. See Note (3) Income Taxes for additional information.
	(n) Long-Lived Assets
	The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. If the sum of the expected future cash flows, undiscounted and without interest, is less than the carrying amount of the asset, an impairment loss is recognized as the amount by which the carrying amount of the asset exceeds its fair value.
	(o) Share-Based Payments
	The Company accounts for share-based payments in accordance with the authoritative guidance issued by the FASB on share-based compensation, which establishes the accounting for transactions in which an entity exchanges its equity instruments for goods or services. Under the provisions of the authoritative guidance, share-based compensation expense is measured at the grant date, based on the fair value of the award, and is recognized as an expense over the requisite employee service period (generally the vesting period), net of estimated forfeitures. The Company estimates the fair value of share-based payments using the Black-Scholes option-pricing model. The estimation of share-based awards that will ultimately vest requires judgment, and to the extent actual results or updated estimates differ from the Company’s current estimates, such amounts will be recorded as a cumulative adjustment in the period estimates are revised. The Company considers many factors when estimating expected forfeitures, including types of awards, employee class and historical experience. Additionally, share-based awards to non-employees are expensed over the period in which the related services are rendered at their fair value. All share-based awards are expected to be fulfilled with new shares of common stock. See Note (2) Share-Based Payment Arrangements for additional information.
	(p) Foreign Currency
	Assets and liabilities of foreign operations are translated at rates of exchange at the end of the period, while results of operations are translated at average exchange rates in effect for the period. Gains and losses from the translation of foreign assets and liabilities from the functional currency of the Company’s subsidiaries into the U.S. dollar are classified as accumulated other comprehensive loss in stockholders’ equity. Gains and losses from foreign currency transactions are included in the condensed consolidated statements of operations within interest and other (loss) income, net.
	During the three months ended September 30, 2013, foreign currency transactional losses totaled less than $0.1 million, compared to a foreign currency transactional gain of $0.1 million for the three months ended September 30, 2012. During the nine months ended September 30, 2013 and 2012, foreign currency transactional losses totaled approximately $0.9 million and $0.2 million, respectively.
	(q) Earnings Per Share (EPS)
	Basic EPS is computed based on the weighted average number of shares of common stock outstanding. Diluted EPS is computed based on the weighted average number of common shares outstanding increased by dilutive common stock equivalents, attributable to stock option awards, restricted stock awards, restricted stock unit awards and redeemable convertible preferred stock outstanding. Due to the net loss for the three and nine months ended September 30, 2013 and 2012, all common stock equivalents, totaling 18,119,241 and 12,611,396, respectively, were excluded from diluted net loss per share because they were anti-dilutive. The common stock equivalents consist of 9,337,725 of outstanding stock option and restricted stock awards and 8,781,516 related to outstanding redeemable convertible preferred stock for the three and nine months ended September 30, 2013 and 12,611,396 of outstanding stock option and restricted stock awards for the three and nine months ended September 30, 2012.
	The following represents a reconciliation of the numerators and denominators of the basic and diluted EPS computation:
			Three Months Ended September 30,						Nine Months Ended September 30,
	Numerator		2013			2012			2013			2012
	Net loss		$	(2,219,663	)	$	(3,568,051	)	$	(11,807,401	)	$	(12,638,045	)
	Effects of redeemable convertible preferred stock:
	Less: Preferred stock dividends			28,875			—			28,875			—
Less: Accretion to redemption value of Series A preferred stock			17,061			—			17,061			—
Net loss attributable to common stockholders		$	(2,265,599	)	$	(3,568,051	)	$	(11,853,337	)	$	(12,638,045	)
Denominator
Basic shares outstanding			48,024,916			47,542,304			47,961,853			47,353,922
Effect of dilutive securities:
Stock options and restricted stock			—			—			—			—
Preferred Stock			—			—			—			—
Diluted shares outstanding			48,024,916			47,542,304			47,961,853			47,353,922
EPS
Basic net loss per share  attributable to common stockholders		$	(0.05	)	$	(0.08	)	$	(0.25	)	$	(0.27	)
Diluted net loss per share  attributable common stockholders		$	(0.05	)	$	(0.08	)	$	(0.25	)	$	(0.27	)
(r) Investments
As of September 30, 2013 and December 31, 2012, the Company maintained certain cost-method investments aggregating approximately $0.9 million, which are included within “other assets” in the accompanying condensed consolidated balance sheets. During the three and nine months ended September 30, 2013 and 2012, the Company did not recognize any impairment charges related to any of its cost-method investments.
On August 7, 2013, the Company signed an Equity Transfer Agreement, to sell its interest in Tianjin Zhongke Blue Whale Information Technologies Co., Ltd. (“Blue Whale”), a Chinese joint venture, for $3.0 million. Closing of the sale is subject to certain conditions, including the approval of the appropriate government entities in China. There can be no guarantee that this transaction will close.
(s) Treasury Stock
The Company accounts for treasury stock under the cost method and includes treasury stock as a component of stockholders’ equity.
(t) New Accounting Pronouncements
In February 2013, the Financial Accounting Standards Board (“FASB”) issued new guidance which requires companies to present information about reclassification adjustments from accumulated other comprehensive income in their financial statements or footnotes. The adoption of this new accounting guidance in the first quarter of 2013 did not have a material impact on our consolidated financial position, results of operations or cash flows. See Note (10) Accumulated Other Comprehensive Loss for the related disclosure.
In July 2013, the FASB issued new guidance which requires the netting of an unrecognized tax benefit, or a portion of an unrecognized tax benefit, against a deferred tax asset for a net operating loss carry forward, a similar tax loss, or a tax credit carry forward if such settlement is required or expected in the event the uncertain tax position is disallowed. The new guidance is effective prospectively to all existing unrecognized tax benefits, but entities can choose to apply it retrospectively. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2013, which for the Company will be the first quarter of 2014. We do not expect the adoption of the new guidance by the Company to have a material impact on our financial results.

2_ShareBased_Payment_Arrangeme

(2) Share-Based Payment Arrangements	9 Months Ended
	Sep. 30, 2013
Notes to Financial Statements	'
(2) Share-Based Payment Arrangements	'
	On May 9, 2013, the Company’s stockholders adopted the FalconStor Software, Inc. 2013 Outside Directors Equity Compensation Plan (the “2013 Plan”). The 2013 Plan is administered by the Board of Directors and provides for the issuance of up to 400,000 shares of Company’s common stock upon the vesting of options or upon the grant of shares with such restrictions as determined by the Board of Directors to the non-employee directors of the Company. Exercise prices of the options must be equal to the fair market value of the common stock on the date of grant. Options granted have terms of ten years. Shares of restricted stock have the terms and conditions set by the Board of Directors and are forfeitable until the terms of the grant have been satisfied.
	The following table summarizes the plans under which the Company was able to grant equity compensation as of September 30, 2013:
		Shares	Shares Available	Shares	Last Date for Grant
	Name of Plan	Authorized	for Grant	Outstanding	of Shares
	FalconStor Software, Inc., 2006 Incentive Stock Plan	13,455,546	3,480,696	7,314,498	17-May-16
	FalconStor Software, Inc., 2013 Outside Directors Equity
	Compensation Plan	400,000	350,000	50,000	9-May-16
	On July 1, 2013, the total shares available for issuance under the FalconStor Software, Inc., 2006 Incentive Stock Plan (the “2006 Plan”) totaled 1,169,323. Pursuant to the 2006 Plan, if, on July 1st of any calendar year in which the 2006 Plan is in effect, the number of shares of stock as to which options, restricted shares and restricted stock units may be granted under the 2006 Plan is less than five percent (5%) of the number of outstanding shares of stock, then the number of shares of stock available for issuance under the 2006 Plan is automatically increased so that the number equals five percent (5%) of the shares of stock outstanding. In no event shall the number of shares of stock subject to the 2006 Plan in the aggregate exceed twenty million shares, subject to adjustment as provided in the 2006 Plan. On July 1, 2013, the total number of outstanding shares of the Company’s common stock totaled 48,014,717. Pursuant to the 2006 Plan, as amended, the total shares available for issuance under the 2006 Plan thus increased by 1,231,413 shares from 1,169,323 to 2,400,736 shares available for issuance as of July 1, 2013.
	The following table summarizes the Company’s equity plans that have expired but that still have equity awards outstanding as of September 30, 2013:
		Shares Available	Shares
	Name of Plan	for Grant	Outstanding
	FalconStor Software, Inc., 2000 Stock Option Plan	--	1,562,727
	2004 Outside Directors Stock Option Plan	--	190,000
	FalconStor Software, Inc., 2007 Outside Directors Equity	--	170,000
	Compensation Plan
	FalconStor Software, Inc., 2010 Outside Directors Equity	--	50,500
	Compensation Plan
	All outstanding stock options granted under the Company’s equity plans have terms of ten years from the date of grant.
	The following table summarizes stock option activity during the nine months ended September 30, 2013:
				Weighted
			Weighted	Average
			Average	Remaining	Aggregate
		Number of	Exercise	Contractual	Intrinsic
		Options	Price	Life  (Years)	Value
	Options Outstanding at December 31, 2012	11,360,842	$4.66
	Granted	70,000	$2.31
	Exercised	(310,000)	$2.25
	Forfeited	(224,795)	$4.56
	Expired	(20,000)	$3.96
	Options Outstanding at March 31, 2013	10,876,047	$4.72	6.13	$       1,136,141
	Granted	1,812,000	$1.38
	Exercised	-	$0.00
	Forfeited	(1,334,592)	$4.04
	Expired	(152,500)	$5.44
	Options Outstanding at June 30, 2013	11,200,955	$4.25	5.93	$            15,505
	Granted	15,000	$1.15
	Exercised	-	$0.00
	Forfeited	(2,473,830)	$3.46
	Expired	(10,000)	$6.30
	Options Outstanding at September 30, 2013	8,732,125	$4.47	5.77	$              2,550
	Options Exercisable at September 30, 2013	5,854,660	$5.68	4.17	$                      -
	Stock option exercises are fulfilled with new shares of common stock. There were no stock option exercises for the three months ended September 30, 2013 and 2012. The total cash received from stock option exercises for the nine months ended September 30, 2013 and 2012 was $697,500 and $624,155, respectively. The total intrinsic value of stock options exercised during the nine months ended September 30, 2013 and 2012 was $121,819 and $266,862, respectively.
	The Company recognized share-based compensation expense for all awards issued under the Company’s stock equity plans in the following line items in the condensed consolidated statements of operations for the three and nine months ended September 30, 2013 and 2012:
		Three months ended September 30,		Nine months ended September 30,
		2013	2012	2013	2012
	Cost of revenues - Product	$                 82	$               113	$               181	$               212
	Cost of revenues - Support and Service	7,990	53,314	112,182	103,158
	Research and development costs	69,542	127,982	291,480	572,170
	Selling and marketing	(56,838)	388,167	215,352	1,272,823
	General and administrative	142,636	486,202	675,747	1,645,793
		$        163,412	$     1,055,778	$     1,294,942	$     3,594,156
	The Company has the ability to issue both restricted stock awards and restricted stock units. The fair value of the restricted stock awards and restricted stock units are expensed at either (i) the fair value per share at date of grant (directors, officers and employees), or (ii) the fair value per share as of each reporting period (non-employee consultants). A summary of the total stock-based compensation expense related to restricted stock awards and restricted stock units, which is included in the Company’s total share-based compensation expense for each respective period, is as follows:
		Three months ended September 30,		Nine months ended September 30,
		2013	2012	2013	2012
	Directors, officers and employees	$          82,689	$          82,284	$        178,437	$        489,864
	Non-employee consultants	-	13,488	-	13,488
		$          82,689	$          95,772	$        178,437	$        503,352
	As of September 30, 2013, an aggregate of 3,426,068 shares of restricted stock awards had been issued, of which, 2,342,837 had vested and 477,631 had been forfeited. As of September 30, 2012, an aggregate of 2,876,068 shares of restricted stock awards had been issued, of which, 2,219,456 had vested and 472,539 had been forfeited.
	As of September 30, 2013 and 2012, an aggregate of 90,412 restricted stock units had been issued, of which 79,065 had vested and 11,347 had been canceled.
	The following table summarizes the activity for restricted stock awards during the three and nine months ended September 30, 2013:
		Number of
		Restricted Stock
		Awards
Non-Vested at December 31, 2012	171,190
Granted	-
Vested	(48,570)
Forfeited	(4,590)
Non-Vested at March 31, 2013	118,030
Granted	50,000
Vested	(45,410)
Forfeited	-
Non-Vested at June 30, 2013	122,620
Granted	500,000
Vested	(17,020)
Forfeited	-
Non-Vested at September 30, 2013	605,600
Restricted stock awards and restricted stock units are fulfilled with new shares of common stock. The total intrinsic value of restricted stock for which the restrictions lapsed during the three months ended September 30, 2013 and 2012 was $17,585 and $53,312, respectively. The total intrinsic value of restricted stock for which the restrictions lapsed during the nine months ended September 30, 2013 and 2012 was $203,082 and $1,092,051, respectively.
Options granted to officers, employees and directors during fiscal 2013 and 2012 have exercise prices equal to the fair market value of the stock on the date of grant, a contractual term of ten years, and a vesting period generally of three years.
Options granted to non-employee consultants have exercise prices equal to the fair market value of the stock on the date of grant and a contractual term of ten years. Restricted stock awards granted to non-employee consultants have a contractual term equal to the lapse of restriction(s) of each specific award. Vesting periods for share-based awards granted to non-employee consultants range from immediate vesting to three years depending on service requirements. A summary of the total stock-based compensation expense/(benefit) related to share-based awards granted to non-employee consultants, which is included in the Company’s total share-based compensation expense for each respective period, is as follows:
	Three months ended September 30,		Nine months ended September 30,
	2013	2012	2013	2012
Non-qualified stock options	$        36,942	$         (15,527)	$    36,942	$             14,403
Restricted stock awards	-	13,488	-	13,488
	$        36,942	$           (2,039)	$    36,942	$             27,891
The Company estimates expected volatility based primarily on historical daily volatility of the Company’s stock and other factors, if applicable. The risk-free interest rate is based on the United States treasury yield curve in effect at the time of grant. The expected option term is the number of years that the Company estimates that options will be outstanding prior to exercise. The expected term of the awards was determined based upon an estimate of the expected term of “plain vanilla” options as prescribed in SEC Staff Accounting Bulletin (“SAB”) No. 110.
As of September 30, 2013, there was approximately $2,861,722 of total unrecognized compensation cost related to the Company’s unvested options and restricted shares granted under the Company’s equity plans.

3_Income_Taxes

(3) Income Taxes	9 Months Ended
	Sep. 30, 2013
Notes to Financial Statements	'
(3) Income Taxes	'
	The Company’s provision for income taxes consists of state and local, and foreign taxes, as applicable, in amounts necessary to align the Company’s year-to-date tax provision with the effective rate that it expects to achieve for the full year.
	For the nine months ended September 30, 2013, the Company recorded an income tax benefit of $1.6 million on its pre-tax loss of $13.4 million, consisting of a 2.1million reversal of unrecognized tax benefits due to the expiration of applicable statutes of limitations partly offset by state and local and foreign taxes. For the nine months ended September 30, 2012, the Company recorded an income tax provision of $0.5 million on its pre-tax loss of $12.1 million, consisting primarily of state and local and foreign taxes. The effective tax rate for the nine months ended September 30, 2013 was 11.9%. As of September 30, 2013, the Company’s conclusion did not change with respect to the realizability of its domestic deferred tax assets and, therefore, the Company has not recorded any benefit for its expected net domestic deferred tax assets for the full year 2013 estimated annual effective tax rate. As of September 30, 2013, the valuation allowance totaled approximately $41.9 million.
	The Company’s total unrecognized tax benefits, excluding interest and penalties for September 30, 2013 and December 31, 2012 were approximately $3.3 million and $5.1 million, respectively. At September 30, 2013, $0.4 million including interest, if recognized, would reduce the Company’s effective tax rate. As of September 30, 2013 and December 31, 2012, the Company recorded an aggregate of approximately $96,000 and $373,000, respectively, of accrued interest and penalties.

4_Fair_Value_Measurements

(4) Fair Value Measurements	9 Months Ended
	Sep. 30, 2013
Notes to Financial Statements	'
(4) Fair Value Measurements	'
	The Company measures its cash equivalents, marketable securities and derivative instruments at fair value. Fair value is an exit price, representing the amount that would be received on the sale of an asset or that would be paid to transfer a liability in an orderly transaction between market participants. As a basis for considering such assumptions, the Company utilizes a three-tier fair value hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value.
	Fair Value Hierarchy
	The methodology for measuring fair value specifies a hierarchy of valuation techniques based upon whether the inputs to those valuation techniques reflect assumptions other market participants would use based upon market data obtained from independent sources (observable inputs) or reflect the Company’s own assumptions of market participant valuation (unobservable inputs). As a result, observable and unobservable inputs have created the following fair value hierarchy:
		·	Level 1 – Quoted prices in active markets that are unadjusted and accessible at the measurement date for identical, unrestricted assets or liabilities. The Level 1 category includes money market funds, which at September 30, 2013 and December 31, 2012 totaled $12.6 million and $4.3 million, respectively, which are included within cash and cash equivalents in the condensed consolidated balance sheets.
		·	Level 2 – Quoted prices for identical assets and liabilities in markets that are not active, quoted prices for similar assets and liabilities in active markets or financial instruments for which significant inputs are observable, either directly or indirectly. The Level 2 category includes government securities and corporate debt securities, which at September 30, 2013 and December 31, 2012 totaled $5.8 million and $10.5 million, respectively, which are included within cash and cash equivalents and marketable securities in the condensed consolidated balance sheets.
		·	Level 3 – Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable. As of September 30, 2013, the Level 3 category included derivatives, which totaled $0.2 million and are included in other long-term liabilities in the condensed consolidated balance sheets. There were no Level 3 derivatives at December 31, 2012. The Company did not hold any cash, cash equivalents or marketable securities categorized as Level 3 as of September 30, 2013 or December 31, 2012.
	Measurement of Fair Value
	The Company measures its cash equivalents, marketable securities and derivatives at fair value. Fair value is an exit price, representing the amount that would be received on the sale of an asset or that would be paid to transfer a liability in an orderly transaction between market participants. As a basis for considering such assumptions, the Company utilizes a three-tier fair value hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value.
	Items Measured at Fair Value on a Recurring Basis
	The following table presents the Company’s assets that are measured at fair value on a recurring basis at September 30, 2013:
				Fair Value Measurements at Reporting Date Using
				Quoted Prices in		Significant
				Active Markets for	Significant other	Unobservable
				Identical Assets	Inputs	Inputs
		Total		(Level 1)	(Level 2)	(Level 3)
	Cash equivalents:
	Money market funds	$          12,610,504		$          12,610,504	$                           -	$                           -
	Total cash equivalents	12,610,504		12,610,504	-	-
	Marketable securities:
	Corporate debt and government securities	5,764,839		-	5,764,839	-
	Total marketable securities	5,764,839		-	5,764,839	-
	Derivative liabilities:
	Derivative Instruments	170,337		-	-	170,337
	Total derivative liabilities	170,337		-	-	170,337
	Total assets measured at fair value	$          18,545,680		$          12,610,504	$            5,764,839	$               170,337
	The following table presents the Company’s assets that are measured at fair value on a recurring basis at December 31, 2012:
				Fair Value Measurements at Reporting Date Using
				Quoted Prices in		Significant
				Active Markets for	Significant other	Unobservable
				Identical Assets	Inputs	Inputs
		Total		(Level 1)	(Level 2)	(Level 3)
	Cash equivalents:
	Money market funds	$            4,285,309		$            4,285,309	$                           -	$                           -
	Total cash equivalents	4,285,309		4,285,309	-	-
	Marketable securities:
	Corporate debt and government securities	10,530,942		-	10,530,942	-
	Total marketable securities	10,530,942		-	10,530,942	-
	Total assets measured at fair value	$          14,816,251		$            4,285,309	$          10,530,942	$                           -
	The fair value of the Company’s investments in corporate debt and government securities have been determined utilizing third party pricing services and verified by management. The pricing services use inputs to determine fair value which are derived from observable market sources including reportable trades, benchmark curves, credit spreads, broker/dealer quotes, bids, offers, and other industry and economic events. These investments are included in Level 2 of the fair value hierarchy.
	The fair value of the Company’s derivatives were valued using the Black-Scholes pricing model adjusted for probability assumptions, with all significant inputs, except for the probability and volatility assumptions, derived from or corroborated by observable market data such as stock price and interest rates. The probability and volatility assumptions are both significant to the fair value measurement and unobservable. These derivatives are included in Level 3 of the fair value hierarchy.

5_Marketable_Securities

(5) Marketable Securities	9 Months Ended
	Sep. 30, 2013
Notes to Financial Statements	'
(5) Marketable Securities	'
	The Company’s marketable securities consist of available-for-sale securities, which are carried at fair value, with unrealized gains and losses reported as a separate component of stockholders’ equity. Unrealized gains and losses are computed on the specific identification method. Realized gains, realized losses and declines in value judged to be other-than-temporary, are included in interest and other income, net. The cost of available-for-sale securities sold is based on the specific identification method and interest earned is included in interest and other income.
	The cost and fair values of the Company’s available-for-sale marketable securities as of September 30, 2013, are as follows:
		Aggregate		Cost or Amortized		Net Unrealized
		Fair Value		Cost		Gains
	Government securities	$	5,513,519	$	5,511,008	$	2,511
	Corporate debt securities		251,320		251,378		(58	)
		$	5,764,839	$	5,762,386	$	2,453
	The cost and fair values of the Company’s available-for-sale marketable securities as of December 31, 2012, are as follows:
		Aggregate		Cost or Amortized		Net Unrealized
		Fair Value		Cost		Gains
	Government securities	$	8,328,392	$	8,324,372	$	4,020
	Corporate debt securities		2,202,550		2,200,360		2,190
		$	10,530,942	$	10,524,732	$	6,210

6_Inventories

(6) Inventories	9 Months Ended
	Sep. 30, 2013
Notes to Financial Statements	'
(6) Inventories	'
	Inventories consist of component materials and finished systems. Inventories are stated at the lower of cost (first-in, first-out) or market, not in excess of net realizable value. Component material consists of certain key replacement parts for the finished systems. Inventories are as follows:
		September 30,		December 31,
		2013		2012
	Component materials	$	11,835	$	18,989
	Finished systems		740,605		623,830
	Total Inventory	$	752,440	$	642,819
	As of September 30, 2013 and December 31, 2012, the Company has not recorded any reserve for excess and/or obsolete inventories in arriving at estimated net realizable value of its inventory.

7_Stockholders_Equity

(7) Stockholders' Equity	9 Months Ended
	Sep. 30, 2013
Notes to Financial Statements	'
(7) Stockholders' Equity	'
	Stock Repurchase Activity
	At various times from October 2001 through February 2009, the Company’s Board of Directors authorized the repurchase of up to 14 million shares of the Company’s outstanding common stock in the aggregate.
	During the nine months ended September 30, 2013 and 2012, the Company did not repurchase any shares of its common stock. Since October 2001, the Company has repurchased a total of 8,005,235 shares of its common stock at an aggregate purchase price of $46,916,339.

8_Commitments_and_Contingencie

(8) Commitments and Contingencies	9 Months Ended
	Sep. 30, 2013
Notes to Financial Statements	'
(8) Commitments and Contingencies	'
	During the second quarter of 2013 the Company signed a new operating lease covering its corporate office facility that expires in April 2021. The Company also has several operating leases related to offices in the United States and foreign countries. The expiration dates for these leases range from 2013 through 2017. The following is a schedule of future minimum lease payments for all operating leases as of September 30, 2013:
		2013	$	775,338
		2014		2,649,036
		2015		1,795,247
		2016		1,518,099
		2017		1,464,247
		Thereafter		5,036,525
			$	13,238,492
	The Company typically provides its customers a warranty on its software products for a period of no more than 90 days. Such warranties are accounted for in accordance with the authoritative guidance issued by the FASB on contingencies. To date, the Company has not incurred any costs related to warranty obligations.
	Under the terms of substantially all of its software license agreements, the Company has agreed to indemnify its customers for all costs and damages arising from claims against such customers based on, among other things, allegations that the Company’s software infringes the intellectual property rights of a third party. In most cases, in the event of an infringement claim, the Company retains the right to (i) procure for the customer the right to continue using the software; (ii) replace or modify the software to eliminate the infringement while providing substantially equivalent functionality; or (iii) if neither (i) nor (ii) can be reasonably achieved, the Company may terminate the license agreement and refund to the customer a pro-rata portion of the license fee paid to the Company. Such indemnification provisions are accounted for in accordance with the authoritative guidance issued by the FASB on guarantees. As of September 30, 2013 and 2012, there were no claims outstanding under such indemnification provisions.
	Upon certain triggering events, such as bankruptcy, insolvency or a material adverse effect or failure of the Company to issue shares upon conversion of the redeemable convertible preferred stock in accordance with its obligations, the redeemable convertible preferred stockholders may require the Company to redeem all or some of the redeemable convertible preferred stock at a price equal to the greater of 100% of the stated value plus accrued and unpaid dividends or the product of the number of shares of common stock underlying the redeemable convertible preferred stock and the closing price as of the occurrence of the triggering event. On or after August 5, 2017, each redeemable convertible preferred stockholder can require the Company to redeem its redeemable convertible preferred stock in cash at a price equal to 100% of the stated value being redeemed plus accrued and unpaid dividends. As of September 30, 2013, there were no triggering events that would allow the redeemable convertible preferred stockholders to require the Company to redeem any of the redeemable convertible preferred stock.
	On July 23, 2013, the Company entered into an Employment Agreement (“Quinn Employment Agreement”) with Gary Quinn. Pursuant to the Quinn Employment Agreement, the Company agreed to employ Mr. Quinn as President and Chief Executive Officer of the Company effective July 23, 2013 through July 22, 2015, at an annual salary of $400,000 per annum. The Quinn Employment Agreement also provides for the grant of 500,000 restricted shares which will vest over a two-year period at 50% and 50% annually. The 500,000 restricted shares were granted to Mr. Quinn by the Company’s Compensation Committee on August 5, 2013.
	In July, 2013, we signed an agreement with Violin Memory under which Violin will pay us $12.0 million for licenses to certain of our software and for further development of that software. We received the first $3.0 million under that agreement during the third quarter of 2013 and have recorded this amount as long term deferred revenue as of September 30, 2013. The second milestone was met in October 2013 and as a result we received the second $3.0 million payment in November 2013. Receipt of the final $6 million is broken into several payments and is contingent upon our successful development of future versions of the software within a designated time period. If we are unable to develop the software, we will not receive the additional payments. In addition, certain provisions of the Violin agreement could require us to return some or all of the money that we have already received.
	As of September 30, 2013, the Company had a total of $1.7 million of payables outstanding relating to its settlement with the United States Attorney’s Office, which is to be paid in December 2013. In addition, on January 20, 2013, the Company announced that it had reached a proposed settlement of the Class Action lawsuit between the Company and class plaintiffs for $5.0 million. Court approval of the settlement is required. A joint stipulation of settlement and motion for preliminary approval of the settlement was filed with the Court on June 14, 2013. On October 29, 2013, the District Court gave preliminary approval to the settlement and as a result we expect to deposit $5.0 million into an escrow account, where it will be held pending final settlement, in the fourth quarter of 2013.
	From time to time, the Company has undertaken restructuring and expense control measures to support its business performance and to align the Company’s cost structure with its resources. During the third quarter of 2013, the Company adopted a restructuring plan intended to better align the Company’s cost structure with the skills and resources required to more effectively execute the Company’s long-term growth strategy and to support revenue levels we expect to achieve on a go forward basis (the “2013 Plan”). In connection with the 2013 Plan the Company plans to eliminate over 100 positions worldwide, implement tighter expense controls, cease non-core activities and close several facilities through fiscal 2014. As of September 30, 2013 the Company had eliminated 75 positions worldwide. The total amount incurred under the 2013 Plan, during the third quarter, was $2.3 million of which $1.3 million was paid during the third quarter of 2013. This is an ongoing initiative and the Company expects to incur additional restructuring costs during the fourth quarter of 2013 and into the first half of 2014.
	On December 1, 2005, the Company adopted the 2005 FalconStor Software, Inc., Key Executive Severance Protection Plan, which was amended January 4, 2013 (“Severance Plan”). Pursuant to the Severance Plan, the Company’s Chief Executive Officer, Chief Financial Officer and certain other key personnel are entitled to receive certain contingent benefits, as set forth in the Severance Plan, including lump sum payments and acceleration of stock option vesting, each in certain circumstances.

9_Redeemable_Convertible_Prefe

(9) Redeemable Convertible Preferred Stock	9 Months Ended
	Sep. 30, 2013
Equity [Abstract]	'
(9) Redeemable Convertible Preferred Stock	'
	The Company is authorized to issue two million shares of $0.001 par value preferred stock.
	On September 16, 2013, the Company issued to Hale Capital Partners, LP (“Hale”) 900,000 shares of the Company’s newly created Series A redeemable convertible preferred stock (the "redeemable convertible preferred stock"), par value $0.001 per share, at a price of $10 per share, for an aggregate purchase consideration of $9.0 million. Hale subsequently assigned and transferred all of its shares of the redeemable convertible preferred stock to HCP-FVA LLC. Each share of redeemable convertible preferred stock is convertible into common stock equivalents, at the option of the holder and upon certain mandatory conversion events described below, at a conversion rate of $1.02488 (as adjusted for stock splits, stock dividends, reverse stock splits, stock combinations, reclassifications and similar events). The Company received net proceeds of approximately $8,731,677 from the issuance of the redeemable convertible preferred stock, net of transaction costs.
	If on or after the first anniversary of the issuance of the redeemable convertible preferred stock, the volume weighted average price of common stock for each trading day of any sixty consecutive trading days exceeds 250% of the conversion price and exceeds 225% of the conversion price through the conversion date, and certain equity conditions are met such that shares of common stock issued upon conversion can be immediately saleable by the redeemable convertible preferred stockholders, Falconstor can convert the redeemable convertible preferred stock up to an amount equal to the greater of 25% of the daily trading volume for the 20 consecutive trading days immediately preceding the conversion date or the amount of an identified bona fide block trade at a price reasonably acceptable to the applicable redeemable convertible preferred stockholder, but which price is not less than the arithmetic average of the weighted average prices of the common stock for the five trading days immediately preceding such sale.
	Upon certain triggering events, such as bankruptcy, insolvency or a material adverse effect or failure of the Company to issue shares upon conversion of the redeemable convertible preferred stock in accordance with its obligations, the redeemable convertible preferred stockholders may require the Company to redeem all or some of the redeemable convertible preferred stock at a price equal to the greater of 100% of the stated value plus accrued and unpaid dividends or the product of the number of shares of common stock underlying the redeemable convertible preferred stock and the closing price as of the occurrence of the triggering event. On or after August 5, 2017, each redeemable convertible preferred stockholder can require FalconStor to redeem its redeemable convertible preferred stock in cash at a price equal to 100% of the stated value being redeemed plus accrued and unpaid dividends. As of September 30, 2013, there were no triggering events that would allow the redeemable convertible preferred stockholders to require the Company to redeem any of the redeemable convertible preferred stock.
	Holders of the redeemable convertible 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 the Company 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, the Company can pay such dividends in part in cash and the remainder can be accrued or paid in common stock to the extent certain equity conditions are satisfied.
	The Purchase Agreement provides that the Company must use commercially reasonable efforts to file a registration statement with the SEC within 90 days for the resale of all of the common stock issuable on the conversion of the Preferred Stock and as dividends.  The Purchase Agreement also contains other representations, warranties and financial and non-financial covenants, customary for an issuance of Preferred Stock in a private placement of this nature. The Company is in compliance with the financial and non-financial covenants as of September 30, 2013.
	Each share of redeemable convertible preferred stock has a vote equal to the number of shares of common stock into which the redeemable convertible preferred stock would be convertible as of the record date. The Company’s closing stock price on the record date was $1.23 which results in voting power of 7,317,073 shares. In addition, holders of a majority of the redeemable convertible preferred stock must approve certain actions, including any amendments to the Company's charter or bylaws that adversely affects the voting powers, preferences or other rights of the redeemable convertible preferred stock; payment of dividends or distributions; any liquidation, capitalization, reorganization or any other fundamental transaction of the Company; issuance of any equity security senior to or in parity with the redeemable convertible 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 the company’s accounts receivable; and the redemption or purchase of any capital stock of the Company.
	The Company has classified the redeemable convertible preferred stock as temporary equity in the financial statements as it is subject to redemption at the option of the holder under certain circumstances. The Company has concluded that for purposes of evaluating potential embedded derivative instruments within the redeemable convertible preferred stock, the host contract is more akin to debt than equity. The optional redemption option and dividend cap were determined to be clearly and closely related to the debt-type host and as a result did not require separation from the host and classification and measurement as a derivative financial instrument. The embedded conversion and contingent redemption put options in the redeemable convertible preferred stock are not clearly and closely related to the debt-type host. The conversion options qualified for a scope exception and as a result did not require separation from the host and classification and measurement as a derivative financial instrument. The contingent redemption put options did not meet any scope exceptions and therefore the fair value of these derivative instruments were bifurcated from the redeemable convertible preferred stock and recorded as a liability at fair value. These derivative instruments were determined, in the aggregate, to have a fair value of $170,337 at the time of issuance of the preferred stock and were recorded as a reduction to preferred stock. This discount will be accreted to the redeemable convertible preferred stock using the effective interest method through the stated redemption date of August 5, 2017, which represents the earliest redemption date of the instrument. Future changes in the fair value of these derivative instruments will be included in “Interest and other (loss) income, net” within the consolidated statement of operations.
	A beneficial conversion feature (“BCF”) is recorded when the consideration allocated to a convertible security, divided by the number of common shares into which the security converts, is below the fair value of the common stock at the commitment date. The Company’s common stock price on the date one day prior to the closing of the Preferred Stock Agreement (the commitment date) was $1.23 per share, which was $0.21 greater than the conversion price of the redeemable convertible preferred stock. As the closing stock price on the commitment date was greater than the conversion price, the Company recognized a BCF. The Company allocated $1,951,265 to the BCF through an increase to additional paid-in capital and a corresponding decrease to the preferred stock. The resulting additional discount to the preferred stock is also being accreted to the redeemable convertible preferred stock using the effective interest method through the stated redemption date of August 5, 2017, which represents the earliest redemption date of the instrument.
	The Company included a deduction of $17,061 as an adjustment to net loss attributable to common stockholders on the statement of operations and in determining loss per share for the quarter ended September 30, 2013. This amount represents the accretion of the transaction costs of $268,323, BCF of $1,951,265and fair value allocated to the embedded derivatives of $170,337 for the third quarter of 2013. The Company also included a deduction of $28,875 as an adjustment to net loss attributable to common shareholders on the statement of operations and in determining loss per share for the three months ended September 30, 2013 for accrued dividends for the preferred stock. These dividends have not yet been paid as of September 30, 2013.

10_Accumulated_Other_Comprehen

(10) Accumulated Other Comprehensive Loss	9 Months Ended
	Sep. 30, 2013
Notes to Financial Statements	'
(10) Accumulated Other Comprehensive Loss	'
	The changes in Accumulated Other Comprehensive Loss, net of tax, for the three months ended September 30, 2013 are as follows:
					Net Unrealized
		Foreign Currency			Gains on Marketable			Net Minimum
		Translation			Securities			Pension Liability			Total
	Accumulated other comprehensive (loss) income at June 30, 2013	$	(1,586,348	)	$	4,760		$	(56,068	)	$	(1,637,656	)
	Other comprehensive (loss) income
	Other comprehensive (loss) income		(932	)		(1,961	)		829			(2,064	)
	before reclassifications
	Amounts reclassified from accumulated		—			(346	)		2,136			1,790
	other comprehensive (loss) income
	Total other comprehensive (loss) income		(932	)		(2,307	)		2,965			(274	)
	Accumulated other comprehensive (loss) income at September 30, 2013	$	(1,587,280	)	$	2,453		$	(53,103	)	$	(1,637,930	)
	The changes in Accumulated Other Comprehensive Loss, net of tax, for the nine months ended September 30, 2013 are as follows:
					Net Unrealized
		Foreign Currency			Gains on Marketable			Net Minimum
		Translation			Securities			Pension Liability			Total
	Accumulated other comprehensive (loss) income at January 1, 2013	$	(1,601,138	)	$	6,210		$	(55,122	)	$	(1,650,050	)
	Other comprehensive income (loss)
	Other comprehensive income (loss)		13,858			(212	)		(4,388	)		9,258
	before reclassifications
	Amounts reclassified from accumulated		—			(3,545	)		6,407			2,862
	other comprehensive income
	Total other comprehensive income (loss)		13,858			(3,757	)		2,019			12,120
	Accumulated other comprehensive (loss) income at September 30, 2013	$	(1,587,280	)	$	2,453		$	(53,103	)	$	(1,637,930	)
	For the three and nine months ended September 30, 2013, the amounts reclassified to net loss related to the Company’s defined benefit plan and sale of marketable securities. These amounts are included within “Operating loss” within the condensed consolidated statements of operations.

11_Litigation

(11) Litigation	9 Months Ended
	Sep. 30, 2013
Notes to Financial Statements	'
(11) Litigation	'
	In view of the inherent difficulty of predicting the outcome of litigation, particularly where the claimants seek very large or indeterminate damages, the Company generally cannot predict what the eventual outcome of the pending matters will be, what the timing of the ultimate resolution of these matters will be, or what the eventual loss, fines or penalties related to each pending matter may be.
	In accordance with the authoritative guidance issued by the FASB on contingencies, the Company accrues anticipated costs of settlement, damages and losses for claims to the extent specific losses are probable and estimable. The Company records a receivable for insurance recoveries when such amounts are probable and collectable. In such cases, there may be an exposure to loss in excess of any amounts accrued. If, at the time of evaluation, the loss contingency related to a litigation is not both probable and estimable, the matter will continue to be monitored for further developments that would make such loss contingency both probable and estimable and, the Company will expense these costs as incurred. If the estimate of a probable loss is a range and no amount within the range is more likely, the Company will accrue the minimum amount of the range.
	The Internal and Government Investigations
	As previously disclosed, both the United States Attorney’s Office for the Eastern District of New York (“USAO”) and the Securities and Exchange Commission (“SEC”) commenced investigations of the Company in October, 2010, in response to the Company’s announcement that it had accepted the resignation of ReiJane Huai, its President and Chief Executive Officer, and the Chairman of its Board of Directors, following his disclosure to the Company that certain improper payments allegedly were made in connection with the Company’s licensing of software to one customer.
	The Company conducted its own investigation into the matter and cooperated with the USAO and SEC investigations.
	On June 27, 2012, the Company announced that it had entered into settlements with the USAO and the SEC.
	The Company entered into a Deferred Prosecution Agreement (DPA) with the USAO. Under the DPA, the USAO agreed that it will defer prosecution of the Company in connection with the matter, and ultimately not prosecute the Company if the Company satisfies its obligations during the 18 month term of the DPA. The DPA acknowledges the remedial actions taken by the Company in response to its discovery of the improper payments and does not require the Company to make any additional control or compliance changes. Under the DPA, the Company will forfeit $2.9 million over eighteen months.
	The Company agreed with the SEC to the entry of a Consent Judgment (CJ) to settle a civil action filed by the SEC. Pursuant to the CJ, the Company agreed not to violate the anti-fraud and registration provisions of Sections 17(a)(2), 5(a) and 5(c) of the Securities Act of 1933, and the books and records provisions of Sections 13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act of 1934. The Company further agreed to pay a civil penalty of $2.9 million to the SEC.
	As of September 30, 2013, the Company has paid a total of $4.1 million of the total $5.8 million, for which the Company had previously accrued. The balance of $1.7 million is payable in December 2013.
	Stockholder Litigation
	The Company is a defendant in a class action lawsuit brought in United Stated District Court for the Eastern District of New York, by Company shareholders (the “Class Action”). The other defendants are James Weber, our former CFO and Vice President for Operations, and the estate of ReiJane Huai. Mr. Huai was the Company’s former Chairman, President and CEO.
	The Class Action complaint alleges that the defendants defrauded shareholders by falsely certifying in the Company’s SEC filings that they had disclosed any fraud, whether or not material, that involved management or other employees who had a significant role in the registrant’s internal control over financial reporting. The Class Action complaint alleges that the defendants were in fact aware of fraud.
	In January, 2013, the parties to the Class Action reached an agreement in principle to settle the Class Action. Pursuant to a Memorandum of Understanding signed by counsel for the class plaintiffs and by counsel for all defendants, the Company will pay $5.0 million to settle the Class Action. This amount includes damages, plaintiffs’ attorneys’ fees, and costs of administration of the settlement. The Company expects to pay this settlement with cash on hand. A stipulation of settlement and a joint motion for preliminary approval of the settlement were submitted to the court for its approval on June 14, 2013. On October 29, 2013, the District Court gave preliminary approval to the settlement and as a result we expect to deposit $5.0 million into an escrow account, where it will be held pending final settlement, in the fourth quarter of 2013.
	Company stockholders filed actions in the Suffolk County Division of the Supreme Court of the State of New York, putatively derivatively on behalf of the Company, against the Company, each of the Company’s Directors, Mr. Weber, Wayne Lam, a former Vice president of the Company, the estate of Mr. Huai, and Jason Lin, a former employee of the Company (the “Derivative Action”). The consolidated amended Derivative Action complaint alleged that the defendants breached their duties to the Company by: (1) causing or allowing the dissemination of false and misleading information; (2) failing to maintain internal controls; (3) failing to manage the Company properly; (4) unjustly enriching themselves; (5) abusing their control of the Company; and (6) wasting Company assets.
	On March 5, 2013, the Suffolk County Division of the Supreme Court of the State of New York granted a motion made by all of the defendants in the Derivative Action, except Mr. Lin, and dismissed the Derivative Action as to all defendants other than Mr. Lin. The stockholders have filed a notice of appeal of the dismissal of the Derivative Action. The Company cannot predict when the appeal will be resolved or the ultimate outcome of the matter. Certain of the defendants may be entitled to indemnification by the Company under the laws of Delaware and/or the Company’s by-laws.
	The Company has insurance policies that were purchased to cover, among other things, lawsuits like the Class Action and the Derivative Action. The Company’s Directors and Officers (“D&O”) Insurance, is composed of more than one layer, each layer written by a different insurance company. However, the events that gave rise to the claims in the Class Action and the Derivative Action caused the Company’s insurers to reserve their rights to disclaim, rescind, or otherwise not be obligated to provide coverage to the Company and certain other insureds under the policies. In light of these uncertainties, the Company has entered into settlements with two of its insurers. Pursuant to these settlements, the Company will not receive repayment of all amounts it might otherwise have received.
	In October, 2012, the Company entered into an agreement with the carrier of the first $5.0 million layer of the Company’s D&O insurance. Pursuant to this agreement, the Company accepted a payment of $3.9 million from the first layer insurance carrier in satisfaction of the carrier’s obligations to the Company under the first layer D&O insurance policy. In addition, as part of the October 2012 agreement with the carrier, the Company agreed to indemnify the carrier of the first layer of D&O insurance against potential claims by certain named insured persons under the first layer D&O insurance policy. The Company cannot predict the likelihood or the outcome of any such claims by the named insureds.
	Because the carrier of the next layer of insurance would not be obligated to make payment to the Company until the full $5.0 million first layer limit had been exhausted, this means that the Company was responsible for $1.1 million out of pocket before it could again seek reimbursement from its insurers. We accrued for the $1.1 million during 2012.
	On July 31, 2013 the Company entered into an agreement with the carrier of the second $5.0 million layer of the Company’s D&O insurance. Pursuant to the agreement, the insurer agreed to pay seventy five percent (75%) of the Company’s losses attributable to the Class Action and the Derivative Action above the first $5.25 million of such losses. In addition, as part of the July 31, 2013 agreement with the carrier, the Company agreed to indemnify the carrier of the second layer of D&O insurance against potential claims by certain named insured persons under the second layer D&O insurance. The agreement with the carrier is contingent on final approval of the Class Action settlement. The Company cannot predict the likelihood or the outcome of any such claims by the named insureds.
	While, at present, the Company does not believe that the amounts it will pay in connection with the Class Action and the Derivative Action will exceed the limits of the first two layers of its coverage, there can be no assurance that if the Company seeks recovery from the additional layers, the recovery the Company makes on the remainder of its insurance will be adequate to cover the costs of its defense or settlement of the Class Action, or any damages that might ultimately be awarded against the Company or anyone to whom the Company might owe indemnification if the settlement is not approved by the court. The Company’s insurers may deny coverage under the policies. If the Company’s insurance recovery is not adequate to cover the costs of defense, settlement, damages and/or indemnification, or its insurers deny coverage, the amounts to be paid by the Company could have a significant negative impact on its financial results, its cash flows and its cash balances.
	The Company’s remaining insurers may deny coverage under the policies. If the plaintiffs are awarded damages and the Company’s insurance is not adequate to cover the amounts, or its insurers deny coverage, the amounts to be paid by the Company could have a significant negative impact on our financial results, our cash flow and our cash reserves.
	To date, the Company has recorded $6.9 million of total costs associated with the Class Action and the Derivative Actions. The Company has recorded a liability in the amount of $5.0 million in “accrued expenses” in the condensed consolidated balance sheets as of September 30, 2013 which includes estimated costs of resolutions for both the Class Action and the Derivative Action to date. As a result of the agreement reached with the insurance carrier for the first layer of the Company’s D&O insurance carrier in the prior year, the Company has recorded an insurance recovery in 2012 of approximately $3.9 million of legal expenses previously incurred related to the class action and derivative lawsuits as well as the potential settlement of the class action lawsuit. The $3.9 million insurance recovery was reimbursed by the Company’s insurance carrier during 2012. As a result of the agreement reached with the insurer of the Company’s next layer of D&O insurance, the Company has recorded a $0.9 million receivable in “prepaid expenses and other current assets” in the condensed consolidated balance sheet as of September 30, 2013 as collection is deemed probable. The $0.9 million receivable was reimbursed by the Company’s insurance carrier in October 2013.
	During the three and nine months ended September 30, 2013, our total investigation, litigation, and settlement related costs consisted of $0.1 million and $0.3 million, respectively, of net legal expenses related to the class action and derivative lawsuits and other settlement related activities that are not recoverable through insurance.
	Avazpour Litigation
	The Company was the defendant in an action brought by Avazpour Networking Services, Inc., and its former principals (collectively, “Avazpour”), in the United States District Court for the Eastern District of New York. Avazpour alleged that the Company gave grossly negligent advice in connection with an upgrade of Avazpour’s storage system resulting in damages to Avazpour and breached its contract with Avazpour. On March 13, 2013, the Court granted the Company’s motion to dismiss all of the claims except for the claim of breach of contract. In June, 2013, the Company and the Avazpour reached an agreement in principle to settle the claim for $250,000. As a result of the settlement, the action was dismissed on September 17, 2013. Pursuant to the Company’s insurance, the Company is responsible for the first $100,000 of costs associated with this action.
	Other Claims
	The Company is subject to various legal proceedings and claims, asserted or unasserted, which arise in the ordinary course of business. While the outcome of any such matters cannot be predicted with certainty, such matters are not expected to have a material adverse effect on the Company’s financial condition or operating results.
	The Company continues to assess certain litigation and claims to determine the amounts, if any, that the Company believes may be paid as a result of such claims and litigation and, therefore, additional losses may be accrued and paid in the future, which could materially adversely impact the Company’s financial results, its cash flows and its cash reserves.

12_Segment_Reporting

(12) Segment Reporting	9 Months Ended
	Sep. 30, 2013
Notes to Financial Statements	'
(12) Segment Reporting	'
	The Company is organized in a single operating segment for purposes of making operating decisions and assessing performance. Revenues from the United States to customers in the following geographical areas for the three and nine months ended September 30, 2013 and 2012, and the location of long-lived assets as of September 30, 2013 and December 31, 2012, are summarized as follows:
		Three Months Ended September 30,		Nine Months Ended September 30,
	Revenues:	2013	2012	2013	2012
	Americas	$         5,973,198	$         6,359,024	$       17,604,779	$       21,560,761
	Asia Pacific	3,983,078	5,906,013	13,094,120	16,650,814
	Europe, Middle East, Africa and Other	4,773,762	4,823,976	13,290,095	14,711,711
	Total Revenues	$       14,730,038	$       17,089,013	$       43,988,994	$       52,923,286
		September 30,	December 31,
	Long-lived assets:	2013	2012
	Americas	$       10,541,715	$       10,263,056
	Asia Pacific	893,437	1,041,470
	Europe, Middle East, Africa and Other	591,693	434,353
	Total long-lived assets	$       12,026,845	$       11,738,879
	For the three months ended September 30, 2013 the Company had one customer that accounted for 10% or more of total revenues. For the three months ended September 30, 2012 the Company did not have any customers that accounted for 10% or more of total revenues. As of September 30, 2013, the Company had two customers that accounted for 10% and 12% of the accounts receivable balance. As of December 31, 2012, the Company had one customer that accounted for 20% of the accounts receivable balance.
	Due to cash collections of previously reserved accounts receivable balances, the Company recorded benefits of less than $0.1 million and $0.2 million during the three months ended September 30, 2013 and 2012, respectively, and benefits of $0.1 million and $0.5 million during the nine months ended September 30, 2013 and 2012, respectively. These amounts are included within revenues in the accompanying condensed consolidated statement of operations.

13_Restructuring_Costs

(13) Restructuring Costs	9 Months Ended
	Sep. 30, 2013
Restructuring and Related Activities [Abstract]	'
(13) Restructuring Costs	'
	From time to time, the Company has undertaken restructuring and expense control measures to support its business performance and to align the Company’s cost structure with its resources. In the third quarter of 2013, the Company adopted a restructuring plan intended to better align the Company’s cost structure with the skills and resources required to more effectively execute the Company’s long-term growth strategy and to support revenue levels we expect to achieve on a go forward basis. In connection with the 2013 Plan the Company plans to eliminate over 100 positions worldwide, implement tighter expense controls, cease non-core activities and close several facilities. The 2013 Plan is expected to be completed during the first half of 2014. As of September 30, 2013 the Company had eliminated 75 positions worldwide. The total amount incurred under the 2013 Plan, during the third quarter, was $2.3 million of which $1.3 million was paid during the third quarter of 2013. This is an ongoing initiative and the Company expects to incur additional restructuring costs during the fourth quarter of 2013 and into the first half of 2014
	In July 2012, the Company undertook certain restructuring activities that included a workforce reduction of approximately 35 positions worldwide (the “2012 Plan”). These actions were intended to better align the Company’s cost structure with the skills and resources required to more effectively execute the Company’s long-term growth strategy and to support the anticipated revenue levels we expect to achieve on a go forward basis. The total amount incurred with respect to severance under the 2012 Plan was $0.8 million. Actions under the 2012 Plan were substantially completed during the third quarter of 2012.
	Accrued restructuring costs associated with the 2013 and 2012 Plans are as follows:
		Reconciliation of Aggregate Liability Recorded for
		Restructuring Costs Under the 2013 Plan
		December 31,		Utilization/	September 30,
		2012	Provisions	Payments	2013
	Severance related costs	$                      -	$        2,212,769	$        1,346,215	$           866,554
	Facility and other costs	-	78,062	25,289	52,773
	Total Restructuring Costs	$                      -	$        2,290,831	$        1,371,504	$           919,327
		Reconciliation of Aggregate Liability Recorded for
		Restructuring Costs Under the 2012 Plan
		December 31,			September 30,
		2012	Provisions	Payments	2013
	Severance related costs	$                  478	$                      -	$                  478	$                      -
	The severance related liabilities and facility abandonment liabilities are included within “accrued expenses” in the accompanying condensed consolidated balance sheets. The expenses under the 2013 Plan and the 2012 Plan are included within “restructuring costs” in the accompanying condensed consolidated statements of operations. The accrued payments remaining under the 2013 Plan are expected to be paid at various times throughout the fourth quarter of 2013 and the first half of 2014. There were no remaining payments under the 2012 Plan as of September 30, 2013.

1_Summary_of_Significant_Accou1

(1) Summary of Significant Accounting Policies (Policies)	9 Months Ended
	Sep. 30, 2013
Notes to Financial Statements	'
(a) The Company and Nature of Operations	'
	FalconStor Software, Inc., a Delaware Corporation (the "Company"), develops, manufactures and sells data protection solutions and provides the related maintenance, implementation and engineering services.
(b) Principles of Consolidation	'
	The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.
(c) Reclassifications	'
	Certain prior year’s amounts have been reclassified to conform to the current year presentation. Certain costs previously recorded within “selling and marketing” are now presented within “research and development” to better align these costs with functions performed.
(d) Use of Estimates	'
	The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company’s significant estimates include those related to revenue recognition, accounts receivable allowances, share-based payment compensation, cost-based investments, marketable securities, valuation of embedded derivatives, software development costs, goodwill and other intangible assets and income taxes. Actual results could differ from those estimates.
	The financial market volatility in many countries where the Company operates has impacted and may continue to impact the Company’s business. Such conditions could have a material impact to the Company’s significant accounting estimates discussed above.
(e) Unaudited Interim Financial Information	'
	The accompanying unaudited interim condensed consolidated financial statements have been prepared, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations relating to interim financial statements.
	In the opinion of management, the accompanying unaudited interim condensed consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the financial position of the Company at September 30, 2013, and the results of its operations for the three and nine months ended September 30, 2013 and 2012. The results of operations of any interim period are not necessarily indicative of the results of operations to be expected for the full fiscal year.
(f) Cash Equivalents, Restricted Cash and Marketable Securities	'
	The Company considers all highly liquid investments with maturities of three months or less when purchased to be cash equivalents. The Company records its cash equivalents and marketable securities at fair value in accordance with the authoritative guidance issued by the Financial Accounting Standards Board (“FASB”) on fair value measurements and disclosures. As of September 30, 2013 and December 31, 2012, the Company’s cash equivalents consisted of money market funds. At September 30, 2013 and December 31, 2012, the fair value of the Company’s cash equivalents amounted to approximately $12.6 million and $4.3 million, respectively.
	As of September 30, 2013 and December 31, 2012, the Company had $0.8 million of restricted cash. The restricted cash serves as collateral related to deposit service indebtedness with the Company’s commercial bank. As of September 30, 2013 and December 31, 2012, the Company did not have any debt service indebtedness with the Company’s bank.
	As of September 30, 2013 and December 31, 2012, the Company’s marketable securities consisted of corporate bond and government securities. As of September 30, 2013 and December 31, 2012, the fair value of the Company’s current marketable securities was approximately $5.8 million and $10.5 million, respectively. All of the Company’s marketable securities are classified as available-for-sale, and accordingly, unrealized gains and losses on marketable securities, net of tax, are reflected as a component of accumulated other comprehensive loss in stockholders’ equity. Any other-than-temporary impairments are recorded within interest and other (loss) income, net in the condensed consolidated statement of operations. See Note (5) Marketable Securities for additional information.
(g) Fair Value of Financial Instruments	'
	Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. To increase the comparability of fair value measurements, a three-tier fair value hierarchy, which prioritizes the inputs used in the valuation methodologies, is as follows:
	Level 1—Valuations based on quoted prices for identical assets and liabilities in active markets.
	Level 2—Valuations based on observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.
	Level 3—Valuations based on unobservable inputs reflecting our own assumptions, consistent with reasonably available assumptions made by other market participants. These valuations require significant judgment.
	As of September 30, 2013 and December 31, 2012, the fair value of the Company’s financial instruments including cash and cash equivalents, accounts receivable, accounts payable, and accrued expenses, approximated carrying value due to the short maturity of these instruments. See Note (4) Fair Value Measurements for additional information.
h) Derivative Financial Instruments	'
	The Company does not use derivative instruments to hedge exposures to cash flow, market or foreign currency risk. Terms of convertible preferred stock are reviewed to determine whether or not they contain embedded derivative instruments that are required under FASB ASC 815 “Derivatives and Hedging” (“ASC 815”) to be accounted for separately from the host contract, and recorded on the balance sheet at fair value. The fair value of derivatives are required to be revalued at each reporting date, with corresponding changes in fair value recorded in current period operating results.
(i) Revenue Recognition	'
	The Company derives its revenue from sales of its products, support and services. Product revenue consists of the Company’s software integrated with industry standard hardware and sold as complete turn-key integrated solutions. Product revenue also consists of stand-alone software applications. Support and services revenue consists of both maintenance revenues and professional services revenues. Revenue is recorded net of applicable sales taxes.
	In accordance with the authoritative guidance issued by the FASB on revenue recognition, the Company recognizes revenue from product sales when persuasive evidence of an arrangement exists, the fee is fixed and determinable, the product is delivered, and collection of the resulting receivable is deemed probable. Products delivered to a customer on a trial basis are not recognized as revenue until a permanent key code is delivered to the customer. Reseller customers typically send the Company a purchase order when they have an end user identified. For bundled arrangements that include either maintenance or both maintenance and professional services, the Company uses the residual method to determine the amount of product revenue to be recognized. Under the residual method, consideration is allocated to the undelivered elements based upon vendor-specific objective evidence (“VSOE”) of the fair value of those elements, with the residual of the arrangement fee allocated to and recognized as product revenue. The long-term portion of deferred revenue relates to maintenance contracts with terms in excess of one year. The Company provides an allowance for product returns as a reduction of revenue, based upon historical experience and known or expected trends.
	Revenues associated with maintenance services are deferred and recognized as revenue ratably over the term of the contract. Revenues associated with software implementation and software engineering services are recognized when the services are performed. Costs of providing these services are included in cost of support and services.
	The Company has entered into various distribution, licensing and joint promotion agreements with OEMs, whereby the Company has provided to the OEM a non-exclusive software license to install the Company’s software on certain hardware or to resell the Company’s software in exchange for payments based on the products distributed by these OEMs. Such payments from these OEMs or distributors are recognized as revenue in the period reported by the OEM.
	From time to time the Company will enter into funded software development arrangements. Under such arrangements, revenue recognition will not commence until final delivery and/or acceptance of the product. For arrangements where the Company has VSOE for the undelivered elements, the Company will follow the residual method and recognize product revenue upon final delivery and/or acceptance of the product. For arrangements where the Company does not have VSOE for the undelivered elements, the Company will recognize the entire arrangement fee ratably commencing at the time of final delivery and/or acceptance through the end of the service period in the arrangement.
(j) Property and Equipment	'
	Property and equipment are recorded at cost. Depreciation is recognized using the straight-line method over the estimated useful lives of the assets (3 to 7 years). For the three months ended September 30, 2013 and 2012, depreciation expense was $570,711 and $631,009, respectively. For the nine months ended September 30, 2013 and 2012, depreciation expense was $1,719,139 and $2,137,809, respectively. Leasehold improvements are amortized on a straight-line basis over the term of the respective leases or over their estimated useful lives, whichever is shorter.
(k) Goodwill and Other Intangible Assets	'
	Goodwill represents the excess of the purchase price over the estimated fair value of net tangible and identifiable intangible assets acquired in business combinations. The Company has not amortized goodwill related to its acquisitions, but instead tests the balance for impairment. The Company evaluates goodwill for impairment annually or more frequently when an event occurs or circumstances change that indicate that the carrying value may not be recoverable. The Company tests goodwill for impairment by first comparing the book value of net assets to the fair value of the reporting unit. If the fair value is determined to be less than the book value or qualitative factors indicate that it is more likely than not that goodwill is impaired, a second step is performed to compute the amount of impairment as the difference between the estimated fair value of goodwill and the carrying value.
	The Company’s annual impairment assessment is performed during the fourth quarter of each year, and the Company has determined there to be no impairment for any of the periods presented. Identifiable intangible assets include (i) assets acquired through business combinations, which include customer contracts and intellectual property, and (ii) patents amortized over three years using the straight-line method.
	For the three months ended September 30, 2013 and 2012, amortization expense was $34,108 and $30,175, respectively. For the nine months ended September 30, 2013 and 2012, amortization expense was $91,337 and $88,424, respectively. The gross carrying amount and accumulated amortization of other intangible assets as of September 30, 2013 and December 31, 2012 are as follows:
		September 30,		December 31,
		2013		2012
	Goodwill	$        4,150,339		$        4,150,339
	Other intangible assets:
	Gross carrying amount	$        3,229,144		$        3,128,588
	Accumulated amortization	(3,045,499)		(2,954,162)
	Net carrying amount	$           183,645		$           174,426
(l) Software Development Costs and Purchased Software Technology	'
	In accordance with the authoritative guidance issued by the FASB on costs of software to be sold, leased, or marketed, costs associated with the development of new software products and enhancements to existing software products are expensed as incurred until technological feasibility of the product has been established. Based on the Company’s product development process, technological feasibility is established upon completion of a working model. Amortization of software development costs is recorded at the greater of the straight-line basis over the product’s estimated life, or the ratio of current revenue of the related products to total current and anticipated future revenue of these products. During the three and nine months ended September 30, 2013, the Company capitalized $582,872 and $830,301, respectively, of costs associated with software development projects. During the three and nine months ended September 30, 2012, the Company capitalized $0 and $461,555, respectively, of costs associated with software development projects. During the three months ended September 30, 2013 and 2012, the Company recorded $82,063 and $82,063, respectively, of amortization expense related to capitalized software costs. During the nine months ended September 30, 2013 and 2012, the Company recorded $246,188 and $219,201, respectively, of amortization expense related to capitalized software costs.
(m) Income Taxes	'
	The Company records income taxes under the liability method. Deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be realized or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. In determining the period in which related tax benefits are realized for financial reporting purposes, excess share-based compensation deductions included in net operating losses are realized after regular net operating losses are exhausted.
	The Company accounts for uncertain tax positions in accordance with the authoritative guidance issued by the FASB on income taxes, which addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return, should be recorded in the financial statements. Pursuant to the authoritative guidance, the Company may recognize the tax benefit from an uncertain tax position only if it meets the “more likely than not” threshold that the position will be sustained on examination by the taxing authority, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. In addition, the authoritative guidance addresses de-recognition, classification, interest and penalties on income taxes, accounting in interim periods, and also requires increased disclosures. The Company includes interest and penalties related to its uncertain tax positions as part of income tax expense within its consolidated statement of operations. See Note (3) Income Taxes for additional information.
(n) Long-Lived Assets	'
	The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. If the sum of the expected future cash flows, undiscounted and without interest, is less than the carrying amount of the asset, an impairment loss is recognized as the amount by which the carrying amount of the asset exceeds its fair value.
(o) Share-Based Payments	'
	The Company accounts for share-based payments in accordance with the authoritative guidance issued by the FASB on share-based compensation, which establishes the accounting for transactions in which an entity exchanges its equity instruments for goods or services. Under the provisions of the authoritative guidance, share-based compensation expense is measured at the grant date, based on the fair value of the award, and is recognized as an expense over the requisite employee service period (generally the vesting period), net of estimated forfeitures. The Company estimates the fair value of share-based payments using the Black-Scholes option-pricing model. The estimation of share-based awards that will ultimately vest requires judgment, and to the extent actual results or updated estimates differ from the Company’s current estimates, such amounts will be recorded as a cumulative adjustment in the period estimates are revised. The Company considers many factors when estimating expected forfeitures, including types of awards, employee class and historical experience. Additionally, share-based awards to non-employees are expensed over the period in which the related services are rendered at their fair value. All share-based awards are expected to be fulfilled with new shares of common stock. See Note (2) Share-Based Payment Arrangements for additional information.
(p) Foreign Currency	'
	Assets and liabilities of foreign operations are translated at rates of exchange at the end of the period, while results of operations are translated at average exchange rates in effect for the period. Gains and losses from the translation of foreign assets and liabilities from the functional currency of the Company’s subsidiaries into the U.S. dollar are classified as accumulated other comprehensive loss in stockholders’ equity. Gains and losses from foreign currency transactions are included in the condensed consolidated statements of operations within interest and other (loss) income, net.
	During the three months ended September 30, 2013, foreign currency transactional losses totaled less than $0.1 million, compared to a foreign currency transactional gain of $0.1 million for the three months ended September 30, 2012. During the nine months ended September 30, 2013 and 2012, foreign currency transactional losses totaled approximately $0.9 million and $0.2 million, respectively.
(q) Earnings Per Share (EPS)	'
	Basic EPS is computed based on the weighted average number of shares of common stock outstanding. Diluted EPS is computed based on the weighted average number of common shares outstanding increased by dilutive common stock equivalents, attributable to stock option awards, restricted stock awards, restricted stock unit awards and redeemable convertible preferred stock outstanding. Due to the net loss for the three and nine months ended September 30, 2013 and 2012, all common stock equivalents, totaling 18,119,241 and 12,611,396, respectively, were excluded from diluted net loss per share because they were anti-dilutive. The common stock equivalents consist of 9,337,725 of outstanding stock option and restricted stock awards and 8,781,516 related to outstanding redeemable convertible preferred stock for the three and nine months ended September 30, 2013 and 12,611,396 of outstanding stock option and restricted stock awards for the three and nine months ended September 30, 2012.
	The following represents a reconciliation of the numerators and denominators of the basic and diluted EPS computation:
		Three Months Ended September 30,						Nine Months Ended September 30,
	Numerator	2013			2012			2013			2012
	Net loss	$	(2,219,663	)	$	(3,568,051	)	$	(11,807,401	)	$	(12,638,045	)
	Effects of redeemable convertible preferred stock:
	Less: Preferred stock dividends		28,875			—			28,875			—
	Less: Accretion to redemption value of Series A preferred stock		17,061			—			17,061			—
	Net loss attributable to common stockholders	$	(2,265,599	)	$	(3,568,051	)	$	(11,853,337	)	$	(12,638,045	)
	Denominator
	Basic shares outstanding		48,024,916			47,542,304			47,961,853			47,353,922
	Effect of dilutive securities:
	Stock options and restricted stock		—			—			—			—
	Preferred Stock		—			—			—			—
	Diluted shares outstanding		48,024,916			47,542,304			47,961,853			47,353,922
	EPS
	Basic net loss per share  attributable to common stockholders	$	(0.05	)	$	(0.08	)	$	(0.25	)	$	(0.27	)
	Diluted net loss per share  attributable common stockholders	$	(0.05	)	$	(0.08	)	$	(0.25	)	$	(0.27	)
(r) Investments	'
	As of September 30, 2013 and December 31, 2012, the Company maintained certain cost-method investments aggregating approximately $0.9 million, which are included within “other assets” in the accompanying condensed consolidated balance sheets. During the three and nine months ended September 30, 2013 and 2012, the Company did not recognize any impairment charges related to any of its cost-method investments.
	On August 7, 2013, the Company signed an Equity Transfer Agreement, to sell its interest in Tianjin Zhongke Blue Whale Information Technologies Co., Ltd. (“Blue Whale”), a Chinese joint venture, for $3.0 million. Closing of the sale is subject to certain conditions, including the approval of the appropriate government entities in China. There can be no guarantee that this transaction will close.
(s) Treasury Stock	'
	The Company accounts for treasury stock under the cost method and includes treasury stock as a component of stockholders’ equity.
(t) New Accounting Pronouncements	'
	In February 2013, the Financial Accounting Standards Board (“FASB”) issued new guidance which requires companies to present information about reclassification adjustments from accumulated other comprehensive income in their financial statements or footnotes. The adoption of this new accounting guidance in the first quarter of 2013 did not have a material impact on our consolidated financial position, results of operations or cash flows. See Note (10) Accumulated Other Comprehensive Loss for the related disclosure.
	In July 2013, the FASB issued new guidance which requires the netting of an unrecognized tax benefit, or a portion of an unrecognized tax benefit, against a deferred tax asset for a net operating loss carry forward, a similar tax loss, or a tax credit carry forward if such settlement is required or expected in the event the uncertain tax position is disallowed. The new guidance is effective prospectively to all existing unrecognized tax benefits, but entities can choose to apply it retrospectively. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2013, which for the Company will be the first quarter of 2014. We do not expect the adoption of the new guidance by the Company to have a material impact on our financial results.

1_Summary_of_Significant_Accou2

(1) Summary of Significant Accounting Policies (Tables)	9 Months Ended
	Sep. 30, 2013
Notes to Financial Statements	'
Schedule Of Intangible Assets And Goodwill	'
		September 30,		December 31,
		2013		2012
	Goodwill	$        4,150,339		$        4,150,339
	Other intangible assets:
	Gross carrying amount	$        3,229,144		$        3,128,588
	Accumulated amortization	(3,045,499)		(2,954,162)
	Net carrying amount	$           183,645		$           174,426
Computation of Earnings Per Share	'
		Three Months Ended September 30,						Nine Months Ended September 30,
	Numerator	2013			2012			2013			2012
	Net loss	$	(2,219,663	)	$	(3,568,051	)	$	(11,807,401	)	$	(12,638,045	)
	Effects of redeemable convertible preferred stock:
	Less: Preferred stock dividends		28,875			—			28,875			—
	Less: Accretion to redemption value of Series A preferred stock		17,061			—			17,061			—
	Net loss attributable to common stockholders	$	(2,265,599	)	$	(3,568,051	)	$	(11,853,337	)	$	(12,638,045	)
	Denominator
	Basic shares outstanding		48,024,916			47,542,304			47,961,853			47,353,922
	Effect of dilutive securities:
	Stock options and restricted stock		—			—			—			—
	Preferred Stock		—			—			—			—
	Diluted shares outstanding		48,024,916			47,542,304			47,961,853			47,353,922
	EPS
	Basic net loss per share  attributable to common stockholders	$	(0.05	)	$	(0.08	)	$	(0.25	)	$	(0.27	)
	Diluted net loss per share  attributable common stockholders	$	(0.05	)	$	(0.08	)	$	(0.25	)	$	(0.27	)

2_ShareBased_Payment_Arrangeme1

(2) Share-Based Payment Arrangements (Tables)	9 Months Ended
	Sep. 30, 2013
Notes to Financial Statements	'
Details of Stock Option Plan	'
		Shares	Shares Available	Shares	Last Date for Grant
	Name of Plan	Authorized	for Grant	Outstanding	of Shares
	FalconStor Software, Inc., 2006 Incentive Stock Plan	13,455,546	3,480,696	7,314,498	17-May-16
	FalconStor Software, Inc., 2013 Outside Directors Equity
	Compensation Plan	400,000	350,000	50,000	9-May-16
Schedule of Equity Awards Outstanding	'
		Shares Available	Shares
	Name of Plan	for Grant	Outstanding
	FalconStor Software, Inc., 2000 Stock Option Plan	--	1,562,727
	2004 Outside Directors Stock Option Plan	--	190,000
	FalconStor Software, Inc., 2007 Outside Directors Equity	--	170,000
	Compensation Plan
	FalconStor Software, Inc., 2010 Outside Directors Equity	--	50,500
	Compensation Plan
Schedule of Stock Option Activity	'
				Weighted
			Weighted	Average
			Average	Remaining	Aggregate
		Number of	Exercise	Contractual	Intrinsic
		Options	Price	Life  (Years)	Value
	Options Outstanding at December 31, 2012	11,360,842	$4.66
	Granted	70,000	$2.31
	Exercised	(310,000)	$2.25
	Forfeited	(224,795)	$4.56
	Expired	(20,000)	$3.96
	Options Outstanding at March 31, 2013	10,876,047	$4.72	6.13	$       1,136,141
	Granted	1,812,000	$1.38
	Exercised	-	$0.00
	Forfeited	(1,334,592)	$4.04
	Expired	(152,500)	$5.44
	Options Outstanding at June 30, 2013	11,200,955	$4.25	5.93	$            15,505
	Granted	15,000	$1.15
	Exercised	-	$0.00
	Forfeited	(2,473,830)	$3.46
	Expired	(10,000)	$6.30
	Options Outstanding at September 30, 2013	8,732,125	$4.47	5.77	$              2,550
	Options Exercisable at September 30, 2013	5,854,660	$5.68	4.17	$                      -
Schedule Of Share Based Compensation Recognized	'
		Three months ended September 30,		Nine months ended September 30,
		2013	2012	2013	2012
	Cost of revenues - Product	$                 82	$               113	$               181	$               212
	Cost of revenues - Support and Service	7,990	53,314	112,182	103,158
	Research and development costs	69,542	127,982	291,480	572,170
	Selling and marketing	(56,838)	388,167	215,352	1,272,823
	General and administrative	142,636	486,202	675,747	1,645,793
		$        163,412	$     1,055,778	$     1,294,942	$     3,594,156
Stock Based Compensation Expense - Restricted Stock	'
		Three months ended September 30,		Nine months ended September 30,
		2013	2012	2013	2012
	Directors, officers and employees	$          82,689	$          82,284	$        178,437	$        489,864
	Non-employee consultants	-	13,488	-	13,488
		$          82,689	$          95,772	$        178,437	$        503,352
Schedule of Restricted Stock Units Activity	'
		Number of
		Restricted Stock
		Awards
	Non-Vested at December 31, 2012	171,190
	Granted	-
	Vested	(48,570)
	Forfeited	(4,590)
	Non-Vested at March 31, 2013	118,030
	Granted	50,000
	Vested	(45,410)
	Forfeited	-
	Non-Vested at June 30, 2013	122,620
	Granted	500,000
	Vested	(17,020)
	Forfeited	-
	Non-Vested at September 30, 2013	605,600
Schedule Of Share Based Compensation - Nonemployee	'
		Three months ended September 30,		Nine months ended September 30,
		2013	2012	2013	2012
	Non-qualified stock options	$        36,942	$         (15,527)	$    36,942	$             14,403
	Restricted stock awards	-	13,488	-	13,488
		$        36,942	$           (2,039)	$    36,942	$             27,891

4_Fair_Value_Measurements_Tabl

(4) Fair Value Measurements (Tables)	9 Months Ended
	Sep. 30, 2013
Notes to Financial Statements	'
Schedule Of Fair Value Assets Measured On Recurring Basis	'
	The following table presents the Company’s assets that are measured at fair value on a recurring basis at September 30, 2013:
			Fair Value Measurements at Reporting Date Using
			Quoted Prices in		Significant
			Active Markets for	Significant other	Unobservable
			Identical Assets	Inputs	Inputs
		Total	(Level 1)	(Level 2)	(Level 3)
	Cash equivalents:
	Money market funds	$          12,610,504	$          12,610,504	$                           -	$                           -
	Total cash equivalents	12,610,504	12,610,504	-	-
	Marketable securities:
	Corporate debt and government securities	5,764,839	-	5,764,839	-
	Total marketable securities	5,764,839	-	5,764,839	-
	Derivative liabilities:
	Derivative Instruments	170,337	-	-	170,337
	Total derivative liabilities	170,337	-	-	170,337
	Total assets measured at fair value	$          18,545,680	$          12,610,504	$            5,764,839	$               170,337
	The following table presents the Company’s assets that are measured at fair value on a recurring basis at December 31, 2012:
			Fair Value Measurements at Reporting Date Using
			Quoted Prices in		Significant
			Active Markets for	Significant other	Unobservable
			Identical Assets	Inputs	Inputs
		Total	(Level 1)	(Level 2)	(Level 3)
	Cash equivalents:
	Money market funds	$            4,285,309	$            4,285,309	$                           -	$                           -
	Total cash equivalents	4,285,309	4,285,309	-	-
	Marketable securities:
	Corporate debt and government securities	10,530,942	-	10,530,942	-
	Total marketable securities	10,530,942	-	10,530,942	-
	Total assets measured at fair value	$          14,816,251	$            4,285,309	$          10,530,942	$                           -

5_Marketable_Securities_Tables

(5) Marketable Securities (Tables)	9 Months Ended
	Sep. 30, 2013
Notes to Financial Statements	'
Schedule Of Available For Sale Securities	'
	The cost and fair values of the Company’s available-for-sale marketable securities as of September 30, 2013, are as follows:
		Aggregate		Cost or Amortized		Net Unrealized
		Fair Value		Cost		Gains
	Government securities	$	5,513,519	$	5,511,008	$	2,511
	Corporate debt securities		251,320		251,378		(58	)
		$	5,764,839	$	5,762,386	$	2,453
	The cost and fair values of the Company’s available-for-sale marketable securities as of December 31, 2012, are as follows:
		Aggregate		Cost or Amortized		Net Unrealized
		Fair Value		Cost		Gains
	Government securities	$	8,328,392	$	8,324,372	$	4,020
	Corporate debt securities		2,202,550		2,200,360		2,190
		$	10,530,942	$	10,524,732	$	6,210

6_Inventories_Tables

(6) Inventories (Tables)	9 Months Ended
	Sep. 30, 2013
Notes to Financial Statements	'
Schedule Of Inventory	'
		September 30,		December 31,
		2013		2012
	Component materials	$	11,835	$	18,989
	Finished systems		740,605		623,830
	Total Inventory	$	752,440	$	642,819

8_Commitments_and_Contingencie1

(8) Commitments and Contingencies (Tables)	9 Months Ended
	Sep. 30, 2013
Notes to Financial Statements	'
Schedule Of Future Minimum Payments For Operating Leases	'
		2013	$	775,338
		2014		2,649,036
		2015		1,795,247
		2016		1,518,099
		2017		1,464,247
		Thereafter		5,036,525
			$	13,238,492

10_Accumulated_Other_Comprehen1

(10) Accumulated Other Comprehensive Loss (Tables)	9 Months Ended
	Sep. 30, 2013
Accumulated Other Comprehensive Loss Tables	'
Schedule of accumulated other comprehensive loss	'
					Net Unrealized
		Foreign Currency			Gains on Marketable			Net Minimum
		Translation			Securities			Pension Liability			Total
	Accumulated other comprehensive (loss) income at June 30, 2013	$	(1,586,348	)	$	4,760		$	(56,068	)	$	(1,637,656	)
	Other comprehensive (loss) income
	Other comprehensive (loss) income		(932	)		(1,961	)		829			(2,064	)
	before reclassifications
	Amounts reclassified from accumulated		—			(346	)		2,136			1,790
	other comprehensive (loss) income
	Total other comprehensive (loss) income		(932	)		(2,307	)		2,965			(274	)
	Accumulated other comprehensive (loss) income at September 30, 2013	$	(1,587,280	)	$	2,453		$	(53,103	)	$	(1,637,930	)
					Net Unrealized
		Foreign Currency			Gains on Marketable			Net Minimum
		Translation			Securities			Pension Liability			Total
	Accumulated other comprehensive (loss) income at January 1, 2013	$	(1,601,138	)	$	6,210		$	(55,122	)	$	(1,650,050	)
	Other comprehensive income (loss)
	Other comprehensive income (loss)		13,858			(212	)		(4,388	)		9,258
	before reclassifications
	Amounts reclassified from accumulated		—			(3,545	)		6,407			2,862
	other comprehensive income
	Total other comprehensive income (loss)		13,858			(3,757	)		2,019			12,120
	Accumulated other comprehensive (loss) income at September 30, 2013	$	(1,587,280	)	$	2,453		$	(53,103	)	$	(1,637,930	)

12_Segment_Reporting_Tables

(12) Segment Reporting (Tables)	9 Months Ended
	Sep. 30, 2013
Notes to Financial Statements	'
Schedule Of Revenues And Long Lived Assets By Geographical Areas	'
		Three Months Ended September 30,		Nine Months Ended September 30,
	Revenues:	2013	2012	2013	2012
	Americas	$         5,973,198	$         6,359,024	$       17,604,779	$       21,560,761
	Asia Pacific	3,983,078	5,906,013	13,094,120	16,650,814
	Europe, Middle East, Africa and Other	4,773,762	4,823,976	13,290,095	14,711,711
	Total Revenues	$       14,730,038	$       17,089,013	$       43,988,994	$       52,923,286
		September 30,	December 31,
	Long-lived assets:	2013	2012
	Americas	$       10,541,715	$       10,263,056
	Asia Pacific	893,437	1,041,470
	Europe, Middle East, Africa and Other	591,693	434,353
	Total long-lived assets	$       12,026,845	$       11,738,879

13_Restructuring_Costs_Tables

(13) Restructuring Costs (Tables)	9 Months Ended
	Sep. 30, 2013
Restructuring Costs Tables	'
Schedule Of Restructuring Costs	'
		Reconciliation of Aggregate Liability Recorded for
		Restructuring Costs Under the 2013 Plan
		December 31,		Utilization/	September 30,
		2012	Provisions	Payments	2013
	Severance related costs	$                      -	$        2,212,769	$        1,346,215	$           866,554
	Facility and other costs	-	78,062	25,289	52,773
	Total Restructuring Costs	$                      -	$        2,290,831	$        1,371,504	$           919,327
		Reconciliation of Aggregate Liability Recorded for
		Restructuring Costs Under the 2012 Plan
		December 31,			September 30,
		2012	Provisions	Payments	2013
	Severance related costs	$                  478	$                      -	$                  478	$                      -

1_Summary_of_Significant_Accou3

(1) Summary of Significant Accounting Policies (Details) (USD $)	Sep. 30, 2013	Dec. 31, 2012
Notes to Financial Statements	'	'
Goodwill	$4,150,339	$4,150,339
Other intangible assets	'	'
Gross carrying amount	3,229,144	3,128,588
Accumulated amortization	-3,045,499	-2,954,162
Net carrying amount	$183,645	$174,426

1_Summary_of_Significant_Accou4

(1) Summary of Significant Accounting Policies (Details 1) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
Numerator	'	'	'	'
Net Loss	($2,219,663)	($3,568,051)	($11,807,401)	($12,638,045)
Effects of redeemable convertible preferred stock:	'	'	'	'
Less: Preferred stock dividends	28,875	0	28,875	0
Less: Accretion to redemption value of Series A preferred stock	17,061	0	17,061	0
Net loss attributable to common stockholder	($2,265,599)	($3,568,051)	($11,853,337)	($12,638,045)
Denominator	'	'	'	'
Basic shares outstanding	48,024,916	47,542,304	47,961,853	47,353,922
Effect of dilutive securities:	'	'	'	'
Stock options and restricted stock	0	0	0	0
Preferred Stock	0	0	0	0
Diluted Shares Outstanding	48,024,916	47,542,304	47,961,853	47,353,922
EPS	'	'	'	'
Basic net loss per share attributable to common stockholders	($0.05)	($0.08)	($0.25)	($0.27)
Diluted net loss per share attributable to common stockholders	($0.05)	($0.08)	($0.25)	($0.27)

1_Summary_of_Significant_Accou5

(1) Summary of Significant Accounting Policies (Details Narrative) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012	Dec. 31, 2012
Cash And Cash Equivalents Fair Value	$12,610,504	'	$12,610,504	'	$4,285,309
Restricted cash	750,000	'	750,000	'	750,000
Marketable Securities Fair Value	5,764,839	'	5,764,839	'	10,530,942
Depreciation Expense	570,711	631,009	1,719,139	2,137,809	'
Amortization Expense	34,108	30,175	91,337	88,424	'
Patents amortized over three years	'P3Y	'P3Y	'P3Y	'P3Y	'
Capitalized Software Development Costs	582,872	0	830,301	461,555	'
Capitalized Computer Software Amortization	82,063	82,063	246,188	219,201	'
Foreign Currency Transaction Gain (Loss)	-100,000	100,000	-900,000	-200,000	'
Common stock equivalents excluded from diluted net loss per share	18,119,241	12,611,396	18,119,241	12,611,396	'
Cost method investments	900,000	'	900,000	'	900,000
Equity Transfer Agreement for possible sale of Blue Whale	$3,000,000	'	'	'	'
Stock option and restricted stock Awards	'	'	'	'	'
Common stock equivalents excluded from diluted net loss per share	9,337,725	12,611,396	9,337,725	12,611,396	'
Redeemable convertible preferred stock	'	'	'	'	'
Common stock equivalents excluded from diluted net loss per share	8,781,516	'	8,781,516	'	'
Minimum	'	'	'	'	'
Estimated useful lives of the assets	'	'	'3 years	'3 years	'
Maximum	'	'	'	'	'
Estimated useful lives of the assets	'	'	'7 years	'7 years	'

2_ShareBased_Payment_Arrangeme2

(2) Share-Based Payment Arrangements (Details)	Sep. 30, 2013	Jun. 30, 2013	Mar. 31, 2013	Dec. 31, 2012	Sep. 30, 2013	Jun. 30, 2013	Sep. 30, 2013
					FalconStor Software, Inc., 2006 Incentive Stock Plan Member	FalconStor Software, Inc., 2006 Incentive Stock Plan Member	FalconStor Software, Inc., 2013 Outside Directors Equity Compensation Plan
Shares Authorized	'	'	'	'	'	13,455,546	400,000
Shares Available for grant	'	'	'	'	'	3,480,696	350,000
Shares Outstanding	8,732,125	11,200,955	10,876,047	11,360,842	'	7,314,498	50,000
Last date for grant of shares	'	'	'	'	17-May-16	'	9-May-16

2_ShareBased_Payment_Arrangeme3

(2) Share-Based Payment Arrangements (Details 1)	Sep. 30, 2013	Jun. 30, 2013	Mar. 31, 2013	Dec. 31, 2012
Shares outstanding	8,732,125	11,200,955	10,876,047	11,360,842
FalconStor Software, Inc., 2000 Stock Option Plan Member	'	'	'	'
Shares Available for grant	0	'	'	'
Shares outstanding	1,562,727	'	'	'
2004 Outside Directors Stock Option Plan Member	'	'	'	'
Shares Available for grant	0	'	'	'
Shares outstanding	190,000	'	'	'
FalconStor Software, Inc., 2007 Outside Directors Equity Compensation Plan Member	'	'	'	'
Shares Available for grant	0	'	'	'
Shares outstanding	170,000	'	'	'
FalconStor 2010 Outside Directors Equity Compensation Plan	'	'	'	'
Shares Available for grant	0	'	'	'
Shares outstanding	50,500	'	'	'

2_ShareBased_Payment_Arrangeme4

(2) Share-Based Payment Arrangements (Details 2) (USD $)	3 Months Ended				9 Months Ended
	Sep. 30, 2013	Jun. 30, 2013	Mar. 31, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
Notes to Financial Statements	'	'	'	'	'	'
Number of Options Outstanding, Beginning	11,200,955	10,876,047	11,360,842	'	11,360,842	'
Number of Options Granted	15,000	1,812,000	70,000	'	'	'
Number of Options Exercised	0	0	310,000	'	'	'
Number of Options Forfeited	-2,473,830	-1,334,592	-224,795	'	'	'
Number of Options Expired	-10,000	-152,500	-20,000	'	'	'
Number of Options Outstanding, Ending	8,732,125	11,200,955	10,876,047	'	8,732,125	'
Number of Options Exercisable	5,854,660	'	'	'	5,854,660	'
Weighted Average Exercise Price Outstanding, Beginning	$4.25	$4.72	$4.66	'	$4.66	'
Weighted Average Exercise Price Granted	$1.15	$1.38	$2.31	'	'	'
Weighted Average Exercise Price Exercised	$0	$0	$2.25	'	'	'
Weighted Average Exercise Price Forfeited	$3.46	$4.04	$4.56	'	'	'
Weighted Average Exercise Price Expired	$6.30	$5.44	$3.96	'	'	'
Weighted Average Exercise Price Outstanding, Ending	$4.47	$4.25	$4.72	'	$4.47	'
Weighted Average Exercise Price Exercisable	$5.68	'	'	'	$5.68	'
Weighted Average Remaining Contractual Life (in years) Outstanding	'5 years 9 months 7 days	'5 years 11 months 5 days	'6 years 1 month 17 days	'	'	'
Weighted Average Remaining Contractual Life (in years) Exercisable	'4 years 2 months 1 day	'	'	'	'	'
Aggregate Intrinsic Value Outstanding, Beginning	$15,505	$1,136,141	'	'	'	'
Aggregate Intrinsic Value Exercised	0	0	'	0	121,819	266,862
Aggregate Intrinsic Value Outstanding, Ending	2,550	15,505	1,136,141	'	2,550	'
Aggregate Intrinsic Value Exercisable	$0	'	'	'	$0	'

2_ShareBased_Payment_Arrangeme5

(2) Share-Based Payment Arrangements (Details 3) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
Recognized share-based compensation expense	$163,412	$1,055,778	$1,294,942	$3,594,156
Cost of revenues - Product	'	'	'	'
Recognized share-based compensation expense	82	113	181	212
Cost of revenues - Support and Service Member	'	'	'	'
Recognized share-based compensation expense	7,990	53,314	112,182	103,158
Research and development costs Member	'	'	'	'
Recognized share-based compensation expense	69,542	127,982	291,480	572,170
Selling and marketing Member	'	'	'	'
Recognized share-based compensation expense	-56,838	388,167	215,352	1,272,823
General and administrative Member	'	'	'	'
Recognized share-based compensation expense	$142,636	$486,202	$675,747	$1,645,793

2_ShareBased_Payment_Arrangeme6

(2) Share-Based Payment Arrangements (Details 4) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
Notes to Financial Statements	'	'	'	'
Directors, officers and employees	$82,689	$82,284	$178,437	$489,864
Non-employee consultants	0	13,488	0	13,488
Total restricted stock expense	$82,689	$95,772	$178,437	$503,352

2_ShareBased_Payment_Arrangeme7

(2) Share-Based Payment Arrangements (Details 5)	3 Months Ended
	Sep. 30, 2013	Jun. 30, 2013	Mar. 31, 2013
Notes to Financial Statements	'	'	'
Number of Restricted Stock Awards/Units Non-Vested, Beginning	122,620	118,030	171,190
Granted	500,000	50,000	0
Vested	-17,020	-45,410	-48,570
Forfeited	0	0	-4,590
Number of Restricted Stock Awards/Units Non-Vested Ending	605,600	122,620	118,030

2_ShareBased_Payment_Arrangeme8

(2) Share-Based Payment Arrangements (Details 6) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
Notes to Financial Statements	'	'	'	'
Non-qualified stock options	$36,942	($15,527)	$36,942	$14,403
Restricted stock awards	0	13,488	0	13,488
Total Share Based Compensation - Nonemployee	$36,942	($2,039)	$36,942	$27,891

2_ShareBased_Payment_Arrangeme9

(2) Share-Based Payment Arrangements (Details Narrative) (USD $)	3 Months Ended			9 Months Ended
	Sep. 30, 2013	Jun. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012	Dec. 31, 2012
Common stock, shares outstanding	48,031,737	'	'	48,031,737	'	47,610,737
Proceeds From Stock Options Exercised	$0	'	$0	$697,500	$624,155	'
Intrinsic Value of Stock Options Exercised	0	0	0	121,819	266,862	'
Total unrecognized compensation	2,861,722	'	'	2,861,722	'	'
Intrinsic value of restricted stock for which the restrictions lapsed during the period	$17,585	'	$53,312	$203,082	$1,092,051	'
Options Contractual term	'	'	'	'10 years	'	'
Vesting period for options granted	'	'	'	'3 years	'	'
FalconStor Software, Inc., 2006 Incentive Stock Plan Member	'	'	'	'	'	'
Total shares available for issuance under the FalconStor Software, Inc., 2006 Incentive Stock Plan, prior to increase	'	1,169,323	'	'	'	'
Total shares available for issuance under the FalconStor Software, Inc., 2006 Incentive Stock Plan, subsequent to increase	'	2,400,736	'	'	'	'
Common stock, shares outstanding	'	48,014,717	'	'	'	'
Minimum Percentage of shares outstanding under 2006 Plan	'	'	'	5.00%	'	'
Increase in shares available for issuance under 2006 Plan	1,231,413	'	'	1,231,413	'	'
NonEmployee | Maximum	'	'	'	'	'	'
Options Contractual term	'10 years	'	'	'	'	'
Vesting period for options granted	'3 years	'	'	'	'	'
FalconStor Software, Inc., 2013 Outside Directors Equity Compensation Plan	'	'	'	'	'	'
Shares available for issuance upon the vesting of options	'	'	'	400,000	'	'

Recovered_Sheet1

(2) Share-Based Payment Arrangements (Details Narrative 1)	9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012
Restricted Stock	'	'
Restricted stock issued	3,426,068	2,876,068
Restricted stock vested	2,342,837	2,219,456
Restricted stock forfeited	477,631	472,539
Restricted Stock Unit	'	'
Restricted stock issued	90,412	90,412
Restricted stock vested	79,065	79,065
Restricted stock forfeited	11,347	11,347

3_Income_Taxes_Details_Narrati

(3) Income Taxes (Details Narrative) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012	Dec. 31, 2012
Notes to Financial Statements	'	'	'	'	'
Income Tax Provision	($1,946,689)	$83,073	($1,600,836)	$490,888	'
Effective Income Tax Rate	'	'	11.90%	'	'
Pre-Tax Loss	-4,166,352	-3,484,978	-13,408,237	-12,147,157	'
Reversal of unrecognized tax benefits due to the expiration of applicable statutes of limitations	'	'	2,100,000	'	'
Valuation Allowance	41,900,000	'	41,900,000	'	'
Unrecognized Tax Benefits	3,300,000	'	3,300,000	'	5,100,000
Accrued Interest and Penalties	96,000	'	96,000	'	373,000
Unrecognized Tax Benefits that Would Impact Effective Tax Rate	$400,000	'	$400,000	'	'

4_Fair_Value_Measurements_Deta

(4) Fair Value Measurements (Details) (USD $)	Sep. 30, 2013	Dec. 31, 2012
Cash equivalents:	'	'
Total cash equivalents	$12,610,504	$4,285,309
Marketable securities:	'	'
Total marketable securities	5,764,839	10,530,942
Derivative liabilities:	'	'
Total derivative liabilities	170,337	0
Total assets measured at fair value	18,375,343	14,816,251
Fair Value, Inputs, Level 1	'	'
Cash equivalents:	'	'
Total cash equivalents	12,610,504	4,285,309
Derivative liabilities:	'	'
Total assets measured at fair value	12,610,504	4,285,309
Fair Value, Inputs, Level 2	'	'
Marketable securities:	'	'
Total marketable securities	5,764,839	10,530,942
Derivative liabilities:	'	'
Total assets measured at fair value	5,764,839	10,530,942
Fair Value, Inputs, Level 3	'	'
Derivative liabilities:	'	'
Total derivative liabilities	170,337	0
Money Market Funds	'	'
Cash equivalents:	'	'
Total cash equivalents	12,610,504	4,285,309
Money Market Funds | Fair Value, Inputs, Level 1	'	'
Cash equivalents:	'	'
Total cash equivalents	12,610,504	4,285,309
Money Market Funds | Fair Value, Inputs, Level 2	'	'
Cash equivalents:	'	'
Total cash equivalents	0	0
Money Market Funds | Fair Value, Inputs, Level 3	'	'
Cash equivalents:	'	'
Total cash equivalents	0	0
Corporate Debt Securities Member	'	'
Marketable securities:	'	'
Total marketable securities	5,764,839	10,530,942
Corporate Debt Securities Member | Fair Value, Inputs, Level 1	'	'
Marketable securities:	'	'
Total marketable securities	0	0
Corporate Debt Securities Member | Fair Value, Inputs, Level 2	'	'
Marketable securities:	'	'
Total marketable securities	5,764,839	10,530,942
Corporate Debt Securities Member | Fair Value, Inputs, Level 3	'	'
Marketable securities:	'	'
Total marketable securities	0	0
Derivatives	'	'
Derivative liabilities:	'	'
Total derivative liabilities	170,337	'
Derivatives | Fair Value, Inputs, Level 1	'	'
Derivative liabilities:	'	'
Total derivative liabilities	0	'
Derivatives | Fair Value, Inputs, Level 2	'	'
Derivative liabilities:	'	'
Total derivative liabilities	0	'
Derivatives | Fair Value, Inputs, Level 3	'	'
Derivative liabilities:	'	'
Total derivative liabilities	$170,337	'

4_Fair_Value_Measurements_Deta1

(4) Fair Value Measurements (Details Narrative) (USD $)	Sep. 30, 2013	Dec. 31, 2012
Money Market Funds - Level 1	$12,610,504	$4,285,309
Government Securities and Corporate Debt Securities - Level 2	5,764,839	10,530,942
Derivatives at fair value - Level 3	170,337	0
Money Market Funds	'	'
Money Market Funds - Level 1	12,610,504	4,285,309
Derivatives	'	'
Derivatives at fair value - Level 3	170,337	'
Fair Value, Inputs, Level 1	'	'
Money Market Funds - Level 1	12,610,504	4,285,309
Fair Value, Inputs, Level 1 | Money Market Funds	'	'
Money Market Funds - Level 1	12,610,504	4,285,309
Fair Value, Inputs, Level 1 | Derivatives	'	'
Derivatives at fair value - Level 3	0	'
Fair Value, Inputs, Level 2	'	'
Government Securities and Corporate Debt Securities - Level 2	5,764,839	10,530,942
Fair Value, Inputs, Level 2 | Money Market Funds	'	'
Money Market Funds - Level 1	0	0
Fair Value, Inputs, Level 2 | Government Securities and Corporate Debt Securities	'	'
Government Securities and Corporate Debt Securities - Level 2	5,764,839	10,530,942
Fair Value, Inputs, Level 2 | Derivatives	'	'
Derivatives at fair value - Level 3	0	'
Fair Value, Inputs, Level 3	'	'
Derivatives at fair value - Level 3	170,337	0
Fair Value, Inputs, Level 3 | Money Market Funds	'	'
Money Market Funds - Level 1	0	0
Fair Value, Inputs, Level 3 | Derivatives	'	'
Derivatives at fair value - Level 3	$170,337	'

5_Marketable_Securities_Detail

(5) Marketable Securities (Details) (USD $)	9 Months Ended	12 Months Ended
	Sep. 30, 2013	Dec. 31, 2012
Aggregate Fair Value	$5,764,839	$10,530,942
Cost or Amortized Cost	5,762,386	10,524,732
Net Unrealized Gains / (loss)	2,453	6,210
Government Securities Member	'	'
Aggregate Fair Value	5,513,519	8,328,392
Cost or Amortized Cost	5,511,008	8,324,372
Net Unrealized Gains / (loss)	2,511	4,020
Corporate Debt Securities Member	'	'
Aggregate Fair Value	251,320	2,202,550
Cost or Amortized Cost	251,378	2,200,360
Net Unrealized Gains / (loss)	($58)	$2,190

6_Inventories_Details

(6) Inventories (Details) (USD $)	Sep. 30, 2013	Dec. 31, 2012
Notes to Financial Statements	'	'
Component materials	$11,835	$18,989
Finished systems	740,605	623,830
Total Inventory	$752,440	$642,819

7_Stockholders_Equity_Details_

(7) Stockholders' Equity (Details Narrative) (USD $)	3 Months Ended		9 Months Ended		141 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Feb. 28, 2009
Stockholders Equity Details Narrative	'	'	'	'	'	'
Authorization for the repurchase of common stock	'	'	'	'	'	14,000,000
Total shares repurchased	0	0	0	0	8,005,235	'
Payment for shares repurchased since October 2001	'	'	'	'	$46,916,339	'

8_Commitments_and_Contingencie2

(8) Commitments and Contingencies (Details) (USD $)	Sep. 30, 2013
Operating Lease Payment	'
2013	$775,338
2014	2,649,036
2015	1,795,247
2016	1,518,099
2017	1,464,247
Thereafter	5,036,525
Total Future Minimum Lease Payments Due	$13,238,492

8_Commitments_and_Contingencie3

(8) Commitments and Contingencies (Details Narrative) (USD $)	9 Months Ended	3 Months Ended
	Sep. 30, 2013	Sep. 30, 2013	Jul. 23, 2013	Jan. 20, 2013
		Agreement with Violin Memory	Quinn Employment Agreement	Proposed Settlement Class Action Lawsuit
Warranty on software products	'The Company typically provides its customers a warranty on its software products for a period of no more than 90 days.	'	'	'
Annual salary President and Chief Executive Officer of the Company effective July 23, 2013 through July 22, 2015	'	'	$400,000	'
Severance pay	400,000	'	'	'
Settlement with United States Attorney's Office amount liability, payable in December 2013	1,700,000	'	'	'
Class Action lawsuit between the Company and class plaintiffs proposed settlement	'	'	'	5,000,000
Restricted shares grants	'	'	500,000	'
Restricted shares vesting period	'	'	'2 years	'
Percentage of shares vested in Year 1	'	'	50.00%	'
Percentage of shares vested in Year 2	'	'	50.00%	'
Licensing agreement with Violin Memory	'	1,200,000	'	'
Proceeds from licensing agreement	'	3,000,000	'	'
Proceeds from licensing agreement contingent upon successful development	'	$6,000,000	'	'

9_Redeemable_Convertible_Prefe1

(9) Redeemable Convertible Preferred Stock (Details Narrative) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012	Dec. 31, 2012	Sep. 16, 2013
						Hale Capital Partners, LP
Redeemable convertible preferred stock, par value	$0.00	'	$0.00	'	$0.00	$0.00
Redeemable convertible preferred stock, shares authorized	2,000,000	'	2,000,000	'	2,000,000	'
Series A redeemable convertible preferred stock	900,000	'	900,000	'	0	900,000
Series A redeemable convertible preferred stock, par value	$0.00	'	$0.00	'	$0.00	$0.00
Series A redeemable convertible preferred stock, price per share	'	'	'	'	'	$10
Series A redeemable convertible preferred stock, purchase consideration (in millions)	$9,000,000	'	$9,000,000	'	$0	$9,000,000
Redeemable convertible preferred stock conversion price	'	'	'	'	'	$1.02
Proceeds from Issuance of Redeemable Convertible Preferred Stock	8,731,677	'	8,731,677	0	'	'
Redeemable convertible preferred stock, Threshold Trading Days	'60 days	'	'60 days	'	'	'
Minimum percentage of common stock price to conversion price to determine eligibility of conversion through 60 consecutive trading days	250.00%	'	250.00%	'	'	'
Minimum percentage of common stock price to conversion price to determine eligibility of conversion	225.00%	'	225.00%	'	'	'
Daily trading volume	25.00%	'	25.00%	'	'	'
Consecutive days	'20 days	'	'20 days	'	'	'
Upon certain triggering events holders can redeem	100.00%	'	100.00%	'	'	'
Percentage of accounts receivable	80.00%	'	80.00%	'	'	'
Preferred Stock Dividend Payment Rate, Variable	'Holders of the redeemable convertible 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%)	'	'Holders of the redeemable convertible 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%)	'	'	'
Preferred stock dividend, minimum cash flow requirement	1,000,000	'	1,000,000	'	'	'
Closing stock price	$1.23	'	$1.23	'	'	'
Voting power	7,317,073	'	7,317,073	'	'	'
Temporary Equity, Accounting Treatment	'The Company has classified the redeemable convertible Preferred Stock as temporary equity in the financial statements as it is subject to redemption at the option of the holder under certain circumstances.	'	'The Company has classified the redeemable convertible Preferred Stock as temporary equity in the financial statements as it is subject to redemption at the option of the holder under certain circumstances.	'	'	'
Embedded Derivative, Fair Value of embedded Derivative Liability	170,337	'	170,337	'	0	'
Stock price on the date one day prior to the closing of the Preferred Stock Agreement	$1.23	'	$1.23	'	'	'
Stock price greater than conversion price of preferred stock	$0.21	'	$0.21	'	'	'
Debt Instrument, Convertible, Beneficial Conversion Feature	1,951,265	'	1,951,265	'	'	'
Preferred Stock, Accretion of Redemption Discount	17,061	'	17,061	'	'	'
Undistributed preferred stock dividends	28,875	0	28,875	0	'	'
Transaction costs associated with the preferred stock issuance	$268,323	'	$268,323	'	'	'

10_Accumulated_Other_Comprehen2

(10) Accumulated Other Comprehensive Loss (Details) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
Accumulated other comprehensive (loss) income at beginning of period	($1,637,656)	'	($1,650,050)	'
Other comprehensive (loss) income before reclassifications	-2,064	'	9,258	'
Amounts reclassified from accumulated other comprehensive (loss) income	1,790	'	2,862	'
Total other comprehensive (loss) income	-274	-125,438	12,120	-223,821
Accumulated other comprehensive (loss) income at end of period	-1,637,930	'	-1,637,930	'
Foreign Currency Translation	'	'	'	'
Accumulated other comprehensive (loss) income at beginning of period	-1,586,348	'	-1,601,138	'
Other comprehensive (loss) income before reclassifications	-932	'	13,858	'
Amounts reclassified from accumulated other comprehensive (loss) income	0	'	0	'
Total other comprehensive (loss) income	-932	'	13,858	'
Accumulated other comprehensive (loss) income at end of period	-1,587,280	'	-1,587,280	'
Net Unrealized Gains On Marketable Securities	'	'	'	'
Accumulated other comprehensive (loss) income at beginning of period	4,760	'	6,210	'
Other comprehensive (loss) income before reclassifications	-1,961	'	-212	'
Amounts reclassified from accumulated other comprehensive (loss) income	-346	'	-3,545	'
Total other comprehensive (loss) income	-2,307	'	-3,757	'
Accumulated other comprehensive (loss) income at end of period	2,453	'	2,453	'
Net Minimum Pension Liability	'	'	'	'
Accumulated other comprehensive (loss) income at beginning of period	-56,068	'	-55,122	'
Other comprehensive (loss) income before reclassifications	829	'	-4,388	'
Amounts reclassified from accumulated other comprehensive (loss) income	2,136	'	6,407	'
Total other comprehensive (loss) income	2,965	'	2,019	'
Accumulated other comprehensive (loss) income at end of period	($53,103)	'	($53,103)	'

11_Litigation_Details_Narrativ

(11) Litigation (Details Narrative) (USD $)	3 Months Ended	9 Months Ended	33 Months Ended
In Millions, unless otherwise specified	Sep. 30, 2013	Sep. 30, 2013	Sep. 30, 2013
Settlement with United States Attorney's Office amount accrued, payable in December 2013 (in millions)	$1.70	$1.70	$1.70
Prepaid Expenses and other current assets	'	'	'
Receivables included in prepaid expenses and other current assets (in millions)	0.9	0.9	0.9
Internal and Government Investigations	'	'	'
Deferred Prosecution Agreement (DPA) with the USAO	'	'Under the DPA, the USAO agrees that it will defer prosecution of the Company in connection with the matter, and ultimately not prosecute the Company if the Company satisfies its obligations during the 18 month term of the DPA. The DPA acknowledges the remedial actions taken by the Company in response to its discovery of the improper payments and does not require the Company to make any additional control or compliance changes. Under the DPA, the Company will forfeit $2.9 million over eighteen months.	'
Settlement with United States Attorney's Office amount paid (in millions)	'	4.1	'
Settlement amount (in millions)	'	5.8	'
Settlement with United States Attorney's Office amount accrued, payable in December 2013 (in millions)	1.7	1.7	1.7
Stockholder Litigation	'	'	'
Class Action agreement	'	'Company will pay $5.0 million to settle the Class Action	'
Company's Directors and Officers ("D&O") Insurance Agreement	'	'Company entered into an agreement with the carrier of the first $5.0 million layer of the CompanyBs D&O insurance. Pursuant to this agreement, the Company accepted a payment of $3.9 million from the first layer insurance carrier in satisfaction of the carrierBs obligations to the Company under the first layer D&O insurance policy. The combined costs of (i) defense of the Class Action and the Derivative Action, and (ii) the proposed $5.0 million settlement of the Class Action exceeds $3.9 million, and the Company is responsible for paying the next $1.1 million of costs, settlement amounts or liability up to $5.0 million, before the next layer of the CompanyBs D&O insurance might cover the Company. This $5.0 million payment, when and if made, will negatively impact its cash flows and its cash reserves when paid. In addition, as part of the October 2012 agreement with the carrier, the Company agreed to indemnify the carrier of the first layer of D&O insurance against potential claims by certain named insured persons under the first layer D&O insurance policy. The Company cannot predict the likelihood or the outcome of any such claims by the named insureds.	'
Accrued liability for costs associated with the Class Action and the Derivative Actions (in millions)	5	5	5
Cost recorded associated with the Class Action and the Derivative Actions (in millions)	'	'	6.9
Total investigation, litigation, and settlement related costs related to the class action and derivative lawsuits that are not or may not be recoverable through insurance (in millions)	0.1	0.3	'
Insurance recovery (in millions)	'	$0.90	'

12_Schedule_Of_Segment_Reporti

(12) Schedule Of Segment Reporting By Geographical Areas (Details 2) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012	Dec. 31, 2012
Revenues:	'	'	'	'	'
Total Revenues	$14,730,038	$17,089,013	$43,988,994	$52,923,286	'
Long-lived assets:	'	'	'	'	'
Total long-lived assets	12,026,845	'	12,026,845	'	11,738,879
Americas	'	'	'	'	'
Revenues:	'	'	'	'	'
Total Revenues	5,973,198	6,359,024	17,604,779	21,560,761	'
Long-lived assets:	'	'	'	'	'
Total long-lived assets	10,541,715	'	10,541,715	'	10,263,056
Asia Pacific Member	'	'	'	'	'
Revenues:	'	'	'	'	'
Total Revenues	3,983,078	5,906,013	13,094,120	16,650,814	'
Long-lived assets:	'	'	'	'	'
Total long-lived assets	893,437	'	893,437	'	1,041,470
Europe, Middle East, Africa and Other Member	'	'	'	'	'
Revenues:	'	'	'	'	'
Total Revenues	4,773,762	4,823,976	13,290,095	14,711,711	'
Long-lived assets:	'	'	'	'	'
Total long-lived assets	$591,693	'	$591,693	'	$434,353

12_Segment_Reporting_Details_N

(12) Segment Reporting (Details Narrative) (USD $)	3 Months Ended		9 Months Ended
In Millions, unless otherwise specified	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Dec. 31, 2012	Sep. 30, 2013
					Customer One	Customer One	Customer Two
Percentage of accounts receivable from one major customer	'	'	'	'	10.00%	20.00%	12.00%
Percentage of revenue from one major customer	10.00%	'	'	'	'	'	'
Sales return reserve (benefit) expense	($0.10)	($0.20)	($0.10)	($0.50)	'	'	'

13_Schedule_Of_Restructuring_C

(13) Schedule Of Restructuring Costs (Details) (USD $)	9 Months Ended
	Sep. 30, 2013	Sep. 30, 2013	Sep. 30, 2013	Sep. 30, 2012
	Restructuring Costs Under the 2013 Plan	Restructuring Costs Under the 2013 Plan	Restructuring Costs Under the 2013 Plan	Restructuring Costs Under the 2012 Plan
	Severance related costs	Facility and other costs	Total Restructuring Costs	Severance related costs
Beginning Balance	$0	$0	$0	$478
Provisions	2,212,769	78,062	2,290,831	0
Payments/utilization	1,346,215	25,289	1,371,504	478
Ending Balance	$866,554	$52,773	$919,327	$0

13_Restructuring_Costs_Details

(13) Restructuring Costs (Details Narrative) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
			Positions	Positions
Restructuring Costs Details Narrative	'	'	'	'
Restructuring Costs	$2,290,831	$770,749	$2,290,831	$770,749
Expected workforce reduction	'	'	100	'
Workforce reduction	'	'	75	35