The following Management's Discussion and Analysis of Financial Condition and
Results of Operations contains "forward-looking statements" within the meaning
of Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. These forward-looking statements can be identified by the
use of predictive, future-tense or forward-looking terminology, such as
"believes," "anticipates," "expects," "estimates," "plans," "may," "intends,"
"will," or similar terms. Investors are cautioned that any forward-looking
statements are not guarantees of future performance and involve significant
risks and uncertainties, and that actual results may differ materially from
those projected in the forward-looking statements. The following discussion
should be read together with the consolidated financial statements and notes to
those financial statements included elsewhere in this report.

OVERVIEW

FalconStor Software, Inc., a Delaware corporation ("we", the "Company" or
"FalconStor") is a trusted data protection software leader modernizing disaster
recovery and backup operations for the hybrid cloud world. The Company enables
enterprise customers and managed service providers to secure, migrate, and
protect their data while reducing data storage and long-term retention costs by
up to 95%. More than 1,000 organizations and managed service providers worldwide
standardize on FalconStor as the foundation for their cloud first data
protection future. Our products are offered through and supported by a worldwide
network of leading managed service providers ("MSPs"), systems integrators,
resellers, and original equipment manufacturers ("OEMs").

Our products address a demand for enterprise data protection driven by the
manner in which consumers and businesses are increasingly interacting in a
digital space through multiple devices, networks and platforms. The onset of the
coronavirus pandemic accelerated this shift, as ongoing remote work and work
from home arrangements introduced novel challenges to maintaining enterprise
data security. The adoption of increased employee mobility and flexible remote
work arrangements, such as a broader incorporation of cloud technology and the
option for employees to use their own devices, has introduced additional
vulnerabilities that businesses must monitor and protect through solutions like
ours in order to maintain enterprise data integrity.

Our products are utilized by enterprises and MSPs to address two key areas of
enterprise data protection: (i) long-term data retention and recovery, and (ii)
data replication to preserve business continuity. Our integration with modern
cloud-based data storage environments, such as IBM PowerVS Cloud, AWS and
Microsoft Azure, enables our enterprise customers to significantly reduce costs
and improve the portability, security and accessibility of their enterprise
data. We believe this accessibility is key in our modern world, where data must
be protected and intelligently leveraged to facilitate learning, improve product
design and drive competitive advantage. Our products can be used regardless of
the underlying hardware, cloud and source-data, which enables our enterprise
customers to leverage their existing hardware and software investments.

Since the beginning of 2020, we have focused our go-to-market efforts on
long-term data retention and recovery data protection segments. In 2021, we
increased our go-to-market investment within our core regions of the Americas,
EMEA, Japan, Korea, and Southeast Asia, and released StorSafeTM, the next
generation of our Virtual Tape Library ("VTL") product family built for MSPs. In
2022, we secured a key strategic relationship with IBM to optimize data
protection for on-premises and cloud-native workloads that operate on the IBM
Power Systems platform.

During the fourth quarter of 2022, we continued to deliver innovation and to
enhance each of our products. Our StorSafeTM solution is a vital backup
long-term archive retention tool in enterprise IT departments' data protection
arsenal and for MSPs that provide data protection as a service to enterprise
companies. It enables them to modernize their backup and archive environments,
leverage efficient hybrid- and public-cloud storage environments, such as those
provided by IBM PowerVS Cloud, AWS and Microsoft Azure, save operational costs,
and improve restore performance for rapid remote disaster recovery.

Through StorSafeTM, we are making progress expanding our technology to deliver
an enterprise-class, highly flexible and efficient backup and long-term data
storage optimization solution for the hybrid cloud world.

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Beyond our long-term retention and reinstatement products, our StorGuardTM
business continuity driven data replication solution gives our customers the
ability to move workloads to the right destination, on-premises or in the cloud,
with advanced insight. This solution is designed for MSPs and enterprise
organizations with complex, heterogeneous IT environments and the full spectrum
of data management use cases, including but not limited to large enterprises,
universities, health care entities and governmental institutions. StorGuardTM is
a modern, comprehensive and easy-to-use software solution that enables IT
professionals to have complete insight into and control over their
organization's data.

To provide for greater ease of use for all our products, we also made
significant enhancements to our central data management console, now called
StorSightTM, to interface with each of our products to provide a holistic view
of an enterprise's entire data protection environment - whether on-premises in
data centers, in the public cloud, or a hybrid - as well as the key analytics,
reports and dashboards our customers need to continuously optimize their
operations.

FalconStor continues to focus on MSPs, enterprise customers, and OEM partners.
These markets offer the most significant opportunity and are best suited to
realize the value of FalconStor products, and provide an efficient and effective
access to broad, worldwide markets. Most of our revenue comes from sales to MSPs
and to enterprise customers through resellers.

Our "Business Partner" program for our MSPs and resellers provides financial
incentives for those partners that are willing to make a commitment to
FalconStor through training, marketing and revenue. As part of our review of all
of our operations to maximize savings without sacrificing sales, and in
connection with our Business Partner program, we continually review our
relationship with each of our partners in all regions. We decided to focus on
only those partners who have the expertise, personnel and networks to identify
potential customers and to service our end users.

Historically, the majority of our software licenses have been sold on a capacity
basis and have included a perpetual right to use the licensed capacity. However,
we have shifted our focus to an annual recurring revenue model through
subscription or term-based licenses, which gives a customer the right to utilize
our solutions over a designated period of time. We expect revenue from
subscription-based licensing to increase over the next several years.

Fluctuation in our revenue is driven by the volume and mix of sales from period
to period. Revenue allocated to perpetual and term software licenses are
recognized at a point in time upon electronic delivery of the download link and
the license keys, as these products have significant standalone functionality.
Product maintenance and support services are satisfied over time as they are
stand-ready obligations throughout the support period. As a result, revenues
associated with maintenance services are deferred and recognized as revenue
ratably over the term of the contract. Revenues associated with professional
services are recognized at a point in time upon customer acceptance.

During the fourth quarter of 2022, our shift to recurring revenue based revenue
took a material step forward as we continued to expand our strategic reseller
relationship with IBM. Through this strategic reseller relationship, IBM and
FalconStor co-market joint solutions consisting of FalconStor's VTL/StorSafe
software, IBM Cloud Object Storage ("COS"), and IBM Power Virtual Servers
("PowerVS") for efficient application and data migration from on-premises
environments to IBM PowerVS Cloud, and on-going SaaS-based backup and restore
within IBM PowerVS Cloud. While we expect this relationship to provide healthy
recurring revenue growth in the future as our joint solutions will be sold on a
monthly consumption basis (MRR), our accelerated focus in these types of hybrid
cloud relationships, and associated realignment of our sales teams, will
continue to contribute to total GAAP revenue fluctuations in the short-term. In
fact, GAAP total revenue in the fourth quarter of 2022 declined 28.5%
year-over-year. Given the reduction in GAAP Q4 2022 revenues, we delivered a net
income of $20,305, compared to a net loss of $333,432 in the fourth quarter of
2021, even though we managed operating costs to $2,197,875 in the quarter
compared to $3,004,891 in Q4 2021. Despite our year-over-year GAAP total revenue
decline, we believe GAAP total revenue will continue to increase each quarter
during 2023. In fact, GAAP total revenue decreased to $2,549,665 in the fourth
quarter of 2022 compared to $3,059,141 and $2,394,335 in the third and second
quarters of 2022, respectively, and we expect sequential quarter-over-quarter
GAAP total revenue to continue increasing throughout the balance of 2023.

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COVID-19

We continue to closely monitor the impact of the COVID-19 pandemic on all aspects of our business, including the impact on our operations and on the needs and operations of our customers, suppliers, vendors and business partners.



Thus far, the COVID-19 pandemic has caused and may continue to cause various
negative effects, including an inability to meet with actual or potential
customers, our end customers deciding to delay or abandon their planned
purchases or failing to make payments, and delays or disruptions in our or our
partners' supply chains. The full extent to which the COVID-19 pandemic will
directly or indirectly impact our business, results of operations and financial
condition, including sales, expenses, reserves and allowances, and
employee-related costs, will depend on future developments that are highly
uncertain, including as a result of new information that may emerge concerning
COVID-19 and the actions taken to contain or treat it, as well as the economic
impact on local, regional, national and international markets. If we, or any of
the third parties with whom we engage, were to experience shutdowns or other
business disruptions, our ability to conduct our business in the manner and on
the timelines presently planned could be materially or negatively affected,
which could have a material adverse impact on our business, results of
operations and financial condition.

RESULTS OF OPERATIONS - FOR THE YEAR ENDED DECEMBER 31, 2022 COMPARED WITH THE YEAR ENDED DECEMBER 31, 2021

For the year ended December 31, 2022, we recognized $10.1 million in revenue, as compared to $13.9 million during the prior year period, a reduction due to several large multi-year contracts in 2021 that did not repeat in 2022.



Total cost of revenue for the year ended December 31, 2022 decreased 20% to $1.6
million, compared with $2.0 million for the year ended December 31, 2021. Total
gross profit decreased $3.5 million, or 29%, to $8.5 million for the current
year, compared with $12.0 million for 2021. Total gross margin decreased to 84%
for the current year, compared with 86% for 2021. The decrease in our total
gross margin percentage was primarily due to a decrease in both product revenue
and support and service revenue, combined with a decrease in hardware product
costs as the company no longer primarily sells hardware. Generally, our total
gross profits and total gross margins fluctuate based on several factors,
including (i) revenue growth /decline levels, (ii) changes costs to provide
support and services, and (iii) our product offerings and mix of sales.

Overall, our total operating expenses decreased 16% from $11.6 million for the
year ended December 31, 2021 to $9.7 million for the year ended December 31,
2022. This decrease was primarily attributable to a decrease in selling and
marketing costs. We will continue to evaluate the appropriate headcount levels
to properly align our resources with our current and long-term outlook and to
take actions in areas of the Company that are not performing.

Our net loss for the year ended December 31, 2022 was $1.8 million, compared with a net loss of $42,253 for the previous year.



Net loss attributable to common stockholders, which includes the effects of the
Series A Preferred Stock dividends (including accrued dividends) and accretion,
was $3.3 million for the year ended December 31, 2022, compared with a net loss
of $1.5 million for the year ended December 31, 2021.

We ended the year with $2.0 million of cash and cash equivalents, compared to
$3.2 million at December 31, 2021 and deferred revenue of $5.0 million as of
December 31, 2022, compared with $6.4 million as of December 31, 2021.

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Revenue

                                      Years ended December 31,
                                       2022              2021
Revenue:
Product revenue                    $  4,246,177      $  6,988,067
Support and services revenue          5,806,071         6,946,828
Total Revenue                      $ 10,052,248      $ 13,934,895
Year-over-year percentage change
Product revenue                             (39 )%             (2 )%
Support and services revenue                (16 )%             (9 )%
Total percentage change                     (28 )%             (6 )%



Product revenue

Product revenue is comprised of sales of both licenses for our software
solutions and sales of the platforms on which the software is installed. This
includes stand-alone software applications and, on occasion, software integrated
with industry standard hardware. We no longer primarily source or sell hardware,
rather we facilitate our customers in buying their own hardware. Our products
are sold through (i) value-added resellers, (ii) distributors, and/or (iii)
directly to end-users. These revenues are recognized when all the applicable
criteria under accounting principles generally accepted in the United States are
met.

Product revenue represented 42% and 50% of our total revenue for the years ended
December 31, 2022 and 2021, respectively. Product revenue decreased 39% from
$7.0 million for the year ended December 31, 2021 to $4.2 million for the year
ended December 31, 2022, which resulted from order delays as well as entering
into several large multi-year contracts in 2021 that did not repeat in 2022.

We continue to invest in our product portfolio by refreshing and updating our
existing product lines and developing our next generation of innovative product
offerings to drive our sales volume in support of our long-term outlook.

Support and services revenue



Support and services revenue is comprised of revenue from (i) maintenance and
technical support services, (ii) professional services primarily related to the
implementation of our software, and (iii) engineering services. Revenue derived
from maintenance and technical support contracts are deferred and recognized
ratably over the contractual maintenance term. Revenues associated with
professional and engineering services are recognized at a point in time upon
customer acceptance. Support and services revenue decreased 16% from $6.9
million for the year ended December 31, 2021 to $5.8 million for the year ended
December 31, 2022. The decrease in support and services revenue from the
previous year was primarily attributable to decreases in maintenance and
technical support services revenue.

Maintenance and technical support services revenue decreased from $6.5 million
for the year ended December 31, 2021 to $5.7 million for the year ended 2022.
Our maintenance and technical support service revenue results primarily from (i)
the purchase of maintenance and support contracts by our customers, and (ii) the
renewal of maintenance and support contracts by our existing and new customers
after their initial contracts expire. The decrease in maintenance and technical
support service revenue from the previous year reflects a decline in new
contracts and renewals.

Professional services revenue decreased from $0.5 million for the year ended
December 31, 2021 to $0.1 million for the year ended December 31, 2022.
Professional services revenue will vary depending on the number of solutions for
which customers elect to purchase engineering or professional services to assist
with their implementations or other projects. We expect professional services
revenue to continue to vary from period to period based upon the number of
customers who elect to utilize our professional services upon purchasing any of
our solutions.

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Cost of revenue

                          Years ended December 31,
                            2022             2021
Cost of revenue:
Product                 $     97,270     $    325,089
Support and service        1,467,611        1,627,187
Total cost of revenue   $  1,564,881     $  1,952,276
Total Gross Profit      $  8,487,367     $ 11,982,619
Gross Margin:
Product                     98%              95%
Support and service         75%              77%
Total gross margin          84%              86%

Cost of revenue, gross profit and gross margin



Cost of product revenue consists primarily of hardware and warranty expenses.
Cost of support and service revenue consists primarily of personnel and other
costs associated with providing software implementations, technical support
under maintenance contracts and training.

Total gross profit decreased $3.5 million, or 29%, from $12.0 million for the
year ended December 31, 2021, to $8.5 million for the year ended December 31,
2022. Total gross margin decreased to 84% for the year ended December 31, 2022,
compared with 86% for the year ended December 31, 2021.

Cost of product revenue for the year ended December 31, 2022 was substantially
the same at $0.1 million compared with $0.3 million for the same period in 2021.
Product gross margin increased to 98% for the year ended December 31, 2022,
compared with 95% for the same period in 2021. Additionally, our cost of support
and service revenue for the year ended December 31, 2022 was substantially the
same at $1.5 million, compared with $1.6 million for the same period in 2021.
Support and service gross margin decreased to 75% for the year ended December
31, 2022 from 77% for the same period in 2021.

Operating Expenses

Research and Development Costs



Research and development costs consist primarily of personnel costs for product
development, and other related costs associated with the development of new
products, enhancements to existing products, quality assurance and testing.
Research and development costs decreased $0.3 million, or 10%, to $2.6 million
for the year ended December 31, 2022, from $2.8 million in 2021. The decrease in
research and development costs was primarily related to a continued decrease in
overall salaries and benefits expenses, combined with no bonus expense in 2022.

Selling and Marketing



Selling and marketing expenses consist primarily of sales and marketing
personnel and related costs, travel, public relations expense, marketing
literature and promotions, commissions, trade show expenses, and the costs
associated with our foreign sales offices. Selling and marketing expenses
decreased $1.7 million, or 29%, to $4.0 million for the year ended December 31,
2022, from $5.7 million for the year ended December 31, 2021. The decrease in
selling and marketing expenses was primarily related to commissions, promotional
campaign expenses, contractors, professional fees, and no bonus in the year
ended December 31, 2022.

Gain on Litigation Settlement

                                       35

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During the year ended December 31, 2021, we recorded a gain of $0.6 million for
a legal settlement of a contractual dispute with a marketing/sales firm. For
further information, refer to Note (13) Litigation, to our consolidated
financial statements.

General and Administrative



General and administrative expenses consist primarily of personnel costs of
general and administrative functions, public company related costs, directors'
and officers' insurance, legal and professional fees, and other general
corporate overhead costs. General and administrative expenses increased $0.3
million, or 10%, to $3.2 million for the year ended December 31, 2022, from $2.9
million for the year ended December 31, 2021. The increase in general and
administrative expenses was due primarily to additions to contractors and
professional fees, which are partially offset by an decrease in salary and
benefit expenses during the year ended December 31, 2022.

Restructuring costs



In June 2017, the Board of Directors of the Company (the "Board") approved a
comprehensive plan to increase operating performance ("the 2017 Plan"). The 2017
Plan resulted in a realignment and reduction in workforce. The 2017 Plan was
substantially completed by the end of our fiscal year ended December 31, 2017
and when combined with previous workforce reductions in the second quarter of
Fiscal 2017 reduced our workforce to approximately 81 employees at December 31,
2017. As part of this consolidation effort, the Company vacated a portion of its
former Melville, NY office space during the three months ended June 30, 2018. As
the lease has terminated in April 2021, there are no further restructuring costs
associated with this lease.

Restructuring expense decreased $0.8 million for the year ended December 31,
2022 to $744, compared to a $0.8 million restructuring charge in the prior year
period. For further information, refer to Note (14) Restructuring Costs, to our
consolidated financial statements.

Gain on Debt Extinguishment

Gain on debt extinguishment decreased to $0 for the year ended December 31, 2022, compared to $0.8 million in the prior year period. The Company's loan under the PPP was forgiven on March 30, 2021.

Interest and Other (Loss) Income, Net



Interest and other (loss) income is comprised of interest expense on our term
loan, foreign currency gains and losses and the change in fair value our
embedded derivatives. Interest and other expense, net, decreased $0.3 million
for the year ended December 31, 2022 to $0.3 million, compared to $0.7 million
for the year ended December 31, 2021. The decrease in interest and other expense
primarily relates to payments made on outstanding debt. The fluctuation in
interest and other (loss) income from quarter to quarter also relates to
interest expense, foreign currency gains and losses, interest income, sublease
income and the change in fair value of our embedded derivatives. For more
information on our derivative instruments, see Note (3) Fair Value Measurements
to our consolidated financial statements.

Income Taxes

For the year ended December 31, 2022, we recorded an income tax provision of $210,458, consisting of federal, state and local and foreign taxes. Our effective tax rate for the year ended December 31, 2022 was (13.2)%.


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LIQUIDITY AND CAPITAL RESOURCES

Principal Sources of Liquidity



Our principal sources of liquidity are our cash and cash equivalents balances
generated from operating, investing and financing activities. Our cash and cash
equivalents balance as of December 31, 2022 totaled $2.0 million, compared with
$3.2 million as of December 31, 2021.

We are currently a party to the Amended and Restated Term Loan Credit Agreement,
dated as of February 23, 2018, as amended December 27, 2019, by and between the
Company and HCP-FVA, LLC ("HCP-FVA"), (the "Amended and Restated Loan
Agreement"). In connection with the then-proposed public offering of the Company
as described in the Company's Registration Statement on Form S-1, as amended,
originally filed on June 3, 2021, we entered into the Loan Extension Letter
Agreement, which provided for an extension of the maturity date on the portion
of the outstanding indebtedness owed to Hale Capital Partners, LP ("Hale
Capital") under the Amended and Restated Loan Agreement to June 30, 2023. The
remaining principal amount outstanding, which was owed to other lenders, was
repaid in full. On July 19, 2022, we entered into a letter agreement with Hale
Capital (the "Second Loan Extension Letter Agreement"), that provided for a
subsequent extension of the maturity date on the outstanding indebtedness owed
under the Amended and Restated Loan Agreement from June 30, 2023 to December 31,
2023. See Note (7) Notes Payable to our consolidated financial statements for
more information. On February 10, 2023, the Company entered into a letter
agreement with Hale Capital to further extend the maturity date of the senior
secured debt, as described in Note (19), Subsequent Events, to our consolidated
financial statements. Also, as described further in Note (8) Series A Redeemable
Convertible Preferred Stock to our consolidated financial statements, the
effective date of the mandatory redemption right of the Company's Series A
Redeemable Convertible Preferred Stock (the "Series A Preferred Stock") held by
HCP-FVA and Hale Capital was extended from July 30, 2021 to July 30, 2023
pursuant to that certain Amendment No. 1 to the Company's Amended and Restated
Certificate of Designations, Preferences and Rights of the Series A Preferred
Stock, dated as of June 24, 2021 (as amended, the "Certificate of
Designations"). On July 19, 2022, the Company and Hale Capital entered into a
letter agreement pursuant to which Hale Capital agreed not to exercise or to
permit the exercise of the mandatory redemption right of the Series A Preferred
Stock on or prior to December 31, 2023 unless the redemption is in accordance
with Section 8(e)(z) of the Certificate of Designations or in accordance with a
Breach Event (as defined in the Certificate of Designations). If such Series A
Preferred Stock was redeemed at December 31, 2022, the Company would have been
required to pay the holders of the Series A Preferred Stock $16.0 million. See
Note (8) Series A Redeemable Convertible Preferred Stock to our consolidated
financial statements for more information. On February 10, 2023, the Company
entered into a letter agreement with Hale Capital to further extend the
redemption date of the Series A Preferred Stock, as described in Note (19),
Subsequent Events, to the consolidated financial statements.

The Amended and Restated Loan Agreement has customary representations,
warranties and affirmative and negative covenants. The negative covenants
include financial covenants relating to in-force annual contract value. The
Amended and Restated Loan Agreement also contains customary events of default,
including but not limited to payment defaults, cross defaults with certain other
indebtedness, breaches of covenants, bankruptcy events and a change of control.
In the case of an event of default, as administrative agent under the Amended
and Restated Loan Agreement, HCP-FVA, an affiliate of Hale Capital may (and upon
the written request of lenders holding in excess of 50% of the term loans, which
must include HCP-FVA, is required to) accelerate payment of all obligations
under the Amended and Restated Loan Agreement, and seek other available
remedies.

Liquidity



As of December 31, 2022, we had a working capital deficiency of $0.3 million,
which is inclusive of current deferred revenue of $3.7 million, and a
stockholders' deficit of $16.4 million. During the year ended December 31, 2022,
the Company had a net loss of $1.8 million and negative cash flow from
operations of $1.2 million. The Company's total cash balance at December 31,
2022 was $2.0 million, a decrease of $1.2 million compared to December 31, 2021.
On June 30, 2021, the Company repaid $1.3 million of the $3.5 million principal
amount that was outstanding as of June 2, 2021 under the Amended and Restated
Loan Agreement. .

Although there can be no assurance, based on its projected cash flows from
operations, recently completed financing activities, cost cutting measures in
place and existing cash on hand, the Company is projecting to have sufficient
liquidity and to be cash flow positive through the next 12 months.

                                       37
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Cash Flow Analysis

Cash flow information is as follows:



                                                         Years Ended December 31,
                                                           2022             2021
Cash provided by (used in):
Operating activities                                   $  (1,199,215 )   $  (883,529 )
Investing activities                                         (38,078 )      (182,349 )
Financing activities                                         177,149       2,332,006
Effect of exchange rate changes                             (110,003 )

(5,575 ) Net increase (decrease) in cash and cash equivalents $ (1,170,147 ) $ 1,260,553

Cash Flows from Operating Activities



For the year ended December 31, 2022, our net cash and cash equivalents used in
operating activities was $1.2 million which consisted of a net loss of $1.8
million, partially offset by cash outflows from changes in operating assets and
liabilities of $0.3 million and non-cash adjustments of $0.3 million. Non-cash
adjustments primarily consisted of depreciation and amortization, amortization
of right of use assets and deferred income tax provision. The primary drivers of
the changes in operating assets and liabilities were cash inflows from a
decrease in accounts receivable, an increase in accrued expenses and other
long-term liabilities, a decrease in contract assets, an increase in accounts
payable, and a decrease in prepaid expenses and other current assets, which were
partially offset by cash outflows from a decrease in deferred revenue.

For the year ended December 31, 2021, our net cash and cash equivalents used in
operating activities was $0.9 million which consisted of cash outflows from
changes in operating assets and liabilities of $0.7 million, non-cash
adjustments of $0.2 million and a net loss of $42,253. The primary drivers of
changes in operating assets and liabilities were cash outflows from a decrease
in deferred revenue, a decrease in operating lease liabilities, a decrease in
accrued expenses and other long-term liabilities, and an increase in contract
assets, which were partially offset by cash inflows from a decrease in other
assets and a decrease in prepaid expenses and other current assets.

Cash Flows from Investing Activities

For the year ended December 31, 2022, net cash used in investing activities was $38,078 consisting of capitalized software development costs of $35,000 and purchase of intangible assets of $3,078.



For the year ended December 31, 2021, net cash used in investing activities was
$0.2 million consisting purchases of property and equipment of $0.1 million,
capitalized software development costs of $30,000 and purchase of intangible
assets of $10,226.

Cash Flows from Financing Activities



For the year ended December 31, 2022, net cash provided by financing activities
was $0.2 million consisting of proceeds from short-term debt of $0.3 million and
payments of short-term debt of $0.1 million.

For the year ended December 31, 2021, net cash provided by financing activities
was $2.3 million consisting of proceeds from public offerings of our common
stock of $4.2 million, partially offset by payments of short-term debt of $1.3
million and payments of offering costs of $0.5 million.

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Contractual Obligations



As of December 31, 2022, our significant commitments are related to (i) the
Amended and Restated Loan Agreement, (ii) our operating leases for our office
facilities, (iii) dividends (including accrued dividends) on our Series A
Preferred Stock, and (iv) the potential redemption of the Series A Preferred
Stock as discussed above.

The following is a schedule summarizing our significant obligations to make future payments under contractual obligations as of December 31, 2022:



                                                                                                      Series A          Dividends on
                                                                   Interest        Long-Term       Preferred Stock        Series A
                                 Operating       Note Payable      Payments        Income Tax         Mandatory        Preferred Stock
                                   Leases            (a)              (a)         Payable (b)      Redemption (c)            (d)
2023                            $     34,753     $  2,429,689     $   179,027     $          -     $     9,000,000     $     9,056,178
2024                                       -                -               -          113,169                   -                   -

Total contractual obligations $ 34,753 $ 2,429,689 $ 179,027 $ 113,169 $

             -     $             -

(a)


Represents our liability under the Amended and Restated Term Loan Credit
Agreement which, as of December 31, 2022, has a maturity date of December 31,
2023. On February 10, 2023, the Company entered into a letter agreement with
Hale Capital to extend the maturity date to June 30, 2024. See Note (7), Notes
Payable, and Note (19), Subsequent Events, to our consolidated financial
statements for further information.

(b)


Represents our liability for uncertain tax positions. We are unable to make a
reasonably reliable estimate of the timing of payments due to uncertainties in
the timing of tax audit outcomes. However, the period in which the payable is
expected to reverse due to statute expiration is the second quarter of 2024.

(c)


Represents our potential liability if the holders of our Series A Preferred
Stock redeem their shares for cash. The earliest date in which a redemption
could occur was July 30, 2023. However, on July 19, 2022, the Company and Hale
Capital entered into a letter agreement pursuant to which Hale Capital agreed
not to exercise or to permit the exercise of the mandatory redemption right of
the Series A Preferred Stock on or prior to December 31, 2023 unless the
redemption is in accordance with Section 8(e)(z) of the Certificate of
Designations or in accordance with a Breach Event (as defined in the Certificate
of Designations). On February 10, 2023, the Company entered into a letter
agreement with Hale Capital to further extend the redemption date of the Series
A Preferred Stock, as described in Note (19), Subsequent Events, to our
consolidated financial statements. For further information, see Note (8) Series
A Redeemable Convertible Preferred Stock to our consolidated financial
statements.

(d)


Our agreements with the holders of the Series A Preferred Stock provide that
such holders will receive quarterly dividends on the Series A Preferred Stock at
prime rate plus 5%, subject to a maximum dividend rate of 10%. We also have the
ability to accrue and roll over dividends. Due to the lack of sufficient surplus
to pay dividends as required by the Delaware General Corporation Law, the
Company was not permitted to pay the fourth quarter 2016 dividend in cash or
common stock and has been accruing its quarterly dividends since then. This
amount represents our potential liability to pay preferred stock dividends in
cash on July 30, 2023, which was the earliest date in which the holders of our
Series A Preferred Stock could redeem their shares for cash. However, on July
19, 2022, the Company and Hale Capital entered into a letter agreement pursuant
to which Hale Capital agreed not to exercise or to permit the exercise of the
mandatory redemption right of the Series A Preferred Stock on or prior to
December 31, 2023 unless the redemption is in accordance with Section 8(e)(z) of
the Certificate of Designations or in accordance with a Breach Event (as defined
in the Certificate of Designations). On February 10, 2023, the Company entered
into a letter agreement with Hale Capital to further extend the redemption date
of the Series A Preferred Stock, as described in Note (19), Subsequent Events,
to our consolidated financial statements. For further information, see Note
(12), Series A Redeemable Convertible Preferred Stock, to our consolidated
financial statements.

Off-Balance Sheet Arrangements

As of December 31, 2022 and 2021, we had no off-balance sheet arrangements.


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Critical Accounting Policies and Estimates

Our critical accounting policies and estimates are those related to revenue recognition, accounts receivable allowances, deferred income taxes, accounting for share-based payments, goodwill and other intangible assets, software development costs, fair value measurements and litigation.



Revenue Recognition. The Company's contracts with customers often include
promises to transfer multiple products and services to a customer. Determining
whether products and services are considered distinct performance obligations
that should be accounted for separately versus together may require significant
judgment.

Judgment is required to determine the standalone selling price ("SSP") for each
distinct performance obligation. For products and services aside from
maintenance and support, the Company estimates SSP by adjusting the list price
by historical discount percentages. SSP for software and hardware maintenance
and support fees is based on the stated percentages of the fees charged for the
respective products.

The Company's perpetual and term software licenses have significant standalone
functionality and therefore revenue allocated to these performance obligations
are recognized at a point in time upon electronic delivery of the download link
and the license keys.

Product maintenance and support services are satisfied over time as they are
stand-ready obligations throughout the support period. As a result, revenues
associated with maintenance services are deferred and recognized as revenue
ratably over the term of the contract.

Revenues associated with professional services are recognized at a point in time upon customer acceptance.



Accounts Receivable. We review accounts receivable to determine which
receivables are doubtful of collection. In making the determination of the
appropriate allowance for uncollectible accounts and returns, we consider (i)
historical return rates, (ii) specific past due accounts, (iii) analysis of our
accounts receivable aging, (iv) customer payment terms, (v) historical
collections, write-offs and returns, (vi) changes in customer demand and
relationships, (vii) actual cash collections on our accounts receivables and
(viii) concentrations of credit risk and customer credit worthiness. When
determining the appropriate allowance for uncollectable accounts and returns
each period, the actual customer collections of outstanding account receivable
balances impact the required allowance for returns. We recorded a benefit and
expense of $54,044 and $72,461 for the years ended December 31, 2022 and 2021,
respectively. These amounts are included within our consolidated statement of
operations in each respective year. Changes in the product return rates, credit
worthiness of customers, general economic conditions and other factors may
impact the level of future write-offs, revenue and our general and
administrative expenses.

Income Taxes. As discussed further in Note (5) Income Taxes, to our consolidated
financial statements, in accordance with the authoritative guidance issued by
the FASB on income taxes, we regularly evaluate our ability to recover deferred
tax assets, and report such deferred tax assets at the amount that is determined
to be more-likely-than-not recoverable. The Company records income taxes under
the asset and 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.

We account 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, we 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 or under statute expirations. The tax benefits recognized in the
financial statements from such a position should be
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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 requires increased
disclosures.

Goodwill. As discussed further in Note (1) Summary of Significant Accounting
Policies, to our consolidated financial statements, we account for goodwill and
other intangible assets in accordance with the authoritative guidance issued by
the FASB on goodwill and other intangibles. The authoritative guidance requires
an impairment-only approach to accounting for goodwill and other intangibles
with an indefinite life. Absent any prior indicators of impairment, we perform
an annual impairment analysis during the fourth quarter of each of our fiscal
years.

As of both December 31, 2022 and 2021, we had $4.2 million of goodwill. As of
December 31, 2022 and 2021, we had $20,086 and $0.1 million (net of accumulated
amortization), respectively, of other identifiable intangible assets. We do not
amortize goodwill, but we assess for impairment at least annually on December
31st and more often if a trigger event occurs. In accordance with FASB
Accounting Standards Codification ("ASC") 350, "Goodwill and Other" ("ASC 350")
our goodwill impairment test includes only one step, which is a comparison of
the carrying value of our one reporting unit to its fair value. Pursuant to ASC
350, any excess carrying value, up to the amount of goodwill allocated to that
reporting unit, is impaired. At December 31, 2022 and 2021, the fair value of
the company's single reporting unit for purposes of its goodwill impairment test
exceeded it carrying value and thus the Company determined there was no
impairment of goodwill.

Impact of Recently Issued Accounting Pronouncements

See Item 8 of Part II, Consolidated Financial Statements - Note (1) Summary of Significant Accounting Policies - Recently Issued Accounting Pronouncements.


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