The next Administration's Dialogue and Evaluation of Monetary Situation and Outcomes of Operations comprises "forward-looking statements" inside the which means of Part 27A of the Securities Act of 1933 and Part 21E of the Securities Change Act of 1934. These forward-looking statements could be recognized by the use of predictive, future-tense or forward-looking terminology, comparable to "believes," "anticipates," "expects," "estimates," "plans," "could," "intends," "will," or comparable phrases. Traders are cautioned that any forward-looking statements are usually not ensures of future efficiency and contain important dangers and uncertainties, and that precise outcomes could differ materially from these projected within the forward-looking statements. The next dialogue needs to be learn along with the consolidated monetary statements and notes to these monetary statements included elsewhere on this report.
OVERVIEW
FalconStor Software program, Inc., a Delaware company ("we", the "Firm" or
"FalconStor") is a trusted information safety software program chief modernizing catastrophe
restoration and backup operations for the hybrid cloud world. The Firm permits
enterprise clients and managed service suppliers to safe, migrate, and
shield their information whereas decreasing information storage and long-term retention prices by
as much as 95%. Greater than 1,000 organizations and managed service suppliers worldwide
standardize on FalconStor as the inspiration for his or her cloud first information
safety future. Our merchandise are provided by and supported by a worldwide
community of main managed service suppliers ("MSPs"), techniques integrators,
resellers, and authentic tools producers ("OEMs").
Our merchandise tackle a requirement for enterprise information safety pushed by the
method wherein shoppers and companies are more and more interacting in a
digital house by a number of units, networks and platforms. The onset of the
coronavirus pandemic accelerated this shift, as ongoing distant work and work
from dwelling preparations launched novel challenges to sustaining enterprise
information safety. The adoption of elevated worker mobility and versatile distant
work preparations, comparable to a broader incorporation of cloud know-how and the
choice for workers to make use of their very own units, has launched further
vulnerabilities that companies should monitor and shield by options like
ours as a way to preserve enterprise information integrity.
Our merchandise are utilized by enterprises and MSPs to handle two key areas of
enterprise information safety: (i) long-term information retention and restoration, and (ii)
information replication to protect enterprise continuity. Our integration with fashionable
cloud-based information storage environments, comparable to IBM PowerVS Cloud, AWS and
Microsoft Azure, permits our enterprise clients to considerably cut back prices
and enhance the portability, safety and accessibility of their enterprise
information. We imagine this accessibility is vital in our fashionable world, the place information should
be protected and intelligently leveraged to facilitate studying, enhance product
design and drive aggressive benefit. Our merchandise can be utilized no matter
the underlying {hardware}, cloud and source-data, which permits our enterprise
clients to leverage their current {hardware} and software program investments.
Because the starting of 2020, we have now targeted our go-to-market efforts on
long-term information retention and restoration information safety segments. In 2021, we
elevated our go-to-market funding inside our core areas of the Americas,
EMEA, Japan, Korea, and Southeast Asia, and launched StorSafeTM, the subsequent
era of our Digital Tape Library ("VTL") product household constructed for MSPs. In
2022, we secured a key strategic relationship with IBM to optimize information
safety for on-premises and cloud-native workloads that function on the IBM
Energy Programs platform.
Throughout the fourth quarter of 2022, we continued to ship innovation and to
improve every of our merchandise. Our StorSafeTM resolution is an important backup
long-term archive retention software in enterprise IT departments' information safety
arsenal and for MSPs that present information safety as a service to enterprise
firms. It permits them to modernize their backup and archive environments,
leverage environment friendly hybrid- and public-cloud storage environments, comparable to these
supplied by IBM PowerVS Cloud, AWS and Microsoft Azure, save operational prices,
and enhance restore efficiency for fast distant catastrophe restoration.
Via StorSafeTM, we're making progress increasing our know-how to ship
an enterprise-class, extremely versatile and environment friendly backup and long-term information
storage optimization resolution for the hybrid cloud world.
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Past our long-term retention and reinstatement merchandise, our StorGuardTM
enterprise continuity pushed information replication resolution provides our clients the
capacity to maneuver workloads to the proper vacation spot, on-premises or within the cloud,
with superior perception. This resolution is designed for MSPs and enterprise
organizations with complicated, heterogeneous IT environments and the total spectrum
of information administration use circumstances, together with however not restricted to giant enterprises,
universities, well being care entities and governmental establishments. StorGuardTM is
a contemporary, complete and easy-to-use software program resolution that allows IT
professionals to have full perception into and management over their
group's information.
To supply for higher ease of use for all our merchandise, we additionally made
important enhancements to our central information administration console, now referred to as
StorSightTM, to interface with every of our merchandise to offer a holistic view
of an enterprise's total information safety setting - whether or not on-premises in
information facilities, within the public cloud, or a hybrid - in addition to the important thing analytics,
experiences and dashboards our clients must repeatedly optimize their
operations.
FalconStor continues to give attention to MSPs, enterprise clients, and OEM companions.
These markets supply probably the most important alternative and are finest suited to
notice the worth of FalconStor merchandise, and supply an environment friendly and efficient
entry to broad, worldwide markets. Most of our income comes from gross sales to MSPs
and to enterprise clients by resellers.
Our "Enterprise Accomplice" program for our MSPs and resellers supplies monetary
incentives for these companions which can be prepared to make a dedication to
FalconStor by coaching, advertising and income. As a part of our overview of all
of our operations to maximise financial savings with out sacrificing gross sales, and in
reference to our Enterprise Accomplice program, we frequently overview our
relationship with every of our companions in all areas. We determined to give attention to
solely these companions who've the experience, personnel and networks to establish
potential clients and to service our finish customers.
Traditionally, nearly all of our software program licenses have been offered on a capability
foundation and have included a perpetual proper to make use of the licensed capability. Nonetheless,
we have now shifted our focus to an annual recurring income mannequin by
subscription or term-based licenses, which provides a buyer the proper to make the most of
our options over a chosen time period. We count on income from
subscription-based licensing to extend over the subsequent a number of years.
Fluctuation in our income is pushed by the amount and mixture of gross sales from interval
to interval. Income allotted to perpetual and time period software program licenses are
acknowledged at a time limit upon digital supply of the obtain hyperlink and
the license keys, as these merchandise have important standalone performance.
Product upkeep and help companies are happy over time as they're
stand-ready obligations all through the help interval. Consequently, revenues
related to upkeep companies are deferred and acknowledged as income
ratably over the time period of the contract. Revenues related to skilled
companies are acknowledged at a time limit upon buyer acceptance.
Throughout the fourth quarter of 2022, our shift to recurring income primarily based income
took a cloth step ahead as we continued to develop our strategic reseller
relationship with IBM. Via this strategic reseller relationship, IBM and
FalconStor co-market joint options consisting of FalconStor's VTL/StorSafe
software program, IBM Cloud Object Storage ("COS"), and IBM Energy Digital Servers
("PowerVS") for environment friendly software and information migration from on-premises
environments to IBM PowerVS Cloud, and on-going SaaS-based backup and restore
inside IBM PowerVS Cloud. Whereas we count on this relationship to offer wholesome
recurring income development sooner or later as our joint options can be offered on a
month-to-month consumption foundation (MRR), our accelerated focus in a majority of these hybrid
cloud relationships, and related realignment of our gross sales groups, will
proceed to contribute to complete GAAP income fluctuations within the short-term. In
truth, GAAP complete income within the fourth quarter of 2022 declined 28.5%
year-over-year. Given the discount in GAAP This fall 2022 revenues, we delivered a internet
earnings of $20,305, in comparison with a internet lack of $333,432 within the fourth quarter of
2021, regardless that we managed working prices to $2,197,875 within the quarter
in comparison with $3,004,891 in This fall 2021. Regardless of our year-over-year GAAP complete income
decline, we imagine GAAP complete income will proceed to extend every quarter
throughout 2023. Actually, GAAP complete income decreased to $2,549,665 within the fourth
quarter of 2022 in comparison with $3,059,141 and $2,394,335 within the third and second
quarters of 2022, respectively, and we count on sequential quarter-over-quarter
GAAP complete income to proceed growing all through the stability of 2023.
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COVID-19
We proceed to carefully monitor the affect of the COVID-19 pandemic on all
features of our enterprise, together with the affect on our operations and on the wants
and operations of our clients, suppliers, distributors and enterprise companions.
To this point, the COVID-19 pandemic has brought about and should proceed to trigger varied unfavourable results, together with an incapacity to fulfill with precise or potential clients, our finish clients deciding to delay or abandon their deliberate purchases or failing to make funds, and delays or disruptions in our or our companions' provide chains. The total extent to which the COVID-19 pandemic will immediately or not directly affect our enterprise, outcomes of operations and monetary situation, together with gross sales, bills, reserves and allowances, and employee-related prices, will rely upon future developments which can be extremely unsure, together with on account of new info which will emerge regarding COVID-19 and the actions taken to comprise or deal with it, in addition to the financial affect on native, regional, nationwide and worldwide markets. If we, or any of the third events with whom we have interaction, had been to expertise shutdowns or different enterprise disruptions, our capacity to conduct our enterprise within the method and on the timelines presently deliberate might be materially or negatively affected, which might have a cloth adversarial affect on our enterprise, outcomes of operations and monetary situation.
RESULTS OF OPERATIONS – FOR THE YEAR ENDED DECEMBER 31, 2022 COMPARED WITH THE
YEAR ENDED DECEMBER 31, 2021
For the 12 months ended December 31, 2022, we acknowledged $10.1 million in income, as
in comparison with $13.9 million throughout the prior 12 months interval, a discount on account of
a number of giant multi-year contracts in 2021 that didn’t repeat in 2022.
Whole price of income for the 12 months ended December 31, 2022 decreased 20% to $1.6
million, in contrast with $2.0 million for the 12 months ended December 31, 2021. Whole
gross revenue decreased $3.5 million, or 29%, to $8.5 million for the present
12 months, in contrast with $12.0 million for 2021. Whole gross margin decreased to 84%
for the present 12 months, in contrast with 86% for 2021. The lower in our complete
gross margin proportion was primarily on account of a lower in each product income
and help and repair income, mixed with a lower in {hardware} product
prices as the corporate not primarily sells {hardware}. Typically, our complete
gross income and complete gross margins fluctuate primarily based on a number of elements,
together with (i) income development /decline ranges, (ii) modifications prices to offer
help and companies, and (iii) our product choices and mixture of gross sales.
Total, our complete working bills decreased 16% from $11.6 million for the
12 months ended December 31, 2021 to $9.7 million for the 12 months ended December 31,
2022. This lower was primarily attributable to a lower in promoting and
advertising prices. We are going to proceed to guage the suitable headcount ranges
to correctly align our sources with our present and long-term outlook and to
take actions in areas of the Firm that aren't performing.
Our internet loss for the 12 months ended December 31, 2022 was $1.8 million, in contrast
with a internet lack of $42,253 for the earlier 12 months.
Internet loss attributable to widespread stockholders, which incorporates the results of the
Sequence A Most well-liked Inventory dividends (together with accrued dividends) and accretion,
was $3.3 million for the 12 months ended December 31, 2022, in contrast with a internet loss
of $1.5 million for the 12 months ended December 31, 2021.
We ended the 12 months with $2.0 million of money and money equivalents, in comparison with
$3.2 million at December 31, 2021 and deferred income of $5.0 million as of
December 31, 2022, in contrast with $6.4 million as of December 31, 2021.
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Income
Years ended December 31,
2022 2021
Income:
Product income $ 4,246,177 $ 6,988,067
Assist and companies income 5,806,071 6,946,828
Whole Income $ 10,052,248 $ 13,934,895
Yr-over-year proportion change
Product income (39 )% (2 )%
Assist and companies income (16 )% (9 )%
Whole proportion change (28 )% (6 )%
Product income
Product income is comprised of gross sales of each licenses for our software program
options and gross sales of the platforms on which the software program is put in. This
contains stand-alone software program functions and, once in a while, software program built-in
with trade normal {hardware}. We not primarily supply or promote {hardware},
slightly we facilitate our clients in shopping for their very own {hardware}. Our merchandise
are offered by (i) value-added resellers, (ii) distributors, and/or (iii)
on to end-users. These revenues are acknowledged when all of the relevant
standards beneath accounting rules typically accepted in the US are
met.
Product income represented 42% and 50% of our complete income for the years ended
December 31, 2022 and 2021, respectively. Product income decreased 39% from
$7.0 million for the 12 months ended December 31, 2021 to $4.2 million for the 12 months
ended December 31, 2022, which resulted from order delays in addition to getting into
into a number of giant multi-year contracts in 2021 that didn't repeat in 2022.
We proceed to spend money on our product portfolio by refreshing and updating our
current product traces and creating our subsequent era of revolutionary product
choices to drive our gross sales quantity in help of our long-term outlook.
Assist and companies income
Assist and companies income is comprised of income from (i) upkeep and
technical help companies, (ii) skilled companies primarily associated to the
implementation of our software program, and (iii) engineering companies. Income derived
from upkeep and technical help contracts are deferred and acknowledged
ratably over the contractual upkeep time period. Revenues related to
skilled and engineering companies are acknowledged at a time limit upon
buyer acceptance. Assist and companies income decreased 16% from $6.9
million for the 12 months ended December 31, 2021 to $5.8 million for the 12 months ended
December 31, 2022. The lower in help and companies income from the
earlier 12 months was primarily attributable to decreases in upkeep and
technical help companies income.
Upkeep and technical help companies income decreased from $6.5 million
for the 12 months ended December 31, 2021 to $5.7 million for the 12 months ended 2022.
Our upkeep and technical help service income outcomes primarily from (i)
the acquisition of upkeep and help contracts by our clients, and (ii) the
renewal of upkeep and help contracts by our current and new clients
after their preliminary contracts expire. The lower in upkeep and technical
help service income from the earlier 12 months displays a decline in new
contracts and renewals.
Skilled companies income decreased from $0.5 million for the 12 months ended
December 31, 2021 to $0.1 million for the 12 months ended December 31, 2022.
Skilled companies income will fluctuate relying on the variety of options for
which clients elect to buy engineering or skilled companies to help
with their implementations or different initiatives. We count on skilled companies
income to proceed to fluctuate from interval to interval primarily based upon the variety of
clients who elect to make the most of our skilled companies upon buying any of
our options.
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Value of income
Years ended December 31,
2022 2021
Value of income:
Product $ 97,270 $ 325,089
Assist and repair 1,467,611 1,627,187
Whole price of income $ 1,564,881 $ 1,952,276
Whole Gross Revenue $ 8,487,367 $ 11,982,619
Gross Margin:
Product 98% 95%
Assist and repair 75% 77%
Whole gross margin 84% 86%
Value of income, gross revenue and gross margin
Value of product income consists primarily of {hardware} and guarantee bills.
Value of help and repair income consists primarily of personnel and different
prices related to offering software program implementations, technical help
beneath upkeep contracts and coaching.
Whole gross revenue decreased $3.5 million, or 29%, from $12.0 million for the
12 months ended December 31, 2021, to $8.5 million for the 12 months ended December 31,
2022. Whole gross margin decreased to 84% for the 12 months ended December 31, 2022,
in contrast with 86% for the 12 months ended December 31, 2021.
Value of product income for the 12 months ended December 31, 2022 was considerably
the identical at $0.1 million in contrast with $0.3 million for a similar interval in 2021.
Product gross margin elevated to 98% for the 12 months ended December 31, 2022,
in contrast with 95% for a similar interval in 2021. Moreover, our price of help
and repair income for the 12 months ended December 31, 2022 was considerably the
identical at $1.5 million, in contrast with $1.6 million for a similar interval in 2021.
Assist and repair gross margin decreased to 75% for the 12 months ended December
31, 2022 from 77% for a similar interval in 2021.
Working Bills
Analysis and Improvement Prices
Analysis and growth prices consist primarily of personnel prices for product growth, and different associated prices related to the event of recent merchandise, enhancements to current merchandise, high quality assurance and testing. Analysis and growth prices decreased $0.3 million, or 10%, to $2.6 million for the 12 months ended December 31, 2022, from $2.8 million in 2021. The lower in analysis and growth prices was primarily associated to a continued lower in total salaries and advantages bills, mixed with no bonus expense in 2022.
Promoting and Advertising and marketing
Promoting and advertising bills consist primarily of gross sales and advertising
personnel and associated prices, journey, public relations expense, advertising
literature and promotions, commissions, commerce present bills, and the prices
related to our overseas gross sales workplaces. Promoting and advertising bills
decreased $1.7 million, or 29%, to $4.0 million for the 12 months ended December 31,
2022, from $5.7 million for the 12 months ended December 31, 2021. The lower in
promoting and advertising bills was primarily associated to commissions, promotional
marketing campaign bills, contractors, skilled charges, and no bonus within the 12 months
ended December 31, 2022.
Achieve on Litigation Settlement
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-------------------------------------------------------------------------------- Throughout the 12 months ended December 31, 2021, we recorded a achieve of $0.6 million for a authorized settlement of a contractual dispute with a advertising/gross sales agency. For additional info, confer with Observe (13) Litigation, to our consolidated monetary statements.
Common and Administrative
Common and administrative bills consist primarily of personnel prices of
basic and administrative capabilities, public firm associated prices, administrators'
and officers' insurance coverage, authorized {and professional} charges, and different basic
company overhead prices. Common and administrative bills elevated $0.3
million, or 10%, to $3.2 million for the 12 months ended December 31, 2022, from $2.9
million for the 12 months ended December 31, 2021. The rise typically and
administrative bills was due primarily to additions to contractors and
skilled charges, that are partially offset by an lower in wage and
profit bills throughout the 12 months ended December 31, 2022.
Restructuring prices
In June 2017, the Board of Administrators of the Firm (the "Board") accepted a
complete plan to extend working efficiency ("the 2017 Plan"). The 2017
Plan resulted in a realignment and discount in workforce. The 2017 Plan was
considerably accomplished by the tip of our fiscal 12 months ended December 31, 2017
and when mixed with earlier workforce reductions within the second quarter of
Fiscal 2017 diminished our workforce to roughly 81 staff at December 31,
2017. As a part of this consolidation effort, the Firm vacated a portion of its
former Melville, NY workplace house throughout the three months ended June 30, 2018. As
the lease has terminated in April 2021, there aren't any additional restructuring prices
related to this lease.
Restructuring expense decreased $0.8 million for the 12 months ended December 31,
2022 to $744, in comparison with a $0.8 million restructuring cost within the prior 12 months
interval. For additional info, confer with Observe (14) Restructuring Prices, to our
consolidated monetary statements.
Achieve on Debt Extinguishment
Achieve on debt extinguishment decreased to $0 for the 12 months ended December 31,
2022, in comparison with $0.8 million within the prior 12 months interval. The Firm’s mortgage
beneath the PPP was forgiven on March 30, 2021.
Curiosity and Different (Loss) Earnings, Internet
Curiosity and different (loss) earnings is comprised of curiosity expense on our time period mortgage, overseas foreign money features and losses and the change in truthful worth our embedded derivatives. Curiosity and different expense, internet, decreased $0.3 million for the 12 months ended December 31, 2022 to $0.3 million, in comparison with $0.7 million for the 12 months ended December 31, 2021. The lower in curiosity and different expense primarily pertains to funds made on excellent debt. The fluctuation in curiosity and different (loss) earnings from quarter to quarter additionally pertains to curiosity expense, overseas foreign money features and losses, curiosity earnings, sublease earnings and the change in truthful worth of our embedded derivatives. For extra info on our by-product devices, see Observe (3) Truthful Worth Measurements to our consolidated monetary statements.
Earnings Taxes
For the 12 months ended December 31, 2022, we recorded an earnings tax provision of
$210,458, consisting of federal, state and native and overseas taxes. Our
efficient tax price for the 12 months 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 money and money equivalents balances
generated from working, investing and financing actions. Our money and money
equivalents stability as of December 31, 2022 totaled $2.0 million, in contrast with
$3.2 million as of December 31, 2021.
We're at the moment a celebration to the Amended and Restated Time period Mortgage Credit score Settlement,
dated as of February 23, 2018, as amended December 27, 2019, by and between the
Firm and HCP-FVA, LLC ("HCP-FVA"), (the "Amended and Restated Mortgage
Settlement"). In reference to the then-proposed public providing of the Firm
as described within the Firm's Registration Assertion on Kind S-1, as amended,
initially filed on June 3, 2021, we entered into the Mortgage Extension Letter
Settlement, which supplied for an extension of the maturity date on the portion
of the excellent indebtedness owed to Hale Capital Companions, LP ("Hale
Capital") beneath the Amended and Restated Mortgage Settlement to June 30, 2023. The
remaining principal quantity excellent, which was owed to different lenders, was
repaid in full. On July 19, 2022, we entered right into a letter settlement with Hale
Capital (the "Second Mortgage Extension Letter Settlement"), that supplied for a
subsequent extension of the maturity date on the excellent indebtedness owed
beneath the Amended and Restated Mortgage Settlement from June 30, 2023 to December 31,
2023. See Observe (7) Notes Payable to our consolidated monetary statements for
extra info. On February 10, 2023, the Firm entered right into a letter
settlement with Hale Capital to additional prolong the maturity date of the senior
secured debt, as described in Observe (19), Subsequent Occasions, to our consolidated
monetary statements. Additionally, as described additional in Observe (8) Sequence A Redeemable
Convertible Most well-liked Inventory to our consolidated monetary statements, the
efficient date of the necessary redemption proper of the Firm's Sequence A
Redeemable Convertible Most well-liked Inventory (the "Sequence A Most well-liked Inventory") held by
HCP-FVA and Hale Capital was prolonged from July 30, 2021 to July 30, 2023
pursuant to that sure Modification No. 1 to the Firm's Amended and Restated
Certificates of Designations, Preferences and Rights of the Sequence A Most well-liked
Inventory, dated as of June 24, 2021 (as amended, the "Certificates of
Designations"). On July 19, 2022, the Firm and Hale Capital entered right into a
letter settlement pursuant to which Hale Capital agreed to not train or to
allow the train of the necessary redemption proper of the Sequence A Most well-liked
Inventory on or previous to December 31, 2023 until the redemption is in accordance
with Part 8(e)(z) of the Certificates of Designations or in accordance with a
Breach Occasion (as outlined within the Certificates of Designations). If such Sequence A
Most well-liked Inventory was redeemed at December 31, 2022, the Firm would have been
required to pay the holders of the Sequence A Most well-liked Inventory $16.0 million. See
Observe (8) Sequence A Redeemable Convertible Most well-liked Inventory to our consolidated
monetary statements for extra info. On February 10, 2023, the Firm
entered right into a letter settlement with Hale Capital to additional prolong the
redemption date of the Sequence A Most well-liked Inventory, as described in Observe (19),
Subsequent Occasions, to the consolidated monetary statements.
The Amended and Restated Mortgage Settlement has customary representations,
warranties and affirmative and unfavourable covenants. The unfavourable covenants
embrace monetary covenants regarding in-force annual contract worth. The
Amended and Restated Mortgage Settlement additionally comprises customary occasions of default,
together with however not restricted to fee defaults, cross defaults with sure different
indebtedness, breaches of covenants, chapter occasions and a change of management.
Within the case of an occasion of default, as administrative agent beneath the Amended
and Restated Mortgage Settlement, HCP-FVA, an affiliate of Hale Capital could (and upon
the written request of lenders holding in extra of fifty% of the time period loans, which
should embrace HCP-FVA, is required to) speed up fee of all obligations
beneath the Amended and Restated Mortgage Settlement, and search different obtainable
cures.
Liquidity
As of December 31, 2022, we had a working capital deficiency of $0.3 million,
which is inclusive of present deferred income of $3.7 million, and a
stockholders' deficit of $16.4 million. Throughout the 12 months ended December 31, 2022,
the Firm had a internet lack of $1.8 million and unfavourable money circulation from
operations of $1.2 million. The Firm's complete money stability at December 31,
2022 was $2.0 million, a lower of $1.2 million in comparison with December 31, 2021.
On June 30, 2021, the Firm repaid $1.3 million of the $3.5 million principal
quantity that was excellent as of June 2, 2021 beneath the Amended and Restated
Mortgage Settlement. .
Though there could be no assurance, primarily based on its projected money flows from
operations, lately accomplished financing actions, price slicing measures in
place and current money readily available, the Firm is projecting to have adequate
liquidity and to be money circulation constructive by the subsequent 12 months.
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Money Movement Evaluation
Money circulation info is as follows:
Years Ended December 31,
2022 2021
Money supplied by (utilized in):
Working actions $ (1,199,215 ) $ (883,529 )
Investing actions (38,078 ) (182,349 )
Financing actions 177,149 2,332,006
Impact of alternate price modifications (110,003 )
(5,575 )
Internet enhance (lower) in money and money equivalents $ (1,170,147 ) $ 1,260,553
Money Flows from Working Actions
For the 12 months ended December 31, 2022, our internet money and money equivalents utilized in working actions was $1.2 million which consisted of a internet lack of $1.8 million, partially offset by money outflows from modifications in working belongings and liabilities of $0.3 million and non-cash changes of $0.3 million. Non-cash changes primarily consisted of depreciation and amortization, amortization of proper of use belongings and deferred earnings tax provision. The first drivers of the modifications in working belongings and liabilities had been money inflows from a lower in accounts receivable, a rise in accrued bills and different long-term liabilities, a lower in contract belongings, a rise in accounts payable, and a lower in pay as you go bills and different present belongings, which had been partially offset by money outflows from a lower in deferred income. For the 12 months ended December 31, 2021, our internet money and money equivalents utilized in working actions was $0.9 million which consisted of money outflows from modifications in working belongings and liabilities of $0.7 million, non-cash changes of $0.2 million and a internet lack of $42,253. The first drivers of modifications in working belongings and liabilities had been money outflows from a lower in deferred income, a lower in working lease liabilities, a lower in accrued bills and different long-term liabilities, and a rise in contract belongings, which had been partially offset by money inflows from a lower in different belongings and a lower in pay as you go bills and different present belongings.
Money Flows from Investing Actions
For the 12 months ended December 31, 2022, internet money utilized in investing actions was
$38,078 consisting of capitalized software program growth prices of $35,000 and
buy of intangible belongings of $3,078.
For the 12 months ended December 31, 2021, internet money utilized in investing actions was $0.2 million consisting purchases of property and tools of $0.1 million, capitalized software program growth prices of $30,000 and buy of intangible belongings of $10,226.
Money Flows from Financing Actions
For the 12 months ended December 31, 2022, internet money supplied by financing actions
was $0.2 million consisting of proceeds from short-term debt of $0.3 million and
funds of short-term debt of $0.1 million.
For the 12 months ended December 31, 2021, internet money supplied by financing actions
was $2.3 million consisting of proceeds from public choices of our widespread
inventory of $4.2 million, partially offset by funds of short-term debt of $1.3
million and funds of providing prices of $0.5 million.
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Contractual Obligations
As of December 31, 2022, our important commitments are associated to (i) the Amended and Restated Mortgage Settlement, (ii) our working leases for our workplace amenities, (iii) dividends (together with accrued dividends) on our Sequence A Most well-liked Inventory, and (iv) the potential redemption of the Sequence A Most well-liked Inventory as mentioned above.
The next is a schedule summarizing our important obligations to make
future funds beneath contractual obligations as of December 31, 2022:
Sequence A Dividends on
Curiosity Lengthy-Time period Most well-liked Inventory Sequence A
Working Observe Payable Funds Earnings Tax Necessary Most well-liked Inventory
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 - -
Whole contractual obligations $ 34,753 $ 2,429,689 $ 179,027 $ 113,169 $
- $ -
(a)
Represents our legal responsibility beneath the Amended and Restated Time period Mortgage Credit score Settlement which, as of December 31, 2022, has a maturity date of December 31, 2023. On February 10, 2023, the Firm entered right into a letter settlement with Hale Capital to increase the maturity date to June 30, 2024. See Observe (7), Notes Payable, and Observe (19), Subsequent Occasions, to our consolidated monetary statements for additional info.
(b)
Represents our legal responsibility for unsure tax positions. We're unable to make a fairly dependable estimate of the timing of funds on account of uncertainties in the timing of tax audit outcomes. Nonetheless, the interval wherein the payable is anticipated to reverse on account of statute expiration is the second quarter of 2024.
(c)
Represents our potential legal responsibility if the holders of our Sequence A Most well-liked Inventory redeem their shares for money. The earliest date wherein a redemption might happen was July 30, 2023. Nonetheless, on July 19, 2022, the Firm and Hale Capital entered right into a letter settlement pursuant to which Hale Capital agreed to not train or to allow the train of the necessary redemption proper of the Sequence A Most well-liked Inventory on or previous to December 31, 2023 until the redemption is in accordance with Part 8(e)(z) of the Certificates of Designations or in accordance with a Breach Occasion (as outlined within the Certificates of Designations). On February 10, 2023, the Firm entered right into a letter settlement with Hale Capital to additional prolong the redemption date of the Sequence A Most well-liked Inventory, as described in Observe (19), Subsequent Occasions, to our consolidated monetary statements. For additional info, see Observe (8) Sequence A Redeemable Convertible Most well-liked Inventory to our consolidated monetary statements.
(d)
Our agreements with the holders of the Sequence A Most well-liked Inventory present that such holders will obtain quarterly dividends on the Sequence A Most well-liked Inventory at prime price plus 5%, topic to a most dividend price of 10%. We even have the capacity to accrue and roll over dividends. As a result of lack of adequate surplus to pay dividends as required by the Delaware Common Company Regulation, the Firm was not permitted to pay the fourth quarter 2016 dividend in money or widespread inventory and has been accruing its quarterly dividends since then. This quantity represents our potential legal responsibility to pay most well-liked inventory dividends in money on July 30, 2023, which was the earliest date wherein the holders of our Sequence A Most well-liked Inventory might redeem their shares for money. Nonetheless, on July 19, 2022, the Firm and Hale Capital entered right into a letter settlement pursuant to which Hale Capital agreed to not train or to allow the train of the necessary redemption proper of the Sequence A Most well-liked Inventory on or previous to December 31, 2023 until the redemption is in accordance with Part 8(e)(z) of the Certificates of Designations or in accordance with a Breach Occasion (as outlined within the Certificates of Designations). On February 10, 2023, the Firm entered right into a letter settlement with Hale Capital to additional prolong the redemption date of the Sequence A Most well-liked Inventory, as described in Observe (19), Subsequent Occasions, to our consolidated monetary statements. For additional info, see Observe (12), Sequence A Redeemable Convertible Most well-liked Inventory, to our consolidated monetary statements.
Off-Steadiness Sheet Preparations
As of December 31, 2022 and 2021, we had no off-balance sheet preparations.
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Essential Accounting Insurance policies and Estimates
Our vital accounting insurance policies and estimates are these associated to income
recognition, accounts receivable allowances, deferred earnings taxes, accounting
for share-based funds, goodwill and different intangible belongings, software program
growth prices, truthful worth measurements and litigation.
Income Recognition. The Firm's contracts with clients typically embrace
guarantees to switch a number of services to a buyer. Figuring out
whether or not services are thought of distinct efficiency obligations
that needs to be accounted for individually versus collectively could require important
judgment.
Judgment is required to find out the standalone promoting worth ("SSP") for every
distinct efficiency obligation. For services apart from
upkeep and help, the Firm estimates SSP by adjusting the checklist worth
by historic low cost percentages. SSP for software program and {hardware} upkeep
and help charges relies on the acknowledged percentages of the charges charged for the
respective merchandise.
The Firm's perpetual and time period software program licenses have important standalone
performance and subsequently income allotted to those efficiency obligations
are acknowledged at a time limit upon digital supply of the obtain hyperlink
and the license keys.
Product upkeep and help companies are happy over time as they're
stand-ready obligations all through the help interval. Consequently, revenues
related to upkeep companies are deferred and acknowledged as income
ratably over the time period of the contract.
Revenues related to skilled companies are acknowledged at a time limit
upon buyer acceptance.
Accounts Receivable. We overview accounts receivable to find out which
receivables are uncertain of assortment. In making the dedication of the
applicable allowance for uncollectible accounts and returns, we take into account (i)
historic return charges, (ii) particular overdue accounts, (iii) evaluation of our
accounts receivable growing old, (iv) buyer fee phrases, (v) historic
collections, write-offs and returns, (vi) modifications in buyer demand and
relationships, (vii) precise money collections on our accounts receivables and
(viii) concentrations of credit score danger and buyer credit score worthiness. When
figuring out the suitable allowance for uncollectable accounts and returns
every interval, the precise buyer collections of excellent account receivable
balances affect the required allowance for returns. We recorded a profit and
expense of $54,044 and $72,461 for the years ended December 31, 2022 and 2021,
respectively. These quantities are included inside our consolidated assertion of
operations in every respective 12 months. Modifications within the product return charges, credit score
worthiness of consumers, basic financial circumstances and different elements could
affect the extent of future write-offs, income and our basic and
administrative bills.
Earnings Taxes. As mentioned additional in Observe (5) Earnings Taxes, to our consolidated
monetary statements, in accordance with the authoritative steering issued by
the FASB on earnings taxes, we recurrently consider our capacity to recuperate deferred
tax belongings, and report such deferred tax belongings on the quantity that's decided
to be more-likely-than-not recoverable. The Firm information earnings taxes beneath
the asset and legal responsibility methodology. Deferred tax belongings and liabilities are
acknowledged for future tax penalties attributable to variations between the
monetary assertion carrying quantities of current belongings and liabilities and
their respective tax bases. Deferred tax belongings and liabilities are measured
utilizing enacted tax charges anticipated to use to taxable earnings within the years in
which these momentary variations are anticipated to be realized or settled. The
impact on deferred tax belongings and liabilities of a change in tax charges is
acknowledged in earnings within the interval that features the enactment date. In
figuring out the interval wherein associated tax advantages are realized for monetary
reporting functions, extra share-based compensation deductions included in internet
working losses are realized after common internet working losses are exhausted.
We account for unsure tax positions in accordance with the authoritative
steering issued by the FASB on earnings taxes, which addresses the dedication
of whether or not tax advantages claimed or anticipated to be claimed on a tax return,
needs to be recorded within the monetary statements. Pursuant to the authoritative
steering, we could acknowledge the tax profit from an unsure tax place solely
if it meets the "extra possible than not" threshold that the place can be
sustained on examination by the taxing authority, primarily based on the technical deserves
of the place or beneath statute expirations. The tax advantages acknowledged within the
monetary statements from such a place needs to be
40
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measured primarily based on the most important profit that has a higher than fifty %
chance of being realized upon final settlement. As well as, the
authoritative steering addresses de-recognition, classification, curiosity and
penalties on earnings taxes, accounting in interim durations, and requires elevated
disclosures.
Goodwill. As mentioned additional in Observe (1) Abstract of Important Accounting
Insurance policies, to our consolidated monetary statements, we account for goodwill and
different intangible belongings in accordance with the authoritative steering issued by
the FASB on goodwill and different intangibles. The authoritative steering requires
an impairment-only method to accounting for goodwill and different intangibles
with an indefinite life. Absent any prior indicators of impairment, we carry out
an annual impairment evaluation throughout the fourth quarter of every of our fiscal
years.
As of each 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 (internet of gathered
amortization), respectively, of different identifiable intangible belongings. We don't
amortize goodwill, however we assess for impairment at the least yearly on December
thirty first and extra typically if a set off occasion happens. In accordance with FASB
Accounting Requirements Codification ("ASC") 350, "Goodwill and Different" ("ASC 350")
our goodwill impairment check contains just one step, which is a comparability of
the carrying worth of our one reporting unit to its truthful worth. Pursuant to ASC
350, any extra carrying worth, as much as the quantity of goodwill allotted to that
reporting unit, is impaired. At December 31, 2022 and 2021, the truthful worth of
the corporate's single reporting unit for functions of its goodwill impairment check
exceeded it carrying worth and thus the Firm decided there was no
impairment of goodwill.
Influence of Not too long ago Issued Accounting Pronouncements
See Merchandise 8 of Half II, Consolidated Monetary Statements – Observe (1) Abstract of
Important Accounting Insurance policies – Not too long ago Issued Accounting Pronouncements.
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