Revenue Sources and Risks - The company's two largest clients accounted for approximately 47% and 9% of total revenues for the year ending December 31, 2021, with government contracts representing about 62% of net revenues[87]. - A significant portion of revenues comes from government contracts, which are subject to early termination and funding authorizations, posing risks to financial stability[89]. - Revenue recognition from subscription agreements is ratable over typically one-year terms, meaning a decline in new subscriptions may not be immediately reflected in current revenue[88]. - The company anticipates that adverse economic conditions may lead to delayed or reduced technology purchases by customers[111]. - Any disruptions in service at data centers could lead to revenue reductions and potential customer terminations[117]. Legal and Compliance Risks - Compliance with federal securities laws results in higher expenses compared to privately held companies, impacting resource allocation for growth[90]. - The company may face substantial expenditures due to indemnification obligations for directors and officers, potentially discouraging legal actions against them[91]. - The company is subject to increased litigation risks, which could materially adversely affect its financial condition and operating results[97]. - Claims of intellectual property infringement could lead to increased costs and harm future revenue generation capabilities[98]. Operational Risks - Security breaches could lead to loss of confidential information and significant liabilities, affecting the company's reputation and business operations[92]. - The company is vulnerable to disruptions at third-party data centers, which could harm its business and affect service availability[113]. - The company may incur significant costs and service interruptions if it cannot renew agreements with data center owners on commercially reasonable terms[115]. - The company faces risks related to the recruitment and retention of key personnel, which is critical for its competitive position[118]. - The company relies on the stability of infrastructure software, and weaknesses in this area could negatively impact its products and reputation[119]. Financial Position and Shareholder Impact - The company does not expect to pay any dividends on its common stock for the foreseeable future, as it plans to retain earnings to maintain and expand operations[110]. - The company may need to issue additional securities, which could dilute existing shareholders' ownership and affect stock value[99]. - The common stock is quoted on the OTCQB, leading to limited trading and higher volatility, which may not reflect the actual value of the stock[102]. - The company is subject to loan covenants that may restrict its ability to pay dividends until certain loans are repaid[110]. Economic Conditions - Global economic conditions, including uncertainty and inflation, are likely to adversely affect the company's operating results and financing[111].

Financial Data and Key Metrics Changes - Total revenue for Q3 2021 increased by 26% to $3.2 million compared to $2.5 million in Q3 2020 [18] - Adjusted EBITDA for Q3 2021 was $538,000, marking the sixth consecutive positive quarter and exceeding $300,000 for the fifth consecutive quarter [12][30] - Net income for Q3 2021 was $296,000, up from $156,000 in the same period last year [30] Business Line Data and Key Metrics Changes - Software revenue increased by 9% to $59,000 in Q3 2021 from $54,000 in Q3 2020 [20] - Recurring revenue, which includes SaaS and software maintenance, grew by 11% to $689,000 from $622,000 year-over-year, with SaaS growing at 25% [21][22] - Professional services revenue surged by 34% to $2.2 million, accounting for 68% of total revenue, up from 64% in the same period last year [24] Market Data and Key Metrics Changes - Storage and retrieval services revenue increased by 17% to $259,000 in Q3 2021 compared to $220,000 in Q3 2020 [26] - The company noted a shift in customer preferences from on-premise solutions to cloud solutions, impacting software maintenance revenue negatively by 1% [22] Company Strategy and Development Direction - The company has transitioned to a new warehouse facility in Michigan, increasing capacity while maintaining operating costs [8] - Plans to expand the sales team and enhance marketing initiatives to support growth in key markets and verticals [10] - The business process outsourcing (BPO) service is expected to provide a recurring revenue stream and is a focus for future growth [9] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's trajectory, highlighting a strong pipeline and the ability to meet sales goals for six consecutive quarters [17] - The management team is focused on filling backlogs and ensuring continuous revenue flow from existing and new projects [39] - The company maintains its prior guidance for 2021, expecting to build on positive adjusted EBITDA while driving revenue growth [32] Other Important Information - The company has successfully integrated acquisitions made in early 2020, contributing to revenue stability and growth [12] - Operating expenses increased by 24% to $1.5 million, reflecting higher revenue and expanded sales and marketing efforts [28] Q&A Session Summary Question: Were there any one-time projects that boosted professional services revenue? - Management indicated that while there are always one-time projects, the majority of professional services revenue comes from ongoing contracts, particularly in document conversion [35][36] Question: What are the hiring plans for the sales team? - The company is actively hiring, with plans to add more sales representatives in the coming months to support growth and cross-selling initiatives [40][41] Question: What impact has the new Director of Marketing had on operations? - The Director has successfully integrated the company's websites and is ramping up marketing campaigns, leading to increased website traffic and service inquiries [43][44] Question: What is the pipeline for SaaS in school districts? - The company has a strong partnership with Software Unlimited, which continues to deliver new customers, contributing significantly to revenue [45][46] Question: How much revenue is anticipated from existing customers through cross-selling? - Management expects a meaningful amount of revenue from existing customers, although specific quantifiable numbers were not provided [49]

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (Former name and former address, if changed since last report) Securities registered pursuant to Section 12(b) of the Act: | Title of each class | Trading Symbol(s) | Name of each exchange on which registered | | --- | --- | --- | | None. | N/A | N/A | For the Quarterly Period Ended September 30, 2021 ☐ TRANSITION REPORT PURSUA ...

Financial Performance - Revenues for Q2 2021 were $2,909,646, representing a 58% year-over-year growth, while revenues for the six-month period were $5,544,865, reflecting an 82% increase year-over-year [141]. - The Document Management segment generated $791,004 in Q2 2021 and $1,526,822 for the six-month period, while the Document Conversion segment contributed $2,118,642 in Q2 2021 and $4,018,043 for the six-month period [142]. - Software as a Service (SaaS) revenues increased by $127,461, or 51%, in Q2 2021 compared to Q2 2020, and by $225,093, or 47%, for the six-month period [145]. - The company reported a net income of $192,447 for Q2 2021, with basic and diluted net income per share of $0.07 and $0.06, respectively [141]. - Professional services revenues increased by $852,101, or 81%, in Q2 2021 compared to Q2 2020, and increased by $1,944,534, or 121%, in the six-month period 2021 compared to the same period in 2020 [147]. - Storage and retrieval services revenues increased by $77,016, or 35%, in Q2 2021 compared to Q1 2020, and increased by $313,709, or 108%, during the six-month period 2021 compared to the same period in 2020 [148]. - Total cost of revenues increased by $430,790, or 65%, in Q2 2021 compared to Q2 2020, and increased by $992,685, or 88%, during the six-month period 2021 compared to the same period in 2020 [150]. - Overall gross profit decreased to 62% in Q2 2021 from 63% in Q2 2020, and decreased to 62% for the six-month period 2021 from 63% during the same period in 2020 [151]. Expenses and Cash Flow - General and administrative expenses increased by $213,404, or 25%, in Q2 2021 compared to Q2 2020, and increased by $408,227, or 24%, in the six-month period 2021 compared to the same period in 2020 [159]. - Sales and marketing expenses increased by $111,722, or 49%, in Q2 2021 compared to Q2 2020, and increased by $158,344, or 33%, during the six-month period 2021 compared to the same period in 2020 [162]. - Operating cash flow for the six-month period 2021 was $587,120, with capital expenditures amounting to $399,638 [141]. - Net cash provided by operating activities during the first half of 2021 was $587,120, compared to a net cash used of $132,287 in the same period of 2020 [174]. - Net cash used in investing activities in the first half of 2021 was $399,638, primarily for purchases related to the new warehouse, compared to $4,039,743 in the same period of 2020 for acquisitions [175]. - Net cash used by financing activities during the first half of 2021 amounted to $954,733 due to earnout liabilities payments, compared to $5,644,681 provided in the same period of 2020 [176]. Debt and Capital Resources - The company reported a gain on extinguishment of debt of $845,083 during the six-month period 2021, reflecting the full forgiveness of the principal and interest on the PPP Note [164]. - Interest expense decreased by $3,525, or 3%, in Q2 2021 compared to Q2 2020, and decreased by $180,911, or 44% during the first half of 2021 compared to the same period in 2020 [166]. - The company reduced its outstanding debt by approximately $3 million during 2020 and has not incurred any new debt in 2021 [168]. - The only outstanding long-term indebtedness as of June 30, 2021, consisted of $2,000,000 in 2020 notes with no accrued interest [171]. - The company expects its capital resources will be sufficient to meet anticipated cash needs for at least the next 12 months [170]. - The company committed to purchase warehouse racking for $351,854 during the first half of 2021, with $300,276 purchased as of June 30, 2021 [172]. - The company received aggregate gross proceeds of $3.5 million from a private placement of common stock [173]. Employee and Operational Impact - The company had 115 employees as of June 30, 2021, including 10 part-time employees [141]. - The majority of employees in Ohio continue to work remotely, affecting client operations across various states [137]. - The impact of COVID-19 resulted in an estimated $655,000 reduction in revenue for the Document Conversion segment in Q2 2020 [142]. - The company expects continued weakened demand due to reduced governmental and small-business spending amid economic uncertainty [137]. - The acquisition of Graphic Sciences accounted for $1,843,221 of revenues in Q1 2021, compared to $556,254 in Q1 2020, constituting 91% of the revenue increase [142]. - Income tax benefit was $0 during the six-month period 2021 compared to $188,300 during the same period in 2020 [165].

Revenue Growth - Revenues for Q1 2021 were $2,635,219, representing a 117% year-over-year growth[143]. - Document Management segment revenues were $735,818, while Document Conversion segment revenues were $1,899,401 for Q1 2021[145]. - Professional services revenues increased by $1,092,434, or 195%, in Q1 2021 compared to Q1 2020, largely due to the acquisition of Graphic Sciences[149]. - Storage and retrieval services revenues saw a significant increase of $236,692, or 327%, in Q1 2021 compared to Q1 2020[150]. - The acquisition of Graphic Sciences accounted for $1,843,221 of total revenues in Q1 2021, contributing 91% to the revenue increase[145]. - Software as a service revenues increased by $97,732, or 43%, in Q1 2021 compared to Q1 2020, driven by customer preference for cloud-based solutions[147]. Profitability and Income - Net income for Q1 2021 was $842,772, with basic and diluted net income per share of $0.30[143]. - Overall gross margin increased to 77% in Q1 2021 from 69% in Q1 2020, excluding Graphic Sciences, driven by a favorable product mix[152]. - Gross margin for software as a service (SaaS) increased to 76% in Q1 2021 from 68% in Q1 2020, due to improved implementation efficiencies[154]. Expenses and Costs - Total cost of revenues increased by $582,776, or 130%, in Q1 2021 compared to Q1 2020, primarily due to the acquisition of Graphic Sciences[151]. - Cost of professional services rose by $559,733, or 204%, in Q1 2021 compared to Q1 2020, mainly due to the acquisition of Graphic Sciences[156]. - General and administrative expenses increased by $173,941, or 20%, in Q1 2021, largely reflecting the addition of Graphic Sciences expenses[159]. - Cost of storage and retrieval services increased by $75,411, or 480%, in Q1 2021 compared to Q1 2020, attributed to the full inclusion of Graphic Sciences services[157]. Cash Flow and Financial Position - Operating cash flow for Q1 2021 was $326,869, while capital expenditures were $231,699[143]. - Net cash provided by operating activities was $326,869 in Q1 2021, compared to a net cash used of $143,951 in Q1 2020[174]. - Net cash used in investing activities was $231,699 in Q1 2021, significantly lower than $3,896,726 in Q1 2020, which was primarily for acquiring Graphic Sciences[175]. - Cash and cash equivalents as of March 31, 2021, were $2,003,052, with net working capital of $455,067[167]. Debt and Financing - The company received full forgiveness of a PPP loan amounting to $838,700 on January 20, 2021[136]. - Interest expense decreased by $177,386, or 61%, in Q1 2021 compared to Q1 2020, due to lower net debt[166]. Workforce - As of March 31, 2021, the company had 100 employees, including 10 part-time employees[144].

Revenue Sources - The company's two largest clients accounted for approximately 47% and 8% of total revenues for the twelve months ending December 31, 2020[89]. - Government contracts represented approximately 64% of net revenues for the twelve months ended December 31, 2020, compared to 41% in 2019[89]. - A significant portion of revenue is recognized ratably over the terms of subscription agreements, typically one year, which may delay the impact of downturns in business[90]. Risks and Compliance - The company faces risks related to early termination and audits of government contracts, which could materially affect business operations[91]. - Compliance with federal securities laws results in higher expenses compared to similarly-sized private companies, impacting growth potential[92]. - Security breaches could lead to loss of confidential information and significant liabilities, affecting reputation and business[94]. - The company may face increased costs and operational disruptions due to potential intellectual property infringement claims[100]. Stock and Market Conditions - The common stock is quoted on the OTCQB, leading to limited trading and higher volatility compared to national exchanges[104]. - The market price of common stock may adversely affect the company's ability to attract and retain high-quality employees[105]. - Substantial sales of common stock by stockholders may negatively impact the market price of the company's shares[107]. - The company's common stock is currently subject to "penny stock" rules, making transactions more cumbersome and potentially reducing liquidity[111]. - The company does not expect to pay any dividends for the foreseeable future, as it plans to retain earnings to maintain and expand operations[114]. - Market fluctuations could lead to extreme volatility in the stock price, potentially resulting in securities litigation against the company[110]. - The company may experience difficulties in raising capital due to stock price volatility and credit market conditions[116]. - FINRA sales practice requirements may limit the ability of shareholders to buy and sell the company's stock, adversely affecting market conditions[112]. Operational Challenges - Global economic conditions, particularly due to COVID-19, are expected to adversely impact the business, leading to potential delays in technology purchases and increased price competition[115]. - The company is vulnerable to disruptions at third-party data centers, which could harm service availability and customer satisfaction[117]. - There is a risk of not being able to attract and retain top employees, which is critical for the company's competitive position[122]. - The company relies on the stability of infrastructure software, and weaknesses in this area could negatively impact product effectiveness and reliability[123]. - The company faces challenges in protecting its intellectual property, which is essential for maintaining its competitive edge[125].

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended September 30, 2020 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _____________________to _________________________ Commission file number: 000-31671 INTELLINETICS, INC. (Exact name of registrant as specified in its cha ...

Revenue Growth - Revenues for the six months ended June 30, 2020, were $3,049,846, representing a growth of 164% year over year [197]. - For the three months ended June 30, 2020, revenues were $1,836,182, an increase of $1,195,574 or 187% compared to the same period in 2019 [198]. - The acquisition of Graphic Sciences accounted for $1,748,418 of total sales, representing 92% of the revenue increase for the six months ended June 30, 2020 [198]. - Revenues from software sales for the six months ended June 30, 2020, were $103,774, an increase of 1,072% compared to $8,852 in the same period of 2019 [199]. - Software as a Service revenues increased to $248,693 for Q2 2020, up 8% from $229,982 in Q2 2019 [200]. - Software maintenance support revenue rose to $314,111 for Q2 2020, reflecting a 24% increase from $252,713 in Q2 2019 [201]. - Professional services revenues surged to $1,045,679 for Q2 2020, a significant increase of 593% compared to $150,811 in Q2 2019, largely due to the acquisition of Graphic Sciences [202]. Cost and Expenses - Operating cash deficit was $132,287 as of June 30, 2020 [197]. - The company experienced a loss from operations of $997,067 for the six months ended June 30, 2020 [197]. - Total costs of revenue for Q2 2020 were $664,789, an increase of 411% from $130,104 in Q2 2019, primarily driven by the Graphic Sciences acquisition [204]. - General and administrative expenses for Q2 2020 were $844,657, up 62% from $521,057 in Q2 2019, mainly due to the addition of Graphic Sciences expenses [216]. - Significant transaction expenses amounted to $175,673 for Q2 2020, compared to $0 in Q2 2019, related to investment banking and legal fees [217]. - Overall gross margin for Q2 2020 decreased to 64% from 80% in Q2 2019, reflecting the impact of the Graphic Sciences acquisition [215]. Financing and Cash Flow - The company had $1,876,816 in cash and net working capital of $118,214 as of June 30, 2020 [224]. - A loan of $838,700 was received through the Paycheck Protection Program in April 2020, with expectations for full forgiveness [227]. - As of June 30, 2020, the net cash used in operating activities was $132,287, a significant decrease from $648,124 in the same period of 2019, primarily due to a net loss adjusted for non-cash expenses of $799,319 [238]. - The company completed a private placement on March 2, 2020, raising gross proceeds of $5.5 million, with $3.5 million from common stock sales, retaining approximately $530,000 for working capital after acquisition costs [230]. - Net cash provided by financing activities for the six months ended June 30, 2020, was $5,644,681, resulting from new borrowings of $3,008,700 and the sale of common stock generating $2,859,633 [242]. - The company has outstanding indebtedness of $170,000 related to Seller Notes Payable, with $70,000 due by August 1, 2020, and $100,000 due by November 1, 2020, at an interest rate of 1.5% per annum [232]. - The company secured a PPP loan of $838,700 on April 15, 2020, with a two-year term and a 1.0% interest rate, which may be eligible for forgiveness based on specific criteria [233]. - The company’s outstanding principal balance of 12% subordinated promissory notes issued on March 2, 2020, is $2 million, maturing on February 28, 2023 [234]. Strategic Focus - The company anticipates that cloud-based delivery will become the principal software business and a primary source of revenue growth [190]. - The company is focused on organic growth while monitoring potential acquisitions of complementary solutions [190]. - The company plans to enhance market share through targeted marketing and strategic acquisitions to strengthen product offerings [226]. - The company plans to enhance sales and market share through targeted marketing, expanding reseller networks, and developing additional software capabilities, although no new financing commitments are currently in place [237]. Going Concern and Accounting Policies - The company’s ability to continue as a going concern is contingent upon enhancing operating cash flow and managing cash requirements effectively amid significant economic uncertainties [228]. - The company expenses software development costs before technological feasibility is reached, which is typically shortly before product release [261]. - No internal-use software costs were capitalized during the periods presented in the report [262]. - The company maintains one stock-based compensation plan, accounting for stock-based payments to employees based on fair values at the date of grant [263]. - Stock option awards' fair value is recognized as stock-based compensation cost over the requisite service period using the straight-line attribution method [264]. - The fair value of stock option awards is estimated using the Black-Scholes-Merton option pricing model [264]. - The expected volatility for stock options is based on historical volatility for the previous period equal to the expected term of the options [264]. - The risk-free interest rate for stock options is based on a U.S. Treasury instrument with a life similar to the expected term of the options [264]. - The expected dividend yield for stock options is based on the yield expected on the date of grant [264]. - Item 3 regarding market risk disclosures is not applicable to smaller reporting companies [265].

[FORM 10-Q Filing Information](index=1&type=section&id=FORM%2010-Q) This report is a Quarterly Report (Form 10-Q) for INTELLINETICS, INC. for the period ended March 31, 2020, identifying it as a Nevada corporation and a 'Smaller reporting company' - The filing is a Quarterly Report (Form 10-Q) for the period ended March 31, 2020, filed by INTELLINETICS, INC. (Commission file number: **000-31671**)[1](index=1&type=chunk)[2](index=2&type=chunk) - The registrant is a Nevada corporation, with its principal executive offices in Columbus, Ohio, and its trading symbol is **INLX**[2](index=2&type=chunk)[4](index=4&type=chunk) - The company is classified as a **'Smaller reporting company'** and is not a shell company[4](index=4&type=chunk)[5](index=5&type=chunk)[6](index=6&type=chunk) - As of May 13, 2020, there were **2,810,865 shares** of the issuer's common stock outstanding[6](index=6&type=chunk) [Cautionary Note Regarding Forward-Looking Statements](index=4&type=section&id=CAUTIONARY%20NOTE%20REGARDING%20FORWARD-LOOKING%20STATEMENTS) This section warns that the report contains forward-looking statements based on current plans and expectations, which are subject to substantial risks and uncertainties that could cause actual results to differ materially - This report contains forward-looking statements, which are not historical facts and refer to future events or performance, identified by words like 'may,' 'will,' 'expect,' 'plan,' and 'anticipate'[9](index=9&type=chunk) - These statements are based on current plans and expectations but are subject to substantial risks, uncertainties, and other factors that could cause actual results to differ materially[10](index=10&type=chunk) - The company cautions against undue reliance on forward-looking statements and undertakes no duty to update or revise them for any reason[10](index=10&type=chunk)[11](index=11&type=chunk) Part I: Financial Information [Item 1. Financial Statements](index=6&type=section&id=ITEM%201.%20Financial%20Statements.) This section presents the unaudited condensed consolidated financial statements of Intellinetics, Inc. and its subsidiaries for the three months ended March 31, 2020 and 2019, including balance sheets, statements of operations, stockholders' equity (deficit), and cash flows, along with detailed notes explaining the company's business, accounting policies, acquisitions, debt, and other financial details [Condensed Consolidated Balance Sheets](index=6&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) This section presents the company's financial position, including assets, liabilities, and stockholders' equity, as of March 31, 2020, and December 31, 2019 Condensed Consolidated Balance Sheets (Selected Data) | Metric | March 31, 2020 | December 31, 2019 | | :-------------------------------- | :------------- | :---------------- | | Cash | $1,047,197 | $404,165 | | Total current assets | $2,794,756 | $872,132 | | Property and equipment, net | $734,798 | $6,919 | | Right of use assets | $2,937,660 | $97,239 | | Intangible assets, net | $1,214,144 | $- | | Goodwill | $1,800,176 | $- | | Total assets | $9,496,318 | $986,574 | | Total current liabilities | $2,234,087 | $7,309,514 | | Total long-term liabilities | $3,915,206 | $53,318 | | Total liabilities | $6,149,293 | $7,362,832 | | Total stockholders' equity/(deficit) | $2,660,825 | $(6,376,258) | - Total assets increased significantly by **862.5%** from **$986,574** at December 31, 2019, to **$9,496,318** at March 31, 2020, primarily due to the Graphic Sciences acquisition, which introduced intangible assets and goodwill[15](index=15&type=chunk)[98](index=98&type=chunk) - The company transitioned from a stockholders' deficit of **$(6,376,258)** at December 31, 2019, to a **positive equity of $2,660,825** at March 31, 2020, driven by equity issuances and debt conversions[15](index=15&type=chunk)[19](index=19&type=chunk) [Condensed Consolidated Statements of Operations](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) This section details the company's revenues, expenses, and net loss for the three months ended March 31, 2020, and 2019 Condensed Consolidated Statements of Operations (Selected Data) | Metric | 3 Months Ended Mar 31, 2020 | 3 Months Ended Mar 31, 2019 | | :-------------------------------- | :-------------------------- | :-------------------------- | | Total revenues | $1,213,664 | $515,385 | | Cost of revenues | $447,539 | $142,465 | | Gross profit | $766,125 | $372,920 | | Total operating expenses | $1,597,632 | $809,626 | | Loss from operations | $(831,507) | $(436,706) | | Gain on extinguishment of debt | $287,426 | $- | | Income tax benefit | $188,300 | $- | | Interest expense, net | $(290,430) | $(233,147) | | Net loss | $(646,211) | $(669,853) | | Basic and diluted net loss per share | $(0.54) | $(1.81) | | Weighted average common shares outstanding | 1,185,846 | 369,603 | - Total revenues increased by **135.5%** year-over-year to **$1,213,664**, largely driven by the Graphic Sciences acquisition[17](index=17&type=chunk)[189](index=189&type=chunk) - Net loss decreased by **3.5%** to **$(646,211)** for the three months ended March 31, 2020, compared to **$(669,853)** in the prior year, despite higher operating expenses, due to a **gain on debt extinguishment** and income tax benefit[17](index=17&type=chunk)[212](index=212&type=chunk)[213](index=213&type=chunk) [Condensed Consolidated Statement of Stockholders' Equity (Deficit)](index=8&type=section&id=Condensed%20Consolidated%20Statement%20of%20Stockholders'%20Equity%20(Deficit)) This section outlines changes in the company's equity, including common stock, additional paid-in capital, and accumulated deficit, for the three months ended March 31, 2020, and 2019 Condensed Consolidated Statement of Stockholders' Equity (Deficit) (Selected Data) | Metric | March 31, 2020 | December 31, 2019 | March 31, 2019 | | :-------------------------------- | :------------- | :---------------- | :------------- | | Common Stock (Shares) | 2,810,865 | 370,497 | 370,497 | | Common Stock (Amount) | $2,811 | $371 | $371 | | Additional Paid-in Capital | $24,100,291 | $14,419,437 | $14,305,824 | | Accumulated Deficit | $(21,442,277) | $(20,796,066) | $(19,332,638) | | Total Stockholders' Equity/(Deficit) | $2,660,825 | $(6,376,258) | $(5,056,821) | - Total stockholders' equity shifted from a deficit of **$(6,376,258)** at December 31, 2019, to a **positive balance of $2,660,825** at March 31, 2020[19](index=19&type=chunk) - This change was primarily driven by significant increases in additional paid-in capital from stock issued (**$3,820,000**) and stock issued for convertible notes (**$5,730,035**), partially offset by equity issuance costs and the net loss[19](index=19&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This section reports the cash inflows and outflows from operating, investing, and financing activities for the three months ended March 31, 2020, and 2019 Condensed Consolidated Statements of Cash Flows (Selected Data) | Cash Flow Activity | 3 Months Ended Mar 31, 2020 | 3 Months Ended Mar 31, 2019 | | :-------------------------------- | :-------------------------- | :-------------------------- | | Net cash used in operating activities | $(143,951) | $(288,423) | | Net cash used in investing activities | $(3,896,726) | $- | | Net cash provided by/(used in) financing activities | $4,683,709 | $(11,255) | | Net increase (decrease) in cash | $643,032 | $(299,678) | | Cash - beginning of period | $404,165 | $1,088,630 | | Cash - end of period | $1,047,197 | $788,952 | - Net cash used in operating activities decreased by **50%** to **$(143,951)** for the three months ended March 31, 2020, compared to **$(288,423)** in the prior year[21](index=21&type=chunk)[229](index=229&type=chunk) - Net cash used in investing activities was **$(3,896,726)** in Q1 2020, primarily due to the Graphic Sciences acquisition, compared to no investing activities in Q1 2019[21](index=21&type=chunk)[231](index=231&type=chunk) - Net cash provided by financing activities was **$4,683,709** in Q1 2020, driven by proceeds from common stock issuance (**$3,167,500**) and notes payable (**$2,000,000**), offsetting offering costs and deferred financing costs[21](index=21&type=chunk)[233](index=233&type=chunk) [Notes to Condensed Consolidated Financial Statements (Unaudited)](index=11&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements%20(Unaudited)) This section provides detailed explanations and disclosures regarding the company's significant accounting policies, acquisitions, debt, equity transactions, and other financial information - Intellinetics, Inc. acquired Graphic Sciences, Inc. on March 2, 2020, to expand its market share in the document management industry, resulting in **$1,800,176 of goodwill** and a **$686,200 contingent consideration liability**[23](index=23&type=chunk)[97](index=97&type=chunk)[99](index=99&type=chunk)[134](index=134&type=chunk) - The company has an **accumulated deficit of $21,442,277** as of March 31, 2020, and its ability to continue as a **going concern** is contingent upon enhancing operating cash flow and managing recent acquisitions, especially given the impact of COVID-19[28](index=28&type=chunk)[31](index=31&type=chunk)[32](index=32&type=chunk) - A **one-for-fifty reverse stock split** was effected on March 20, 2020, and the authorized common stock was increased to **160,000,000 shares** to facilitate acquisitions and private placements[35](index=35&type=chunk)[144](index=144&type=chunk)[151](index=151&type=chunk) - The company's notes payable structure changed significantly, with **$2,000,000** in new 2020 Notes issued and previous 2016-2018 unrelated and related convertible notes converted into equity on March 2, 2020, reducing debt but increasing equity[114](index=114&type=chunk)[117](index=117&type=chunk)[122](index=122&type=chunk)[124](index=124&type=chunk) - Significant **customer concentrations** exist, with the State of Michigan accounting for **38% of revenues** in Q1 2020, and government contracts representing **60% of net revenues**[60](index=60&type=chunk)[165](index=165&type=chunk)[166](index=166&type=chunk) - Subsequent events include securing an **$838,700 Paycheck Protection Program (PPP) loan** in April 2020 and acquiring CEO Imaging Systems, Inc. on April 21, 2020, for approximately **$300,000 cash** plus potential earnouts[168](index=168&type=chunk)[169](index=169&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=39&type=section&id=ITEM%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations.) This section provides management's perspective on the company's financial condition and operating results for the three months ended March 31, 2020 and 2019, highlighting the impact of the Graphic Sciences acquisition, COVID-19, and strategic initiatives, along with a discussion of key financial metrics and critical accounting policies [Company Overview](index=39&type=section&id=Company%20Overview) This section describes Intellinetics as a document services and solutions software company focused on cloud-based delivery for small-to-medium businesses and governmental sectors - Intellinetics is a document services and solutions software company serving small-to-medium businesses and governmental sectors, offering a platform for document capture, management, storage, and retrieval[175](index=175&type=chunk) - The company's strategic focus is shifting towards **cloud-based (SaaS) delivery** of its software, which is anticipated to become the principal software business and primary source of revenue growth[177](index=177&type=chunk)[179](index=179&type=chunk) - Cloud-based delivery revenues constituted **19% of total revenue** for Q1 2020, a decrease from **39%** in Q1 2019[177](index=177&type=chunk) [How We Evaluate our Business Performance and Opportunities](index=40&type=section&id=How%20We%20Evaluate%20our%20Business%20Performance%20and%20Opportunities) This section explains how management assesses performance through cloud-based revenue growth, acquisition integration, sales channels, project margins, and strategic acquisitions - Management evaluates performance by assessing the growth of cloud-based software revenues, the integration and revenue increase from Graphic Sciences, and the effectiveness of sales through resellers versus direct sales[179](index=179&type=chunk) - Key considerations for customer engagements include project profit margins and the potential for developing new product/service features[179](index=179&type=chunk) - The company monitors costs, capital needs, and continually seeks strategic acquisitions that complement its core business and are expected to be accretive to financial performance[179](index=179&type=chunk) [Financial Impact of COVID-19](index=41&type=section&id=Financial%20Impact%20of%20COVID-19) This section details the operational and financial challenges posed by the COVID-19 pandemic, including reduced demand, expense cuts, and the receipt of a PPP loan - The COVID-19 pandemic has significantly impacted operations, particularly Graphic Sciences in Michigan, which is limited to processing only **'essential' work orders**[181](index=181&type=chunk) - The company implemented aggressive **expense reduction efforts**, including furloughing non-essential Michigan employees, reducing executive officer compensation by **20%**, and other manager compensation by **15%**[183](index=183&type=chunk) - A Paycheck Protection Program (PPP) loan of **$838,700** was received to fund payroll and other permitted expenses, though forgiveness is not assured[183](index=183&type=chunk) - The company anticipates **weakened demand** due to reduced governmental and small-business spending and general economic uncertainty, with potential negative effects on future revenues[182](index=182&type=chunk) [Uncertainties, Trends, and Risks that can cause Fluctuations in our Operating Results](index=42&type=section&id=Uncertainties,%20Trends,%20and%20Risks%20that%20can%20cause%20Fluctuations%20in%20our%20Operating%20Results) This section identifies various factors, such as economic conditions, product development, customer reliance, and regulatory compliance, that can lead to volatility in the company's financial performance - Operating results are subject to fluctuations due to factors such as capital needs, general economic conditions, new product development, and the length of the sales cycle[187](index=187&type=chunk) - Risks include exposure to early termination, audits, and penalties from governmental customers, reliance on channel partners, and the timing of expense recognition versus revenue[187](index=187&type=chunk) - Other uncertainties involve potential security breaches, data privacy regulations, customer renewal rates, ability to license third-party software, intellectual property protection, and litigation[187](index=187&type=chunk) [Recent Developments](index=42&type=section&id=Recent%20Developments) This section highlights key events occurring after the reporting period, including the securing of a PPP loan and the acquisition of CEO Imaging Systems, Inc - On April 15, 2020, the company secured an unsecured promissory note for **$838,700** under the Paycheck Protection Program (PPP), with a **1.0% interest rate** and a two-year term, with potential for loan forgiveness[186](index=186&type=chunk) - On April 21, 2020, the company acquired substantially all assets of CEO Imaging Systems, Inc. for approximately **$300,000 in cash**, plus potential earnout payments of up to **$370,000** over two years[188](index=188&type=chunk) - CEO Imaging Systems, Inc. specializes in the K-12 education market, as well as financial services[188](index=188&type=chunk) [Executive Overview of Results](index=43&type=section&id=Executive%20Overview%20of%20Results) This section provides a high-level summary of the company's financial performance for Q1 2020, including revenue growth, net loss, and operating cash flow Key Financial Results (Q1 2020) | Metric | Value | | :-------------------------------- | :------------ | | Revenues | $1,213,664 | | Revenue Growth (YoY) | 135% | | Cost of revenues | $447,539 | | Operating expenses (excluding cost of revenues) | $1,597,632 | | Loss from operations | $(831,507) | | Net loss | $(646,211) | | Basic and diluted net loss per share | $(0.54) | | Operating cash flow | $(143,952) | | Capital expenditures (excluding acquisition) | $7,742 | | Full-force employees (as of Mar 31, 2020) | 81 (including 4 part-time, 21 temporarily furloughed) | - Revenues grew by **135%** year-over-year to **$1,213,664**, primarily driven by the Graphic Sciences acquisition[189](index=189&type=chunk)[191](index=191&type=chunk) - Net loss was **$(646,211)**, resulting in a basic and diluted net loss per share of **$(0.54)**[191](index=191&type=chunk) [Results of Operations](index=43&type=section&id=Results%20of%20Operations) This section analyzes the company's revenue breakdown, cost of revenues, gross margins, and operating expenses for the three months ended March 31, 2020, and 2019 Revenue Breakdown (3 Months Ended March 31) | Revenue Category | 2020 | 2019 | Change ($) | Change (%) | | :------------------------ | :--------- | :--------- | :----------- | :--------- | | Sale of software | $94,100 | $1,750 | $92,350 | +5277% | | Software as a service | $225,994 | $199,183 | $26,811 | +13% | | Software maintenance services | $261,243 | $252,636 | $8,607 | +3% | | Professional services | $631,946 | $51,667 | $580,279 | +1123% | | Third party services | $381 | $10,149 | $(9,768) | -96% | | **Total revenues** | **$1,213,664** | **$515,385** | **$698,279** | **+135%** | - The Graphic Sciences acquisition contributed **$556,254** to total sales and **$556,254** to professional services revenue, accounting for **108%** and **1,077%** of their respective increases[189](index=189&type=chunk)[194](index=194&type=chunk) Cost of Revenues and Gross Margins (3 Months Ended March 31) | Category | 2020 Cost | 2019 Cost | Change ($) | Change (%) | 2020 Gross Margin | 2019 Gross Margin | | :------------------------ | :---------- | :---------- | :----------- | :----------- | :------------------ | :------------------ | | Total cost of revenues | $447,539 | $142,465 | $305,074 | +214% | | | | Sale of software | $38,302 | $1,846 | $36,456 | +1975% | 59% | (5%) | | Software as a service | $72,515 | $67,689 | $4,826 | +7% | 68% | 66% | | Software maintenance services | $46,516 | $29,378 | $17,138 | +58% | 82% | 88% | | Professional services | $289,467 | $33,506 | $255,961 | +764% | 54% | 35% | | Third party services | $739 | $10,046 | $(9,307) | -93% | (94%) | 1% | | **Overall Gross Margin** | | | | | **63%** | **72%** | - Total operating expenses increased by **97.3%** to **$1,597,632**, primarily due to **$460,767** in significant transaction costs related to the acquisition and **$177,800** in Graphic Sciences expenses[17](index=17&type=chunk)[208](index=208&type=chunk)[209](index=209&type=chunk) - The company recognized a **$287,426 gain on extinguishment of debt** and an income tax benefit of **$188,300**[212](index=212&type=chunk)[213](index=213&type=chunk) [Liquidity and Capital Resources](index=47&type=section&id=Liquidity%20and%20Capital%20Resources) This section discusses the company's cash position, working capital, recent equity and debt financing activities, and cash flow from operating, investing, and financing activities - As of March 31, 2020, the company had **$1,047,197 in cash** and **$560,669 in net working capital**[215](index=215&type=chunk) - A **$5.5 million private placement** of equity and debt was completed on March 2, 2020, providing approximately **$530,000** for working capital after acquisition and transaction fees[219](index=219&type=chunk) - Approximately **$6 million of outstanding convertible debt** was converted into common stock at **$4.00 per share** on March 2, 2020[224](index=224&type=chunk) - The company secured an **$838,700 PPP loan** in April 2020, with a **1.0% interest rate** and a two-year term, for which forgiveness is uncertain[222](index=222&type=chunk) - Net cash used in operating activities decreased to **$143,951** in Q1 2020 from **$288,423** in Q1 2019, while net cash used in investing activities was **$3,896,726**, primarily for the Graphic Sciences acquisition[229](index=229&type=chunk)[231](index=231&type=chunk) [Critical Accounting Policies and Estimates](index=49&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) This section outlines the key accounting policies and significant management judgments, such as revenue recognition, business acquisitions, and stock-based compensation, that materially impact the financial statements - Critical accounting policies include liquidity and going concern, revenue recognition (following ASC 606's five-step model), business acquisition accounting (preliminary allocation of purchase price to assets and liabilities, fair value of contingent consideration), and stock-based compensation (using the Black-Scholes-Merton option pricing model)[237](index=237&type=chunk)[238](index=238&type=chunk)[243](index=243&type=chunk)[253](index=253&type=chunk)[254](index=254&type=chunk) - Management makes significant estimates and assumptions that affect reported asset and liability amounts, and actual results may differ materially from these estimates[236](index=236&type=chunk)[237](index=237&type=chunk) - The company maintains allowances for doubtful accounts and provisions for obsolete inventory, and expenses software development costs before technological feasibility is reached[242](index=242&type=chunk)[245](index=245&type=chunk)[248](index=248&type=chunk)[251](index=251&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=52&type=section&id=ITEM%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk.) As a smaller reporting company, Intellinetics is not required to provide quantitative and qualitative disclosures about market risk - This item is not applicable to smaller reporting companies[255](index=255&type=chunk) [Item 4. Controls and Procedures](index=52&type=section&id=ITEM%204.%20Controls%20and%20Procedures.) The principal executive and financial officers concluded that the company's disclosure controls and procedures were effective as of March 31, 2020. No material changes in internal control over financial reporting occurred during the quarter, other than previously described remediation - The principal executive officer and principal financial officer evaluated the effectiveness of disclosure controls and procedures and concluded they were effective as of March 31, 2020[256](index=256&type=chunk)[257](index=257&type=chunk) - No material changes in internal control over financial reporting occurred during the three months ended March 31, 2020, other than described remediation[258](index=258&type=chunk) Part II: Other Information [Item 1. Legal Proceedings](index=53&type=section&id=ITEM%201.%20Legal%20Proceedings.) The company reported no legal proceedings during the period - No legal proceedings were reported for the period[259](index=259&type=chunk) [Item 1A. Risk Factors](index=53&type=section&id=ITEM%201A.%20Risk%20Factors.) The company's business faces significant risks, particularly from the ongoing COVID-19 pandemic, which has led to operational scale-backs and demand uncertainty. Customer concentration, especially with government contracts, also poses a substantial risk, as the loss of major customers or failure to collect receivables could materially affect financial results - The COVID-19 pandemic has negatively impacted the business, requiring Graphic Sciences operations in Michigan to scale back to **'essential' projects**, and could **materially adversely affect** business, results of operations, financial condition, and cash flows[261](index=261&type=chunk) - Significant **customer concentration** exists, with Graphic Sciences deriving over **75% of its revenues** from the State of Michigan, and government contracts representing approximately **60% of the company's net revenues** in Q1 2020[262](index=262&type=chunk)[166](index=166&type=chunk) - Government contracts carry **short terms** (typically less than 18 months), and the loss of a meaningful percentage could materially affect operating results[262](index=262&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=54&type=section&id=ITEM%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds.) No unregistered sales of equity securities occurred during the quarter that have not been previously disclosed - There have been no unregistered sales of equity securities during the quarterly period that have not been previously disclosed on a Current Report on Form 8-K[263](index=263&type=chunk) [Item 3. Defaults Upon Senior Securities](index=54&type=section&id=ITEM%203.%20Defaults%20Upon%20Senior%20Securities.) The company reported no defaults upon senior securities - No defaults upon senior securities were reported[264](index=264&type=chunk) [Item 4. Mine Safety Disclosures](index=54&type=section&id=ITEM%204.%20Mine%20Safety%20Disclosures.) This item is not applicable to the company - This item is not applicable to the company[265](index=265&type=chunk) [Item 5. Other Information](index=54&type=section&id=ITEM%205.%20Other%20Information.) No other information was reported under this item - No other information was reported under this item[266](index=266&type=chunk) [Item 6. Exhibits](index=54&type=section&id=ITEM%206.%20Exhibits.) This section lists the exhibits filed as part of the Quarterly Report on Form 10-Q, including certifications and XBRL taxonomy documents - Exhibits include certifications of Principal Executive Officer and Principal Financial Officer pursuant to Sections 302 and 906 of The Sarbanes-Oxley Act of 2002[268](index=268&type=chunk) - XBRL Instance Document and Taxonomy Schema are also filed as exhibits[268](index=268&type=chunk) [Signatures](index=55&type=section&id=SIGNATURES) This section confirms the official signing of the report by the President, CEO, and CFO on May 15, 2020 - The report was signed on May 15, 2020, by James F. DeSocio, President and Chief Executive Officer, and Joseph D. Spain, Chief Financial Officer[270](index=270&type=chunk)[272](index=272&type=chunk)

PART I [ITEM 1. BUSINESS](index=6&type=section&id=Item%201.%20Business) Intellinetics provides document solutions software, focusing on a cloud-based SaaS model and recent growth through acquisition and financing [Company Overview](index=6&type=section&id=Company%20Overview) - Intellinetics, Inc, a Nevada holding company, operates through its two wholly-owned subsidiaries, Intellinetics, Inc (Ohio) and Graphic Sciences, Inc (Michigan)[16](index=16&type=chunk) - The company provides document services and software solutions to small-to-medium businesses and governmental sectors[17](index=17&type=chunk) - Its software platform allows customers to capture and manage various documents, including scanned hard-copy and digital files like Microsoft Office 365, images, audio, and video[17](index=17&type=chunk) - The company offers both on-premise installation and a cloud-based (SaaS) model, viewing **increasing SaaS adoption** as a key strategic revenue growth opportunity[18](index=18&type=chunk) [Recent Events](index=6&type=section&id=Recent%20Events) - On March 2, 2020, Intellinetics acquired Graphic Sciences, Inc for approximately **$3.5 million in cash**, with potential earnout payments up to **$2.5 million**[20](index=20&type=chunk) - On March 2, 2020, the company completed a private offering, raising **$5.5 million** through sales of common stock and units for the acquisition and corporate purposes[21](index=21&type=chunk) - On March 2, 2020, all outstanding Convertible Promissory Notes were converted into **1,433,739 shares** of Common Stock at a conversion price of **$4.00 per share**[22](index=22&type=chunk) - A **one-for-fifty (1-for-50) reverse stock split** was implemented on February 27, 2020, and authorized shares were subsequently increased to facilitate recent corporate actions[23](index=23&type=chunk)[24](index=24&type=chunk) [Software and Services](index=7&type=section&id=Software%20and%20Services) - Intellinetics Ohio's flagship platform, IntelliCloud, focuses on cloud-based document services and includes professional services like installation, training, and maintenance[25](index=25&type=chunk) - The subsidiary Graphic Sciences offers digital scanning, microfilming, physical storage, and sales and repair of scanning equipment[26](index=26&type=chunk)[28](index=28&type=chunk) [Marketing and Sales](index=8&type=section&id=Marketing%20and%20Sales) - The company utilizes a multi-channel sales model, including direct sales and intermediaries like resellers and software developers[29](index=29&type=chunk) - Marketing programs with resellers and business solution templates for vertical markets aim to shorten sales cycles and expand sales[29](index=29&type=chunk) [Competition and Market Position](index=8&type=section&id=Competition%20and%20Market%20Position) - The document solutions market is highly competitive, with primary competitors including DocuWare, Square 9, M-files, On Base, and Laserfiche[30](index=30&type=chunk)[31](index=31&type=chunk) - Graphic Sciences competes with smaller shops and larger entities like Iron Mountain, based on reputation, quality, performance, and price[32](index=32&type=chunk) - The company believes its advantage lies in being a focused niche provider for the SMB market, particularly in regulated sectors[33](index=33&type=chunk) [Customers](index=8&type=section&id=Customers) - For Intellinetics Ohio, two customers each accounted for approximately **6% of 2019 revenues**, while government contracts represented **41% of 2019 net revenues**[35](index=35&type=chunk)[37](index=37&type=chunk) - Graphic Sciences has significant customer concentration with the State of Michigan under a five-year contract extending to May 2023[38](index=38&type=chunk)[40](index=40&type=chunk) [Intellectual Property](index=10&type=section&id=Intellectual%20Property) - The company relies on copyright, trademark laws, and contractual provisions to protect its intellectual property built on a MicrosoftNet framework[42](index=42&type=chunk) - Customers license software on a non-exclusive basis, and limited rights are granted to third parties for marketing[43](index=43&type=chunk) - While the overall intellectual property is valuable, the business is not materially dependent on any single trademark, license, or right[44](index=44&type=chunk) [Government Regulation](index=10&type=section&id=Government%20Regulation) - The company is subject to various laws and regulations, particularly government procurement rules for its governmental customers[45](index=45&type=chunk) - Management believes it is in material compliance with applicable regulations, which do not entail significant cost or burden[45](index=45&type=chunk) [Software Development](index=10&type=section&id=Software%20Development) - The company designs, develops, tests, and supports new software products and enhancements[46](index=46&type=chunk) - Software development costs are expensed before technological feasibility, resulting in **immaterial capitalized costs** for the reported periods[47](index=47&type=chunk) - No costs for internal-use software were capitalized during the reported periods[48](index=48&type=chunk) [Employees](index=11&type=section&id=Employees) - As of March 26, 2020, the company employed **77 individuals**, with the vast majority being full-time employees[50](index=50&type=chunk) - Employee relations are considered good, and no employees are represented by a labor union or collective bargaining agreement[50](index=50&type=chunk) [Executive Officers and Board of Directors](index=11&type=section&id=Executive%20Officers%20and%20Board%20of%20Directors) Executive Officers and Directors (as of December 31, 2019) | Name | Age | Title | | :--- | :--- | :--- | | James F. DeSocio | 64 | President, Chief Executive Officer, and Director | | Matthew L. Chretien | 52 | Chief Strategy Officer, Chief Technology Officer, Secretary, and Director | | Joseph D. Spain | 52 | Chief Financial Officer, Treasurer | | Rye D'Orazio | 65 | Director | | Robert C. Schroeder | 53 | Director, Chairman of the Board | | Sophie Pibouin | 52 | Director | | Roger Kahn | 50 | Director | [Available Information](index=12&type=section&id=Available%20Information) - The company's SEC filings are available free of charge on its website as soon as practicable after filing[58](index=58&type=chunk) [ITEM 1A. RISK FACTORS](index=13&type=section&id=Item%201A.%20Risk%20Factors) The company faces significant risks from the COVID-19 pandemic, doubts about its ability to continue as a going concern, and various operational challenges [Risks Relating to Our Business](index=13&type=section&id=Risks%20Relating%20to%20Our%20Business) - The **COVID-19 outbreak** could negatively impact the company's business, customers, and vendors, with potential delayed effects on subscription revenue[62](index=62&type=chunk) - Management has expressed **substantial doubt about the company's ability to continue as a going concern** due to recurring net losses and capital needs[63](index=63&type=chunk) - Insufficient cash reserves and the inability to raise additional capital could lead to a curtailment of operations[67](index=67&type=chunk) - Adverse global economic conditions are likely to negatively affect operating results, leading to longer sales cycles and margin pressure[69](index=69&type=chunk) - The company's sales cycle can fluctuate significantly, leading to variations in revenue recognition[73](index=73&type=chunk) - Reliance on reseller partnerships for sales means any reduction in their efforts could materially impact revenues[74](index=74&type=chunk) - Failure to continuously develop technologically advanced products or achieve market acceptance could harm operating results[75](index=75&type=chunk)[77](index=77&type=chunk) - Security breaches or disruptions at third-party data centers could lead to reputational damage, litigation, and significant liabilities[82](index=82&type=chunk)[87](index=87&type=chunk) - The loss of major customers could negatively affect financial condition, especially given that **government contracts were 41% of net revenues in 2019**[93](index=93&type=chunk) - Investment in R&D is costly and speculative, with no assurance of sufficient returns[94](index=94&type=chunk) - The use of open-source software carries the risk of having to disclose proprietary source code[96](index=96&type=chunk) - Failure to protect intellectual property or facing infringement claims could increase costs and harm revenue[97](index=97&type=chunk)[99](index=99&type=chunk) - Competition from larger, well-capitalized companies could significantly impact future revenues and profit margins[101](index=101&type=chunk)[102](index=102&type=chunk) - Inability to attract and retain key employees could harm the company's ability to compete[105](index=105&type=chunk) - The recent GSI Acquisition may not be accretive and could be dilutive, while future acquisitions carry integration and financial risks[119](index=119&type=chunk)[121](index=121&type=chunk)[122](index=122&type=chunk) [Risks Relating to Our Common Stock](index=28&type=section&id=Risks%20Relating%20to%20Our%20Common%20Stock) - As a former 'shell company,' its securities may have trading limitations, and shareholders cannot rely on Rule 144 if SEC filings are not current[124](index=124&type=chunk) - The common stock is quoted on the OTCQB, subjecting it to **limited trading, high volatility, and liquidity risk**[125](index=125&type=chunk) - Future sales of common stock by eligible stockholders under Rule 144 could adversely affect the market price[128](index=128&type=chunk) - The stock price may fluctuate significantly due to various factors, potentially leading to stockholder losses and litigation[129](index=129&type=chunk)[130](index=130&type=chunk) - The common stock may be subject to SEC 'penny stock' rules, which could adversely affect trading liquidity[131](index=131&type=chunk) - Outstanding warrants with a 'cashless exercise' feature could **dilute existing stockholders without a corresponding influx of capital**[132](index=132&type=chunk) - FINRA sales practice requirements for low-priced securities may limit broker-dealer recommendations, affecting marketability[133](index=133&type=chunk)[135](index=135&type=chunk) - The company **does not anticipate paying cash dividends** in the foreseeable future and is subject to restrictive loan covenants[136](index=136&type=chunk) [ITEM 1B. UNRESOLVED STAFF COMMENTS](index=32&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) This item is not applicable as the company has no unresolved staff comments [ITEM 2. PROPERTIES](index=32&type=section&id=Item%202.%20Properties) The company leases office, operational, and storage facilities in Ohio and Michigan for its headquarters and subsidiary operations - Intellinetics Ohio leases a **6,000 sq ft** office facility in Columbus, Ohio, for its headquarters, with a lease term until December 31, 2021[139](index=139&type=chunk) - Graphic Sciences leases a **36,000 sq ft** main facility in Madison Heights, Michigan, until August 31, 2026[140](index=140&type=chunk) - Graphic Sciences also leases a separate **20,000 sq ft** building for document storage in Highland Park, MI, until August 31, 2021[141](index=141&type=chunk) - The subsidiary owns specialized scanning equipment and operates a fleet of six leased vehicles for logistics[142](index=142&type=chunk) [ITEM 3. LEGAL PROCEEDINGS](index=32&type=section&id=Item%203.%20Legal%20Proceedings) The company is not currently involved in any material legal proceedings [ITEM 4. MINE SAFETY DISCLOSURE](index=32&type=section&id=Item%204.%20Mine%20Safety%20Disclosure) This item is not applicable to the company's operations PART II [ITEM 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=32&type=section&id=Item%205.%20Market%20for%20Registrant's%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company's common stock trades on the OTCQB with 172 stockholders of record and no recent dividends or issuer purchases - The company's common stock is quoted on the **OTCQB Venture Market** under the symbol "INLX"[145](index=145&type=chunk) - As of March 26, 2020, there were **172 stockholders of record**[146](index=146&type=chunk) - No dividends on common stock were paid in the last two fiscal years, and none are anticipated in the foreseeable future[147](index=147&type=chunk) - There were no unregistered securities issuances in Fiscal Year 2019 not previously disclosed[148](index=148&type=chunk) - There were no issuer purchases of securities[149](index=149&type=chunk) [ITEM 6. SELECTED FINANCIAL DATA](index=32&type=section&id=Item%206.%20Selected%20Financial%20Data) This item is not applicable as the company is a smaller reporting company [ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS](index=34&type=section&id=Item%207.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) The company's financial performance reflects a strategic shift to SaaS, recent acquisitions, and significant liquidity challenges [Company Overview](index=34&type=section&id=Company%20Overview) - Intellinetics is a document solutions software company serving both public and private sectors[155](index=155&type=chunk) - The company's software platform enables customers to capture and manage all types of scanned and digital documents[155](index=155&type=chunk) - The company offers on-premise and cloud-based (SaaS) models, anticipating **SaaS to become its primary software business** and a key growth driver[156](index=156&type=chunk) Cloud-based Revenue as % of Total Revenue | Year | Cloud-based Revenue (% of Total) | | :--- | :--- | | 2019 | 34% | | 2018 | 31% | [How We Evaluate our Business Performance and Opportunities](index=35&type=section&id=How%20We%20Evaluate%20our%20Business%20Performance%20and%20Opportunities) - The company's strategy focuses on **cloud-based software delivery**, assessing revenue growth from this source[163](index=163&type=chunk) - Performance is evaluated by sales channel, focus on vertical markets, and customer engagement profit margins[163](index=163&type=chunk) - The sales cycle averages **1-2 months**, with large projects lasting 3-6 months[163](index=163&type=chunk) - R&D efforts for new software products are critical and evaluated for market success and profitability[163](index=163&type=chunk) - Costs and capital needs are monitored to ensure efficiency and support for the business plan[163](index=163&type=chunk) [Recent Developments](index=35&type=section&id=Recent%20Developments) - On March 2, 2020, Intellinetics acquired Graphic Sciences for approximately **$3.5 million cash**, with potential earnouts up to **$2.5 million**[159](index=159&type=chunk) - On March 2, 2020, the company raised **$5.5 million** in a private offering to fund the acquisition and for general corporate purposes[160](index=160&type=chunk) - On March 2, 2020, all outstanding Convertible Promissory Notes were converted into **1,433,739 shares** of Common Stock at **$4.00 per share**[161](index=161&type=chunk) - A **one-for-fifty (1-for-50) reverse stock split** was implemented effective February 27, 2020, followed by an increase in authorized shares[162](index=162&type=chunk)[164](index=164&type=chunk) [Executive Overview of Results](index=36&type=section&id=Executive%20Overview%20of%20Results) - The **COVID-19 pandemic** is expected to materially adversely affect the company's business, financial condition, and results of operations[167](index=167&type=chunk) Key Financial Results (FY2019) | Metric | Amount | | :--- | :--- | | Revenues | $2,535,955 | | Revenue Growth (YoY) | 6% | | Cost of Revenues | $567,843 | | Operating Expenses (excl. Cost of Revenues) | $3,120,704 | | Losses from Operations | $(1,152,592) | | Net Loss | $(2,133,281) | | Basic and Diluted Net Loss per Share | $(0.12) | | Operating Cash Flow | $(982,169) | | Capital Expenditures | $5,489 | | Number of Employees (Dec 31, 2019) | 18 | [Results of Operations](index=37&type=section&id=Results%20of%20Operations) - The net increase in total revenues was primarily due to growth in professional services and SaaS, offset by a decrease in third-party services[168](index=168&type=chunk) - Cost of revenues **decreased by 24%** year-over-year to $567,843 in 2019, driven by improved SaaS margins and a shift away from third-party services[175](index=175&type=chunk) Total Revenues (2019 vs. 2018) | Year | Total Revenues | Change (YoY) | % Change (YoY) | | :--- | :--- | :--- | :--- | | 2019 | $2,535,955 | $154,528 | 6% | | 2018 | $2,381,427 | - | - | Revenue Breakdown and Changes (2019 vs. 2018) | Revenue Category | 2019 Revenue | 2018 Revenue | Change (YoY) | % Change (YoY) | | :--- | :--- | :--- | :--- | :--- | | Sale of Software | $189,165 | $173,691 | $15,474 | 9% | | Software as a Service | $859,637 | $748,754 | $110,883 | 15% | | Software Maintenance Services | $1,011,278 | $995,170 | $16,108 | 2% | | Professional Services | $449,707 | $289,962 | $159,745 | 55% | | Third Party Services | $26,168 | $173,850 | $(147,682) | -85% | Gross Margins by Category (2019 vs. 2018) | Category | 2019 Gross Margin | 2018 Gross Margin | | :--- | :--- | :--- | | Overall Gross Margin | 78% | 69% | | Sale of Software | 95% | 60% | | Software as a Service | 70% | 60% | | Software Maintenance Services | 91% | 90% | | Professional Services | 57% | 58% | | Third Party Services | 5% | 13% | [Operating Expenses](index=40&type=section&id=Operating%20Expenses) - General and administrative expenses increased slightly due to professional fees related to the GSI Acquisition and Offering[187](index=187&type=chunk) - Sales and marketing expenses remained relatively flat[188](index=188&type=chunk) - Interest expense increased primarily from notes payable issued in September 2018[190](index=190&type=chunk) Operating Expenses (2019 vs. 2018) | Expense Category | 2019 Amount | 2018 Amount | Change (YoY) | % Change (YoY) | | :--- | :--- | :--- | :--- | :--- | | General and Administrative | $2,131,385 | $2,106,851 | $24,534 | 1% | | Sales and Marketing | $981,618 | $997,910 | $(16,292) | -2% | | Depreciation | $7,701 | $9,040 | $(1,339) | -15% | | Interest Expense, Net | $980,689 | $865,501 | $115,188 | 13% | [Liquidity and Capital Resources](index=41&type=section&id=Liquidity%20and%20Capital%20Resources) - The significant net working capital deficit was due to notes payable becoming current, which were largely converted to equity in March 2020[191](index=191&type=chunk) - The company's ability to continue as a **going concern is contingent upon managing cash requirements**, as operating cash flows may be insufficient[193](index=193&type=chunk) - From 2012 through March 2, 2020, the company raised **$18,533,494** through debt and equity issuances[194](index=194&type=chunk) - As of March 26, 2020, the company had **2,810,840 shares of common stock outstanding**[195](index=195&type=chunk) - The recent Reverse Split is expected to improve the liquidity and marketability of the common stock[197](index=197&type=chunk) - In March 2020, substantially all outstanding promissory notes were converted to equity, and new **12% promissory notes totaling $2,000,000** were issued[199](index=199&type=chunk) Liquidity Snapshot (as of December 31, 2019) | Metric | Amount | | :--- | :--- | | Cash | $404,165 | | Net Working Capital Deficit | $(6,437,382) | Cash Flow from Operating Activities (2019 vs. 2018) | Year | Net Cash Used in Operating Activities | | :--- | :--- | | 2019 | $(982,169) | | 2018 | $(1,157,407) | Cash Flow from Investing Activities (2019 vs. 2018) | Year | Net Cash Used in Investing Activities | | :--- | :--- | | 2019 | $(5,489) | | 2018 | $(3,410) | Cash Flow from Financing Activities (2019 vs. 2018) | Year | Net Cash Provided by Financing Activities | | :--- | :--- | | 2019 | $303,193 | | 2018 | $1,123,526 | [Critical Accounting Policies and Estimates](index=44&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) - The preparation of financial statements requires management to make estimates and assumptions that could affect operating results[209](index=209&type=chunk)[210](index=210&type=chunk) - Key accounting policies include liquidity, revenue recognition, deferred revenues, allowance for doubtful accounts, and stock-based compensation[211](index=211&type=chunk) - Revenue recognition follows **ASC 606**, using a five-step model to determine the timing of recognition[213](index=213&type=chunk) - Software development costs are expensed before technological feasibility is reached; no such costs were capitalized[221](index=221&type=chunk)[222](index=222&type=chunk) - Stock-based compensation is recognized based on fair values estimated using the **Black-Scholes-Merton option pricing model**[223](index=223&type=chunk)[224](index=224&type=chunk) - The company adopted **ASC 842 (Leases)** on January 1, 2019, recording a lease liability of $143,761 and a right-of-use asset of $138,549[297](index=297&type=chunk) - The company is currently evaluating the impact of new accounting pronouncements not yet effective[298](index=298&type=chunk)[299](index=299&type=chunk)[300](index=300&type=chunk) [ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK](index=46&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This item is not applicable as the company is a smaller reporting company [ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA](index=47&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section presents audited consolidated financial statements for 2019 and 2018, with an auditor's report noting going concern doubts [Report of Independent Registered Public Accounting Firm](index=48&type=section&id=Report%20of%20Independent%20Registered%20Public%20Accounting%20Firm) - GBQ Partners LLC audited the consolidated financial statements for 2019 and 2018, expressing a fair opinion in all material respects[231](index=231&type=chunk) - The report includes an explanatory paragraph noting **substantial doubt about the company's ability to continue as a going concern**[232](index=232&type=chunk) - The audit did not include an opinion on the effectiveness of internal control over financial reporting[234](index=234&type=chunk) - The auditor's opinion is not modified regarding the significant acquisition of Graphic Sciences, Inc, which is a subsequent event[236](index=236&type=chunk) [Consolidated Balance Sheets](index=49&type=section&id=Consolidated%20Balance%20Sheets) Consolidated Balance Sheets (as of December 31) | ASSETS | 2019 | 2018 | | :--- | :--- | :--- | | Cash | $404,165 | $1,088,630 | | Accounts receivable, net | $329,571 | $135,739 | | Prepaid expenses and other current assets | $138,396 | $162,495 | | Total current assets | $872,132 | $1,386,864 | | Property and equipment, net | $6,919 | $9,131 | | Right of use asset | $97,239 | - | | Other assets | $10,284 | $10,284 | | **Total assets** | **$986,574** | **$1,406,279** | | LIABILITIES AND STOCKHOLDERS' DEFICIT | | | | Accounts payable and accrued expenses | $371,017 | $308,121 | | Lease liability - current | $47,397 | - | | Deferred revenues | $754,073 | $723,619 | | Deferred compensation | $117,166 | $165,166 | | Accrued interest payable | $1,212,498 | - | | Notes payable, net | $3,339,963 | - | | Notes payable - related party, net | $1,467,400 | $46,807 | | Total current liabilities | $7,309,514 | $1,243,713 | | Long-term liabilities: | | | | Notes payable | - | $3,144,926 | | Notes payable - related party | - | $1,045,937 | | Lease liability - net of current portion | $53,318 | - | | Accrued interest payable | - | $502,295 | | Total long-term liabilities | $53,318 | $4,693,158 | | **Total liabilities** | **$7,362,832** | **$5,936,871** | | Stockholders' deficit: | | | | Common stock | $31,528 | $30,733 | | Additional paid-in capital | $14,388,280 | $14,101,460 | | Accumulated deficit | $(20,796,066) | $(18,662,785) | | **Total stockholders' deficit** | **$(6,376,258)** | **$(4,530,592)** | | **Total liabilities and stockholders' deficit** | **$986,574** | **$1,406,279** | [Consolidated Statements of Operations](index=50&type=section&id=Consolidated%20Statements%20of%20Operations) Consolidated Statements of Operations (for the Twelve Months Ended December 31) | Metric | 2019 | 2018 | | :--- | :--- | :--- | | **Revenues:** | | | | Sale of software | $189,165 | $173,691 | | Software as a service | $859,637 | $748,754 | | Software maintenance services | $1,011,278 | $995,170 | | Professional services | $449,707 | $289,962 | | Third party services | $26,168 | $173,850 | | **Total revenues** | **$2,535,955** | **$2,381,427** | | **Cost of revenues:** | | | | Sale of software | $8,633 | $69,754 | | Software as a service | $254,999 | $300,235 | | Software maintenance services | $87,280 | $100,205 | | Professional services | $192,129 | $120,421 | | Third party services | $24,802 | $151,790 | | **Total cost of revenues** | **$567,843** | **$742,405** | | **Gross profit** | **$1,968,112** | **$1,639,022** | | **Operating expenses:** | | | | General and administrative | $2,131,385 | $2,106,851 | | Sales and marketing | $981,618 | $997,910 | | Depreciation | $7,701 | $9,040 | | **Total operating expenses** | **$3,120,704** | **$3,113,801** | | **Loss from operations** | **$(1,152,592)** | **$(1,474,779)** | | **Other income (expense):** | | | | Interest expense, net | $(980,689) | $(865,501) | | **Net loss** | **$(2,133,281)** | **$(2,340,280)** | | Basic and diluted net loss per share | $(5.76) | $(6.60) | | Weighted average number of common shares outstanding - basic and diluted | 370,279 | 354,538 | [Consolidated Statement of Stockholders' Deficit](index=51&type=section&id=Consolidated%20Statement%20of%20Stockholders'%20Deficit) - The accumulated deficit increased from **$(18,662,785)** at year-end 2018 to **$(20,796,066)** at year-end 2019, primarily due to the net loss[243](index=243&type=chunk) Consolidated Statement of Stockholders' Deficit (for the Twelve Months Ended December 31) | Metric | 2019 | 2018 | | :--- | :--- | :--- | | Balance, December 31, 2017 | | $(2,643,555) | | Stock Issued to Directors | | $57,500 | | Stock Option Compensation | | $249,025 | | Note Offer Warrants | | $64,347 | | Beneficial Conversion of Convertible Notes | | $82,371 | | Net Loss | | $(2,340,280) | | Balance, December 31, 2018 | $(4,530,592) | | | Stock Issued to Directors and Employee | $87,500 | | | Stock Option Compensation | $200,115 | | | Net Loss | $(2,133,281) | | | Balance, December 31, 2019 | $(6,376,258) | | [Consolidated Statements of Cash Flows](index=52&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) - Net cash used in operating activities decreased in 2019 compared to 2018, due to non-cash expense adjustments and changes in operating assets and liabilities[203](index=203&type=chunk)[245](index=245&type=chunk) - Financing activities provided cash through new borrowings, partially offset by repayments of notes payable to related parties[206](index=206&type=chunk)[207](index=207&type=chunk)[245](index=245&type=chunk) Consolidated Statements of Cash Flows (for the Twelve Months Ended December 31) | Cash Flow Activity | 2019 | 2018 | | :--- | :--- | :--- | | Net cash used in operating activities | $(982,169) | $(1,157,407) | | Net cash used in investing activities | $(5,489) | $(3,410) | | Net cash provided by financing activities | $303,193 | $1,123,526 | | Net decrease in cash | $(684,465) | $(37,291) | | Cash - beginning of period | $1,088,630 | $1,125,921 | | Cash - end of period | $404,165 | $1,088,630 | [Notes to Consolidated Financial Statements](index=53&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) PART III [ITEM 10. Directors, Executive Officers and Corporate Governance](index=76&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) Information on directors and governance is incorporated by reference from the company's upcoming 2020 Proxy Statement - Information regarding directors, executive officers, and corporate governance is incorporated by reference from the definitive Proxy Statement for the 2020 Annual Meeting of Stockholders[388](index=388&type=chunk) [ITEM 11. Executive Compensation](index=76&type=section&id=Item%2011.%20Executive%20Compensation) Information on executive compensation is incorporated by reference from the company's upcoming 2020 Proxy Statement - Information regarding executive compensation is incorporated by reference from the definitive Proxy Statement for the 2020 Annual Meeting of Stockholders[389](index=389&type=chunk) [ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=76&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Information on security ownership is incorporated by reference from the company's upcoming 2020 Proxy Statement - Information regarding security ownership of certain beneficial owners and management and related stockholder matters is incorporated by reference from the definitive Proxy Statement for the 2020 Annual Meeting of Stockholders[390](index=390&type=chunk) [ITEM 13. Certain Relationships and Related Transactions, and Director Independence](index=76&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) Information on related transactions and director independence is incorporated by reference from the company's upcoming 2020 Proxy Statement - Information regarding certain relationships and related transactions, and director independence is incorporated by reference from the definitive Proxy Statement for the 2020 Annual Meeting of Stockholders[391](index=391&type=chunk) [ITEM 14. Principal Accounting Fees and Services](index=76&type=section&id=Item%2014.%20Principal%20Accounting%20Fees%20and%20Services) Information on accounting fees and services is incorporated by reference from the company's upcoming 2020 Proxy Statement - Information regarding principal accounting fees and services is incorporated by reference from the definitive Proxy Statement for the 2020 Annual Meeting of Stockholders[392](index=392&type=chunk) PART IV [ITEM 15. Exhibits, Financial Statement Schedules](index=76&type=section&id=Item%2015.%20Exhibits%2C%20Financial%20Statement%20Schedules) This section lists the financial statements and exhibits filed with the report, omitting schedules as they are not applicable - Financial statements are referenced as beginning on Page F-1[393](index=393&type=chunk) - Financial Statement Schedules have been omitted because they are not required, not applicable, or the information is otherwise included[229](index=229&type=chunk)[394](index=394&type=chunk) - An Exhibit Index lists all exhibits filed or incorporated by reference as part of this report[396](index=396&type=chunk) [Signatures](index=77&type=section&id=Signatures) The report is duly signed by principal executive officers and directors as of March 30, 2020 - The report is signed by James F DeSocio (President, CEO, and Director), Joseph D Spain (CFO and Treasurer), Matthew L Chretien (CSO, CTO, Secretary, and Director), and other directors on March 30, 2020[399](index=399&type=chunk)[400](index=400&type=chunk)