Intellinetics(INLX) - 2022 Q1 - Quarterly Report

PART I - FINANCIAL INFORMATION Presents Intellinetics' unaudited condensed consolidated financial statements and accompanying notes for Q1 2022 and 2021 Financial Statements Presents Intellinetics' Q1 2022 and 2021 unaudited consolidated financial statements, covering balance sheets, operations, cash flows, and equity Condensed Consolidated Balance Sheets The March 31, 2022 balance sheet shows slight asset growth and reclassification of notes payable to current liabilities Condensed Consolidated Balance Sheet Highlights (in USD) | Balance Sheet Item | March 31, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Total Current Assets | $3,908,546 | $3,684,268 | | Total Assets | $12,000,042 | $11,962,132 | | Total Current Liabilities | $5,426,504 | $3,557,324 | | Total Liabilities | $9,277,972 | $9,300,396 | | Total Stockholders' Equity | $2,722,070 | $2,661,736 | - Notes payable of approximately $1.8 million were reclassified from long-term to current liabilities, reflecting the upcoming maturity of the 2020 Notes[17] Condensed Consolidated Statements of Operations Q1 2022 net loss of $20,126 contrasts with Q1 2021 net income, primarily due to a prior-year debt extinguishment gain Statement of Operations Summary (in USD) | Metric | Q1 2022 | Q1 2021 | Change (YoY) | | :--- | :--- | :--- | :--- | | Total Revenues | $2,703,512 | $2,635,219 | +2.6% | | Gross Profit | $1,631,837 | $1,604,904 | +1.7% | | Income from Operations | $92,475 | $110,733 | -16.5% | | Gain on Extinguishment of Debt | $0 | $845,083 | N/A | | Net (Loss) Income | ($20,126) | $842,772 | -102.4% | | Diluted EPS | ($0.01) | $0.27 | N/A | - The significant drop in net income year-over-year is primarily due to the $845,083 gain on PPP loan forgiveness recorded in Q1 2021, which was not present in Q1 2022[19] Condensed Consolidated Statements of Cash Flows Shows increased net cash from operating activities in Q1 2022, improved cash position, and no financing activities Cash Flow Summary (in USD) | Cash Flow Activity | Q1 2022 | Q1 2021 | | :--- | :--- | :--- | | Net Cash from Operating Activities | $476,171 | $326,869 | | Net Cash from Investing Activities | ($56,043) | ($231,699) | | Net Cash from Financing Activities | $0 | $0 | | Net Increase in Cash | $420,128 | $95,170 | | Cash - End of Period | $2,172,758 | $2,003,052 | Notes to Condensed Consolidated Financial Statements Discloses business segments, accounting policies, debt, customer concentration, and post-period acquisitions and offerings - The company operates through two reporting segments: Document Management (software platform solutions) and Document Conversion (paper-to-digital conversion and storage services)[27] Segment Performance for Three Months Ended March 31 (in USD) | Segment | Revenues 2022 | Revenues 2021 | Gross Profit 2022 | Gross Profit 2021 | | :--- | :--- | :--- | :--- | :--- | | Document Management | $914,950 | $735,818 | $734,906 | $587,500 | | Document Conversion | $1,788,562 | $1,899,401 | $896,931 | $1,017,404 | | Total | $2,703,512 | $2,635,219 | $1,631,837 | $1,604,904 | - The company has a significant revenue concentration, with its two largest customers, the State of Michigan and Rocket Mortgage, accounting for 40% and 10% of total revenues, respectively, in Q1 2022[104] - Subsequent to the quarter end, on April 1, 2022, the company acquired Yellow Folder, LLC for approximately $6.5 million in cash and completed a private placement offering, raising aggregate gross proceeds of $8.7 million through the sale of common stock and subordinated notes[112][115][116] Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses Q1 2022 financial performance, revenue, segment challenges, liquidity, and post-period capital events Key Financial Results Q1 2022 | Metric | Value | Change (YoY) | | :--- | :--- | :--- | | Revenues | $2,703,512 | +3% | | Income from Operations | $92,475 | -16% | | Net Loss | ($20,126) | N/A (vs. $842,772 income) | | Operating Cash Flow | $476,171 | +45.7% | - The COVID-19 Omicron variant outbreak in Q4 2021 and Q1 2022 caused workflow slowdowns and reduced revenues in the Document Conversion segment, particularly as the State of Michigan, a major customer, had not fully returned to on-site work[130] - On April 1, 2022, the company acquired Yellow Folder, a document solutions company specializing in the K-12 education market, for approximately $6.5 million in cash[125] - To fund the Yellow Folder acquisition and for general corporate purposes, the company raised $8.7 million in gross proceeds on April 1, 2022, through a private offering of common stock and 12% subordinated notes[126] Results of Operations Analyzes Q1 2022 operational results, showing 3% revenue growth from Document Management and SaaS, despite a slight gross margin decline Revenues by Source (in USD) | Revenue Source | Q1 2022 | Q1 2021 | Change (YoY) | | :--- | :--- | :--- | :--- | | Sale of software | $64,491 | $9,594 | +572% | | Software as a service | $431,221 | $323,726 | +33% | | Software maintenance services | $336,602 | $340,446 | -1% | | Professional services | $1,587,948 | $1,652,463 | -4% | | Storage and retrieval services | $283,250 | $308,990 | -8% | | Total revenues | $2,703,512 | $2,635,219 | +3% | - The 33% increase in Software as a Service (SaaS) revenue was a primary growth driver, resulting from new customers choosing cloud solutions and existing customers expanding their services[138] - Professional services revenue, the largest component, decreased by 4% due to the impact of the COVID-19 Omicron variant on Michigan-based operations[140] - Overall gross margin decreased from 61% to 60% year-over-year, primarily due to unfavorable margin projects and inflationary pressures on labor costs within the Document Conversion segment[143] Liquidity and Capital Resources Details March 31, 2022 liquidity, including a working capital deficit and subsequent capital raise improving financial flexibility - The company had a net working capital deficit of $1,517,958 as of March 31, 2022, driven by the current portion of notes payable amounting to $1,807,128[158] - Liquidity and cash flows were significantly improved subsequent to the quarter-end through the acquisition of cash-flow positive Yellow Folder and raising approximately $8.7 million in gross proceeds from a private placement of stock and notes[159][164] - Management believes that current capital resources, funds from operations, and potential financing options will be sufficient to meet anticipated cash needs for at least the next 12 months[161] Quantitative and Qualitative Disclosures About Market Risk This disclosure is not applicable as the company qualifies as a smaller reporting company - Not applicable to smaller reporting companies[170] Controls and Procedures Management concluded disclosure controls and procedures were effective as of March 31, 2022, with no material internal control changes - Management concluded that as of March 31, 2022, the company's disclosure controls and procedures were effective at a reasonable assurance level[172] - No changes occurred during the quarter that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[174] PART II - OTHER INFORMATION Presents other information, including legal proceedings, risk factors, equity sales, defaults, mine safety, and exhibits Legal Proceedings The company reported no legal proceedings during the period - None[177] Risk Factors No material changes to risk factors from the Annual Report on Form 10-K for the fiscal year ended December 31, 2021 - No material changes to the risk factors from the Annual Report on Form 10-K for the fiscal year ended December 31, 2021[178] Unregistered Sales of Equity Securities and Use of Proceeds Details the issuance of 8,097 restricted common shares to non-employee directors as part of their annual compensation - On January 6, 2022, the Company issued 8,097 shares of restricted common stock to non-employee directors as part of their annual compensation[180] Defaults Upon Senior Securities The company reported no defaults upon senior securities - None[181] Mine Safety Disclosures This item is not applicable to the company - Not Applicable[182] Other Information The company reported no other information - None[183] Exhibits Lists exhibits filed with the Quarterly Report on Form 10-Q, including officer certifications and Inline XBRL documents