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What changed in INTELLINETICS, INC.'s 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of INTELLINETICS, INC.'s 2023 and 2024 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2024 report.

+235 added−267 removedSource: 10-K (2025-03-24) vs 10-K (2024-03-28)

Top changes in INTELLINETICS, INC.'s 2024 10-K

235 paragraphs added · 267 removed · 161 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

65 edited+26 added−49 removed74 unchanged
Biggest changeFinancial Statements INTELLINETICS, INC. and SUBSIDIARIES Consolidated Balance Sheets December 31, December 31, 2023 2022 ASSETS Current assets: Cash $ 1,215,248 $ 2,696,481 Accounts receivable, net 1,850,375 1,121,083 Accounts receivable, unbilled 1,320,837 596,410 Parts and supplies, net 110,272 73,221 Contract assets 140,165 80,378 Prepaid expenses and other current assets 367,478 325,466 Total current assets 5,004,375 4,893,039 Property and equipment, net 924,257 1,068,706 Right of use assets, operating 2,532,928 3,200,191 Right of use assets, finance 219,777 154,282 Intangible assets, net 3,909,338 4,419,646 Goodwill 5,789,821 5,789,821 Other assets 645,764 417,457 Total assets $ 19,026,260 $ 19,943,142 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 194,454 $ 370,300 Accrued compensation 337,884 411,683 Accrued expenses 164,103 114,902 Lease liabilities, operating - current 712,607 692,074 Lease liabilities, finance - current 49,926 22,493 Deferred revenues 2,927,808 2,754,064 Earnout liabilities - current - 700,000 Notes payable - current - 936,966 Total current liabilities 4,386,782 6,002,482 Long-term liabilities: Notes payable - net of current portion 2,209,242 2,085,035 Notes payable - related party 560,602 529,084 Notes payable 560,602 529,084 Lease liabilities, operating - net of current portion 1,942,970 2,624,608 Lease liabilities, finance - net of current portion 175,943 133,131 Total long-term liabilities 4,888,757 5,371,858 Total liabilities 9,275,539 11,374,340 Stockholders’ equity: Common stock, $ 0.001 par value, 25,000,000 shares authorized; 4,113,621 and 4,073,757 shares issued and outstanding at December 31, 2023 and 2022, respectively 4,114 4,074 Additional paid-in capital 30,841,630 30,179,017 Accumulated deficit (21,095,023 ) (21,614,289 ) Total stockholders’ equity 9,750,721 8,568,802 Total liabilities and stockholders’ equity $ 19,026,260 $ 19,943,142 See Notes to these consolidated financial statements F-2 INTELLINETICS, INC. and SUBSIDIARIES Consolidated Statements of Income 2023 2022 For the Twelve Months Ended December 31, 2023 2022 Revenues: Sale of software $ 100,260 $ 159,084 Software as a service 5,133,215 4,017,409 Software maintenance services 1,407,064 1,387,885 Professional services 9,167,428 7,357,937 Storage and retrieval services 1,078,414 1,094,613 Total revenues 16,886,381 14,016,928 Cost of revenues: Sale of software 25,736 64,577 Software as a service 889,135 701,433 Software maintenance services 59,373 79,738 Professional services 4,992,826 3,908,205 Storage and retrieval services 355,356 353,817 Total cost of revenues 6,322,426 5,107,770 Gross profit 10,563,955 8,909,158 Operating expenses: General and administrative 6,455,088 4,945,214 Change in fair value of earnout liabilities - 87,652 Transaction costs - 355,281 Sales and marketing 2,026,871 1,971,493 Depreciation and amortization 974,527 722,197 Total operating expenses 9,456,486 8,081,837 Income from operations 1,107,469 827,321 Other (expense) income Interest expense, net (588,203 ) (803,294 ) Total other (expense) income, net (588,203 ) (803,294 ) Net income $ 519,266 $ 24,027 Basic net income per share: $ 0.13 $ 0.01 Diluted net income per share: $ 0.11 $ 0.01 Weighted average number of common shares outstanding - basic 4,074,194 3,767,299 Weighted average number of common shares outstanding - diluted 4,652,058 4,295,817 See Notes to these consolidated financial statements F-3 INTELLINETICS, INC. and SUBSIDIARIES Consolidated Statement of Stockholders’ Equity For the Twelve Months Ended December 31, 2023 and 2022 Shares Amount Capital Deficit Total Common Stock Additional Paid-in Accumulated Shares Amount Capital Deficit Total Balance, December 31, 2021 2,823,072 $ 2,823 $ 24,297,229 $ (21,638,316 ) $ 2,661,736 Stock Issued to Directors 8,097 8 57,492 - 57,500 Stock Option Compensation - - 363,950 - 363,950 Stock Issued 1,242,588 1,243 5,739,515 - 5,740,758 Equity Issuance Costs - - (492,182 ) - (492,182 ) Note Offer Warrants - - 213,013 - 213,013 Net Income - - - 24,027 24,027 Balance, December 31, 2022 4,073,757 $ 4,074 $ 30,179,017 $ (21,614,289 ) $ 8,568,802 Stock Issued to Directors 39,864 40 198,084 - 198,124 Stock Option Compensation - - 464,529 - 464,529 Net Income - - - 519,266 519,266 Balance, December 31, 2023 4,113,621 $ 4,114 $ 30,841,630 $ (21,095,023 ) $ 9,750,721 See Notes to these consolidated financial statements F-4 INTELLINETICS, INC. and SUBSIDIARIES Consolidated Statements of Cash Flows 2023 2022 For the Twelve Months Ended December 31, 2023 2022 Cash flows from operating activities: Net income $ 519,266 $ 24,027 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 974,527 722,197 Bad debt expense 77,211 42,129 Loss on disposal of fixed assets - 24,473 Amortization of deferred financing costs 177,164 216,381 Amortization of debt discount 22,045 102,400 Amortization of right of use assets, financing 42,115 6,708 Stock issued for services 198,124 57,500 Stock option compensation 464,529 363,950 Change in fair value of earnout liabilities - 87,652 Changes in operating assets and liabilities: Accounts receivable (806,503 ) 81,227 Accounts receivable, unbilled (724,427 ) (151,628 ) Parts and supplies (37,051 ) 3,470 Prepaid expenses and other current assets (101,799 ) (176,596 ) Accounts payable and accrued expenses (200,444 ) 173,480 Operating lease assets and liabilities, net 6,158 25,351 Deferred compensation - (100,828 ) Deferred revenues 173,744 486,885 Total adjustments 265,393 1,964,751 Net cash provided by operating activities 784,659 1,988,778 Cash flows from investing activities: Cash paid to acquire business, net - (6,383,269 ) Capitalization of internal use software (436,837 ) (376,345 ) Purchases of property and equipment (111,240 ) (200,980 ) Net cash used in investing activities (548,077 ) (6,960,594 ) Cash flows from financing activities: Payment of earnout liabilities (700,000 ) (1,018,333 ) Proceeds from issuance of common stock - 5,740,758 Offering costs paid on issuance of common stock and notes - (746,342 ) Proceeds from notes payable - 2,364,500 Proceeds from notes payable - related parties - 600,000 Other net changes in finance lease assets and liabilities (2,411 ) - Principal payments on financing lease liability (34,954 ) (5,366 ) Repayment of notes payable (980,450 ) (1,019,550 ) Net cash (used in) provided by financing activities (1,717,815 ) 5,915,667 Net (decrease) increase in cash (1,481,233 ) 943,851 Cash - beginning of period 2,696,481 1,752,630 Cash - end of period $ 1,215,248 $ 2,696,481 Supplemental disclosure of cash flow information: Cash paid during the period for interest $ 418,790 $ 496,805 Cash paid during the period for income taxes $ 21,667 $ 12,888 Supplemental disclosure of non-cash financing activities: Discount on notes payable for warrants $ - $ 169,900 Discount on notes payable - related parties for warrants - 43,113 Right-of-use asset obtained in exchange for finance lease liability 107,610 160,990 Supplemental disclosure of non-cash investing activities relating to business acquisitions: Accounts receivable $ - $ 68,380 Prepaid expenses - 38,913 Property and equipment - 30,018 Intangible assets - 3,888,000 Goodwill - 3,466,934 Accounts payable - (36,446 ) Deferred revenues - (1,072,530 ) Net assets acquired in acquisition - 6,383,269 Cash used in business acquisition $ - $ 6,383,269 See Notes to these consolidated financial statements F-5 INTELLINETICS, INC.
Biggest changeFinancial Statements INTELLINETICS, INC. and SUBSIDIARIES Consolidated Balance Sheets December 31, December 31, 2024 2023 ASSETS Current assets: Cash $ 2,489,236 $ 1,215,248 Accounts receivable, net 1,111,504 1,850,375 Accounts receivable, unbilled 1,296,524 1,320,837 Parts and supplies, net 100,561 110,272 Contract assets 139,696 140,165 Prepaid expenses and other current assets 337,035 367,478 Total current assets 5,474,556 5,004,375 Property and equipment, net 1,093,867 924,257 Right of use assets, operating 1,894,866 2,532,928 Right of use assets, finance 237,741 219,777 Intangible assets, net 3,399,029 3,909,338 Goodwill 5,789,821 5,789,821 Other assets 685,076 645,764 Total assets $ 18,574,956 $ 19,026,260 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 310,623 $ 194,454 Accrued compensation 493,700 337,884 Accrued expenses 172,421 164,103 Lease liabilities, operating - current 842,468 712,607 Lease liabilities, finance - current 69,261 49,926 Deferred revenues 3,411,852 2,927,808 Notes payable - current 781,936 - Notes payable - related party - current 515,512 - Notes payable current 515,512 - Total current liabilities 6,597,773 4,386,782 Long-term liabilities: Notes payable - 2,209,242 Notes payable - related party - 560,602 Notes payable - 560,602 Lease liabilities, operating - net of current portion 1,161,404 1,942,970 Lease liabilities, finance - net of current portion 184,024 175,943 Total long-term liabilities 1,345,428 4,888,757 Total liabilities 7,943,201 9,275,539 Stockholders’ equity: Common stock, $ 0.001 par value, 25,000,000 shares authorized; 4,249,735 and 4,113,621 shares issued and outstanding at December 31, 2024 and 2023, respectively 4,250 4,114 Additional paid-in capital 32,268,743 30,841,630 Accumulated deficit (21,641,238 ) (21,095,023 ) Total stockholders’ equity 10,631,755 9,750,721 Total liabilities and stockholders’ equity $ 18,574,956 $ 19,026,260 See Notes to these Consolidated financial statements F-2 INTELLINETICS, INC. and SUBSIDIARIES Consolidated Statements of Operations 2024 2023 For the Twelve Months Ended December 31, 2024 2023 Revenues: Sale of software $ 32,946 $ 100,260 Software as a service 5,688,936 5,133,215 Software maintenance services 1,410,387 1,407,064 Professional services 9,985,028 9,167,428 Storage and retrieval services 901,076 1,078,414 Total revenues 18,018,373 16,886,381 Cost of revenues: Sale of software 8,486 25,736 Software as a service 856,774 889,135 Software maintenance services 57,667 59,373 Professional services 5,222,517 4,992,826 Storage and retrieval services 348,003 355,356 Total cost of revenues 6,493,447 6,322,426 Gross profit 11,524,926 10,563,955 Operating expenses: General and administrative 8,166,567 6,455,088 Sales and marketing 2,403,251 2,026,871 Depreciation and amortization 1,128,613 974,527 Total operating expenses 11,698,431 9,456,486 (Loss) income from operations (173,505 ) 1,107,469 Interest expense, net (372,710 ) (588,203 ) Net (loss) income $ (546,215 ) $ 519,266 Basic net (loss) income per share: $ (0.13 ) $ 0.13 Diluted net (loss) income per share: $ (0.13 ) $ 0.11 Weighted average number of common shares outstanding - basic 4,201,401 4,074,194 Weighted average number of common shares outstanding - diluted 4,201,401 4,652,058 See Notes to these Consolidated financial statements F-3 INTELLINETICS, INC. and SUBSIDIARIES Consolidated Statement of Stockholders’ Equity For the Twelve Months Ended December 31, 2024 and 2023 Shares Amount Capital Deficit Total Common Stock Additional Paid-in Accumulated Shares Amount Capital Deficit Total Balance, December 31, 2022 4,073,757 $ 4,074 $ 30,179,017 $ (21,614,289 ) $ 8,568,802 Stock Issued to Directors 39,864 40 198,084 - 198,124 Stock option compensation - - 464,529 - 464,529 Net income - - - 519,266 519,266 Balance, December 31, 2023 4,113,621 $ 4,114 $ 30,841,630 $ (21,095,023 ) $ 9,750,721 Balance, December 31, 2023 4,113,621 $ 4,114 $ 30,841,630 $ (21,095,023 ) $ 9,750,721 Balance 4,113,621 $ 4,114 $ 30,841,630 $ (21,095,023 ) $ 9,750,721 Stock option compensation - - 690,819 - 690,819 Stock option exercise 18,929 19 (19 ) - - Restricted share issuance 117,185 117 736,313 - 736,430 Net loss - - - (546,215 ) (546,215 ) Net (loss) income - - - (546,215 ) (546,215 ) Balance, December 31, 2024 4,249,735 $ 4,250 $ 32,268,743 $ (21,641,238 ) $ 10,631,755 Balance 4,249,735 $ 4,250 $ 32,268,743 $ (21,641,238 ) $ 10,631,755 See Notes to these Consolidated financial statements F-4 INTELLINETICS, INC. and SUBSIDIARIES Consolidated Statements of Cash Flows 2024 2023 For the Twelve Months Ended December 31, 2024 2023 Cash flows from operating activities: Net (loss) income $ (546,215 ) $ 519,266 Adjustments to reconcile net (loss) income to net cash provided by operating activities: Depreciation and amortization 1,128,613 974,527 Bad debt (recovery) expense (9,117 ) 77,211 Loss on disposal of fixed assets 547 - Amortization of deferred financing costs 152,604 177,164 Amortization of debt discount - 22,045 Amortization of right of use assets, financing 71,326 42,115 Stock issued for services - 198,124 Share-based compensation 1,496,774 464,529 Changes in operating assets and liabilities: Accounts receivable 747,988 (806,503 ) Accounts receivable, unbilled 24,313 (724,427 ) Parts and supplies 9,711 (37,051 ) Prepaid expenses and other current assets 30,912 (101,799 ) Accounts payable and accrued expenses 280,303 (200,444 ) Operating lease assets and liabilities, net (13,643 ) 6,158 Deferred revenues 484,044 173,744 Total adjustments 4,404,375 265,393 Net cash provided by operating activities 3,858,160 784,659 Cash flows from investing activities: Capitalization of internal use software (388,570 ) (436,837 ) Purchases of property and equipment (439,203 ) (111,240 ) Net cash used in investing activities (827,773 ) (548,077 ) Cash flows from financing activities: Payment of earnout liabilities - (700,000 ) Other net changes in finance lease assets and liabilities - (2,411 ) Principal payments on financing lease liability (61,874 ) (34,954 ) Payments to taxing authorities in connection with shares directly withheld from employees (69,525 ) - Repayment of notes payable (1,307,169 ) (980,450 ) Repayment of notes payable - related parties (317,831 ) - Net cash used in financing activities (1,756,399 ) (1,717,815 ) Net increase (decrease) in cash 1,273,988 (1,481,233 ) Cash - beginning of period 1,215,248 2,696,481 Cash - end of period $ 2,489,236 $ 1,215,248 Supplemental disclosure of cash flow information: Cash paid during the period for interest $ 258,646 $ 418,790 Cash paid during the period for income taxes $ 20,259 $ 21,667 Supplemental disclosure of non-cash financing activities: Right-of-use asset obtained in exchange for finance lease liability $ 89,289 $ 107,610 See Notes to these Consolidated financial statements F-5 INTELLINETICS, INC.
Any overdue principal and accrued and unpaid interest at the maturity date will accrue a mandatory default penalty of 20 % of the outstanding principal balance and an interest rate of 14 % per annum from the maturity date until paid in full.
Any overdue principal and accrued and unpaid interest at the maturity date will accrue a mandatory default penalty of 20 % of the outstanding principal balance and an interest rate of 14 % per annum from the maturity date until paid in full.
Private Placement 2022 On April 1, 2022, we entered into a Securities Purchase Agreement with certain accredited investors, pursuant to which we issued and sold (i) 1,242,588 shares of the Company’s Common Stock, at a price of $ 4.62 per share, for aggregate gross proceeds of $ 5,740,756 and (ii) $ 2,964,500 in 12% Subordinated Notes, for aggregate gross proceeds of $ 8,705,256 for the combined private placement .
F-18 Private Placement 2022 On April 1, 2022, we entered into a Securities Purchase Agreement with certain accredited investors, pursuant to which we issued and sold (i) 1,242,588 shares of the Company’s Common Stock, at a price of $ 4.62 per share, for aggregate gross proceeds of $ 5,740,756 and (ii) $ 2,964,500 in 12% Subordinated Notes, for aggregate gross proceeds of $ 8,705,256 for the combined private placement .
Revenues from contracts are primarily within the United States. International revenues were not material to the consolidated financial statements for the years ended December 31, 2023 and 2022. n) Significant financing component Our customers typically do not pay in advance for goods or services to be transferred in excess of one year.
Revenues from contracts are primarily within the United States. International revenues were not material to the consolidated financial statements for the years ended December 31, 2024 and 2023. n) Significant financing component Our customers typically do not pay in advance for goods or services to be transferred in excess of one year.
The impairment loss, if any, is measured as the amount by which the carrying amount exceeds fair value, which for this purpose is based upon the discounted projected future cash flows of the asset or asset group. There was no impairment of long lived assets in the twelve month periods ended 2023 or 2022.
The impairment loss, if any, is measured as the amount by which the carrying amount exceeds fair value, which for this purpose is based upon the discounted projected future cash flows of the asset or asset group. There was no impairment of long lived assets in the twelve month periods ended 2024 or 2023.
Remaining performance obligations represent the transaction price from contracts for which work has not been performed or goods and services have not been delivered. We expect to recognize revenue on approximately 98 % of the remaining performance obligations over the next 12 months, with the remainder recognized thereafter.
Remaining performance obligations represent the transaction price from contracts for which work has not been performed or goods and services have not been delivered. We expect to recognize revenue on approximately 99 % of the remaining performance obligations over the next 12 months, with the remainder recognized thereafter.
Level 3 inputs are derived from valuation techniques in which one or more significant inputs or value drivers are unobservable. F-15 The carrying values of cash and equivalents, accounts receivable, accounts payable, and accrued expenses approximate fair value because of its short maturity.
Level 3 inputs are derived from valuation techniques in which one or more significant inputs or value drivers are unobservable. F-13 The carrying values of cash and equivalents, accounts receivable, accounts payable, and accrued expenses approximate fair value because of its short maturity.
With respect to all notes payable – related parties outstanding, interest expense, including the amortization of debt issuance costs, for the years ended December 31, 2023 and 2022 was $ 103,518 and $ 77,638 , respectively. 2022 Related Note On April 1, 2022, we issued a 12% Subordinated Note with a principal amount of $ 600,000 (the “2022 Related Note”) to Robert Taglich (holding more than 5% beneficial interest in the Company’s Shares).
With respect to all notes payable – related parties outstanding, interest expense, including the amortization of debt issuance costs, for the years ended December 31, 2024 and 2023 was $ 96,116 and $ 103,518 , respectively. 2022 Related Note On April 1, 2022, we issued a 12% Subordinated Note with a principal amount of $ 600,000 (the “2022 Related Note”) to Robert Taglich (holding more than 5% beneficial interest in the Company’s Shares).
With respect to all notes outstanding (other than the notes to related parties), interest expense, including the amortization of debt issuance costs and debt discount for the years ended December 31, 2023 and 2022 was $ 514,480 and $ 737,949 , respectively. 2022 Unrelated Notes On April 1, 2022, we sold $ 2,364,500 in 12% Subordinated Notes (“2022 Unrelated Notes”) to unrelated accredited investors .
With respect to all notes outstanding (other than the notes to related parties), interest expense, including the amortization of debt issuance costs and debt discount for the years ended December 31, 2024 and 2023 was $ 315,133 and $ 514,480 , respectively. 2022 Unrelated Notes On April 1, 2022, we sold $ 2,364,500 in 12% Subordinated Notes (“2022 Unrelated Notes”) to unrelated accredited investors .
F-18 11. Commitments and Contingencies From time to time we are involved in legal proceedings, claims and litigation related to employee claims, contractual disputes and taxes in the ordinary course of business.
Commitments and Contingencies From time to time we are involved in legal proceedings, claims and litigation related to employee claims, contractual disputes and taxes in the ordinary course of business.
Upon the adoption of FASB Accounting Standards Update No. 2016-13 (CECL model) effective January 1, 2023, Intellinetics, Inc. has revised its methodology for estimating expected credit losses on financial instruments, specifically trade receivables and unbilled receivables. This new model requires the recognition of lifetime expected credit losses at each reporting date, considering past events, current conditions, and reasonable forecasts.
Upon the adoption of FASB ASU No. 2016-13 (CECL model) effective January 1, 2023, Intellinetics, Inc. has revised its methodology for estimating expected credit losses on financial instruments, specifically trade receivables. This model requires the recognition of lifetime expected credit losses at each reporting date, considering past events, current conditions, and reasonable forecasts.
Issues of Stock-Based Compensation The following represent grants of stock options, including the fair value recognized or to be recognized over the requisite service period: Schedule of Stock Options Grant Grant date Shares granted (canceled) Exercise price Date fully vested Fair value February 10, 2016 4,200 $ 48.00 February 10, 2020 $ 174,748 December 6, 2016 2,000 38.00 December 6, 2020 63,937 September 25, 2017 15,000 15.00 September 25, 2019 194,149 September 25, 2017 10,000 19.00 September 25, 2019 126,862 January 30, 2019 250 45.00 January 30, 2019 885 March 11, 2019 (33,200 ) - - - March 11, 2019 33,200 6.50 December 6, 2020 24,898 (1) March 11, 2019 10,100 6.50 March 11, 2023 44,591 September 2, 2020 99,000 4.00 September 2, 2024 327,181 April 14, 2022 220,587 6.08 April 14, 2025 1,152,470 (1) Represents incremental fair value of replacement shares compared to canceled shares. 14.
Issues of Stock-Based Compensation The following represent grants of stock options, including the fair value recognized or to be recognized over the requisite service period: Schedule of Stock Options Grant Grant date Shares granted (canceled) Exercise price Date fully vested Fair value February 10, 2016 4,200 $ 48.00 February 10, 2020 $ 174,748 December 6, 2016 2,000 38.00 December 6, 2020 63,937 September 25, 2017 15,000 15.00 September 25, 2019 194,149 September 25, 2017 10,000 19.00 September 25, 2019 126,862 January 30, 2019 250 45.00 January 30, 2019 885 March 11, 2019 (33,200 ) - - - March 11, 2019 33,200 6.50 December 6, 2020 24,898 (1) March 11, 2019 10,100 6.50 March 11, 2023 44,591 September 2, 2020 99,000 4.00 September 2, 2024 327,181 April 14, 2022 220,587 6.08 April 14, 2025 1,152,470 August 16, 2024 36,000 8.78 August 16, 2024 241,735 September 4, 2024 14,500 10.12 September 4, 2027 118,347 (1) Represents incremental fair value of replacement shares compared to canceled shares.
Such changes are captured in the financial statements to ensure they accurately reflect the company’s assessment of credit risk and expected losses at the end of each reporting period. Credit losses have been within management’s expectations. At December 31, 2023 and 2022, our allowance for credit losses was $ 124,103 and $ 88,331 , respectively.
Such changes are captured in the financial statements to ensure they accurately reflect the company’s assessment of credit risk and expected losses at the end of each reporting period. Credit losses have been within management’s expectations. At December 31, 2024 and 2023, our allowance for credit losses was $ 55,907 and $ 124,103 , respectively.
Once technological feasibility has been established, certain software development costs incurred during the application development stage are eligible for capitalization. Based on our software development process, technical feasibility is established upon completion of a working model. Technological feasibility is typically reached shortly before the release of such products. No such costs were capitalized during 2023.
Once technological feasibility has been established, certain software development costs incurred during the application development stage are eligible for capitalization. Based on our software development process, technical feasibility is established upon completion of a working model. Technological feasibility is typically reached shortly before the release of such products. No such costs were capitalized during the periods presented in this report.
AND SUBSIDIARY Notes to Consolidated Financial Statements 1. Business Organization and Nature of Operations Intellinetics, Inc., formerly known as GlobalWise Investments, Inc., is a Nevada corporation incorporated in 1997, with two wholly-owned subsidiaries: Intellinetics, Inc., an Ohio corporation (“Intellinetics Ohio”), and Graphic Sciences, Inc., a Michigan corporation (“Graphic Sciences”).
AND SUBSIDIARY Notes to Consolidated Financial Statements 1. Business Organization and Nature of Operations Intellinetics, Inc., formerly known as GlobalWise Investments, Inc., is a Nevada corporation incorporated in 1997, with two wholly-owned subsidiaries: Intellinetics Ohio and Graphic Sciences.
Significant estimates and assumptions include valuation allowances related to receivables, accounts receivable -unbilled, the recoverability of long-term assets, depreciable lives of property and equipment, purchase price allocations for acquisitions, fair value for goodwill and intangibles, the right-of-use assets and lease liabilities, estimates of fair value deferred taxes and related valuation allowances.
Significant estimates and assumptions include credit loss allowances related to receivables, accounts receivable -unbilled, the recoverability of long-term assets, depreciable lives of property and equipment, fair value for goodwill and intangibles, right-of-use assets and lease liabilities, estimates of fair value deferred taxes and related valuation allowances.
We recorded an allowance of $ 24,000 at December 31, 2023 and 2022. F-9 Property and Equipment Property, equipment and leasehold improvements are stated at cost less accumulated depreciation and amortization. Depreciation and amortization is computed over the estimated useful lives of the related assets on a straight-line basis.
We recorded an allowance of $ 61,500 at December 31, 2024 and 2023. F-9 Property and Equipment Property, equipment and leasehold improvements are stated at cost less accumulated depreciation. Depreciation is computed over the estimated useful lives of the related assets on a straight-line basis.
For the years ended December 31, 2023, and 2022, government contracts, including K-12 education, represented approximately 80 % and 77 % of our net revenues, respectively. A significant portion of our sales to resellers represent ultimate sales to government agencies.
For the years ended December 31, 2024, and 2023, government contracts, including K-12 education, represented approximately 80 % of our net revenues for each period. A significant portion of our sales to resellers represent ultimate sales to government agencies.
The Company recognizes current estimated credit losses (“CECL”) for accounts receivable and accounts receivable-unbilled. The CECL for trade receivables are estimated based on the trade receivable aging category, credit risk of specific customers, past collection history, and management’s evaluation of accounts receivable. Provisions for CECL are classified within selling, general and administrative costs.
We estimate a current estimated credit losses (“CECL”) for accounts receivable and accounts receivable-unbilled. The CECL for receivables are estimated based on the receivable aging category, credit risk of specific customers, past collection history, and management’s evaluation of collectability. Provisions for CECL are classified within selling, general and administrative costs.
As of December 31, 2022, the aggregate amount of the transaction price allocated to remaining performance obligations for software as a service and software maintenance contracts with a duration greater than one year was $ 74,448 .
As of December 31, 2024, the aggregate amount of the transaction price allocated to remaining performance obligations for software as a service and software maintenance contracts with a duration greater than one year was $ 44,971 .
Management believes that the carrying value of the 2020 Notes and 2022 Notes approximate fair value given that, while there has been change in the overall economic environment, including a significant increase in interest rates, there has not been significant net availability of credit to the Company.
Management believes that the carrying value of the 2022 Notes approximate fair value given that, while there have been changes in the overall economic environment, including an increase in interest rates, there has not been significant net availability of credit to the Company.
Changes in the allowance for credit losses for the period ended December 31, 2023 were as follows: Schedule of Allowance for Credit Losses Trade Receivables As of December 31, 2022 $ (88,331 ) (Provisions) reductions charged to operating results $ (50,018 ) Accounts write-offs $ 14,246 As of December 31, 2023 $ (124,103 ) Parts and Supplies Parts and supplies are valued at the lower of cost or net realizable value.
Changes in the allowance for credit losses for the periods ended December 31, 2024 and 2023 were as follows: Schedule of Allowance for Credit Losses Trade Receivables As of December 31, 2023 $ (124,103 ) Reductions (provisions) charged to operating results $ 9,117 Account write-offs $ 59,079 As of December 31, 2024 $ (55,907 ) Trade Receivables As of December 31, 2022 $ (88,331 ) (Provisions) reductions charged to operating results $ (50,018 ) Account write-offs $ 14,246 As of December 31, 2023 $ (124,103 ) Parts and Supplies Parts and supplies are valued at the lower of cost or net realizable value.
As of December 31, 2023, accounts receivable concentrations from our two largest customers were 62 % and 3 % of gross accounts receivable, respectively by customer. As of December 31, 2022, accounts receivable concentrations from our two largest customers were 44 % and 7 % of gross accounts receivable, respectively by customer.
As of December 31, 2024, accounts receivable concentrations from our two largest customers were 58 % and 6 % of gross accounts receivable, respectively by customer. As of December 31, 2023, accounts receivable concentrations from our two largest customers were 62 % and 3 % of gross accounts receivable, respectively by customer.
The total fair value of stock options that vested during the years ended December 31, 2023 and 2022 was $ 467,771 and $ 91,913 , respectively.
The total fair value of stock options that vested during the years ended December 31, 2024 and 2023 was $ 696,620 and $ 467,771 , respectively.
Employment Agreements We have entered into employment agreements with three of our key executives, including one of our founders. Under their respective employment agreements, the executives are employed on an “at-will” basis and are bound by typical confidentiality, non-solicitation and non-competition provisions.
Employment Agreements We have entered into employment agreements with three of our key executives, including one of our founders. Under their respective employment agreements, the executives are bound by typical confidentiality, non-solicitation and non-competition provisions. Two of the executives have severance arrangements.
As of December 31, 2023 and 2022, there was $ 547,981 and $ 1,019,140 , respectively, of total unrecognized compensation costs related to stock options granted under our stock option agreements. The unrecognized compensation cost is expected to be recognized over a weighted-average period of one year.
As of December 31, 2024 and 2023, there was $ 213,247 and $ 547,981 , respectively, of total unrecognized compensation costs related to stock options granted under our stock option agreements. The unrecognized compensation cost is expected to be recognized over a weighted-average period of two years.
Such costs in the amount of $ 43,771 were capitalized during the 2022. In accordance with ASC 350-40, “Internal-Use Software,” we capitalize purchase and implementation costs of internal use software. Once an application has reached development stage, internal and external costs, if direct and incremental, are capitalized until the software is substantially complete and ready for its intended use.
In accordance with ASC 350-40, “Internal-Use Software,” we capitalize purchase and implementation costs of internal use software. Once an application has reached development stage, internal and external costs, if direct and incremental, are capitalized until the software is substantially complete and ready for its intended use. Capitalization ceases upon completion of all substantial testing.
We used a portion of the net proceeds of the offering to finance the acquisition of Yellow Folder, and used the remaining net proceeds for working capital and general corporate purposes, including debt reduction. We retained Taglich Brothers, Inc. as the exclusive placement agent for the private placement.
We used a portion of the net proceeds of the offering to finance the acquisition of Yellow Folder, and used the remaining net proceeds for working capital and general corporate purposes, including debt reduction.
Capitalized costs are stated at cost less accumulated amortization. Amortization is computed over the estimated useful lives of the related assets on a straight-line basis, which is three years. At December 31, 2023 and 2022, our consolidated balance sheets included $ 630,979 and $ 402,673 , respectively, in other long-term assets.
Amortization is computed over the estimated useful lives of the related assets on a straight-line basis, which is three years. At December 31, 2024 and 2023, our consolidated balance sheets included $ 670,292 and $ 630,979 , respectively, in other long-term assets.
Warrants The following sets forth the warrants to purchase our common stock that were outstanding as of December 31, 2023: ● Warrants to purchase 3,000 shares of common stock at an exercise price of $ 15.00 per share exercisable until March 30, 2027 , issued to certain 5% stockholders. ● Warrants to purchase 17,200 shares of common stock at an exercise price of $ 12.50 per share exercisable until March 30, 2027 , issued to the placement agent in connection with private placements of our convertible promissory notes. ● Warrants to purchase 16,000 shares of common stock at an exercise price of $ 9.00 per share exercisable until March 30, 2027 , issued to the placement agent in connection with private placements of our convertible promissory notes. ● Warrants to purchase 95,500 shares of common stock at an exercise price of $ 4.00 per share exercisable until March 30, 2027 , issued to the placement agent in connection with private placements of our promissory notes. ● Warrants to purchase 124,258 shares of common stock at an exercise price of $ 4.62 per share exercisable until March 30, 2027 , issued to the placement agent in connection with private placements of our promissory notes.
Warrants The following sets forth the warrants to purchase our common stock that were outstanding as of December 31, 2024: Schedule of Warrants to Purchase Common Stock Warrants Outstanding Warrant Exercise Price Warranty Expiry 124,258 $ 4.62 March 30, 2027 (1) 95,500 $ 4.00 March 30, 2027 (1) 16,000 $ 9.00 March 30, 2027 (1) 17,200 $ 12.50 March 30, 2027 (1) 3,000 $ 15.00 March 30, 2027 (2) (1) Issued to the placement agent in connection with private placements of our convertible promissory notes.
The following table presents changes in our contract liabilities during the years ended December 31, 2023 and 2022: Balance at Beginning of Period Addition from acquisition (Note 4) Billings Recognized Revenue Balance at End of Period Year ended December 31, 2023 Contract liabilities: Deferred revenue $ 2,754,064 $ - $ 7,808,195 $ (7,634,451 ) $ 2,927,808 Year ended December 31, 2022 Contract liabilities: Deferred revenue $ 1,194,649 $ 860,456 $ 7,107,625 $ (6,408,666 ) $ 2,754,064 i) Rights of return and customer acceptance We do not generally offer variable consideration, financing components, rights of return or any other incentives such as concessions, product rotation, or price protection and, therefore, does not provide for or make estimates of rights of return and similar incentives.
The following table presents changes in our contract liabilities during the years ended December 31, 2024 and 2023: Balance at Beginning of Period Billings Recognized Revenue Balance at End of Period Year ended December 31, 2024 Contract liabilities: Deferred revenue $ 2,927,808 $ 8,071,221 $ (7,587,177 ) $ 3,411,852 Year ended December 31, 2023 Contract liabilities: Deferred revenue $ 2,754,064 $ 7,808,195 $ (7,634,451 ) $ 2,927,808 i) Rights of return and customer acceptance We do not generally offer variable consideration, financing components, rights of return or any other incentives such as concessions, product rotation, or price protection and, therefore, does not provide for or make estimates of rights of return and similar incentives.
Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. A 100 % valuation allowance has been established on deferred tax assets at December 31, 2023 and 2022, due to the uncertainty of our ability to realize future taxable income.
A 100 % valuation allowance has been established on deferred tax assets at December 31, 2024 and 2023, due to the uncertainty of our ability to realize future taxable income.
(“CEO Image”) asset acquisition in April 2020, consists primarily of solutions involving our software platform, allowing customers to capture and manage their documents across operations such as scanned hard-copy documents and digital documents including those from Microsoft Office 365, digital images, audio, video and emails.
Our Document Management segment, which includes the Yellow Folder assets acquired in April 2022 and the CEO Image asset acquired in April 2020, consists primarily of solutions involving our software platform, allowing customers to capture and manage their documents across operations such as scanned hard-copy documents and digital documents including those from Microsoft Office 365, digital images, audio, video and emails.
The following table represents future amortization expense for intangible assets subject to amortization. Schedule of Amortization Expense for Intangible Assets For the Years Ending December 31, Amount 2024 $ 510,308 2025 492,841 2026 352,441 2027 326,108 2028 309,129 Thereafter 1,918,511 Intangible assets $ 3,909,338 6.
The following table represents future amortization expense for intangible assets subject to amortization. Schedule of Amortization Expense for Intangible Assets For the Years Ending December 31 Amount 2025 $ 492,841 2026 352,441 2027 326,108 2028 309,129 2029 305,733 Thereafter 1,612,777 Intangible assets $ 3,399,029 5.
Property and Equipment Property and equipment are comprised of the following: Schedule of Property and Equipment December 31, 2023 December 31, 2022 Computer hardware and purchased software $ 1,437,023 $ 1,352,581 Leasehold improvements 395,919 395,918 Furniture and fixtures 324,296 314,396 Property and equipment, gross 2,157,238 2,062,895 Less: accumulated depreciation (1,232,981 ) (994,189 ) Property and equipment, net $ 924,257 $ 1,068,706 Total depreciation expense on our property and equipment for the years ended December 31, 2023 and 2022 amounted to $ 255,689 and $ 229,599 , respectively.
Property and Equipment Property and equipment are comprised of the following: Schedule of Property and Equipment December 31, 2024 December 31, 2023 Computer hardware and purchased software $ 1,867,024 $ 1,437,023 Leasehold improvements 395,919 395,919 Furniture and fixtures 324,296 324,296 Property and equipment, gross 2,587,239 2,157,238 Less: accumulated depreciation (1,493,372 ) (1,232,981 ) Property and equipment, net $ 1,093,867 $ 924,257 Total depreciation expense on our property and equipment for the years ended December 31, 2024 and 2023 amounted to $ 269,046 and $ 255,689 , respectively.
We used a portion of the net proceeds from the private placement offering to finance the acquisition of Yellow Folder and the remaining net proceeds for working capital and general corporate purposes. 10. Deferred Compensation We made no deferred incentive compensation payments during 2023.
We used a portion of the net proceeds from the private placement offering to finance the acquisition of Yellow Folder and the remaining net proceeds for working capital and general corporate purposes. F-15 8.
The provision for income taxes is computed by applying statutory rates to income before taxes. Deferred income taxes are recognized for the tax consequences in future years of temporary differences between the financial reporting and tax bases of assets and liabilities as of each period-end based on enacted tax laws and statutory rates.
Deferred income taxes are recognized for the tax consequences in future years of temporary differences between the financial reporting and tax bases of assets and liabilities as of each period-end based on enacted tax laws and statutory rates. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.
Our CODM assesses performance and allocates resources based on two operating segments: Document Management and Document Conversion. These segments contain individual business components that have been combined on the basis of common management, customers, solutions offered, service processes and other economic characteristics. We currently have immaterial intersegment sales. We evaluate the performance of our segments based on gross profits.
These segments contain individual business components that have been combined on the basis of common management, customers, solutions offered, service processes and other economic characteristics, as well as how our CODM reviews our operating results in assessing performance and allocating resources. We currently have immaterial intersegment sales.
The weighted average assumptions that were used in calculating such values during the year ended December 31, 2022, as well as the assumptions that were used in calculating such values, were based on estimates at the grant date in the table as follows: Schedule of Estimated Values of Stock Option Grants Valuation Assumptions Grant Date April 14, 2022 Risk-free interest rate 2.82 % Weighted average expected term 6 years Expected volatility 116.60 % Expected dividend yield 0.00 % A summary of stock option activity during the years ended December 31, 2023 and 2022 is as follows: Schedule of Stock Option Activity Weighted- Weighted- Average Average Remaining Aggregate Shares Exercise Contractual Intrinsic Under Option Price Life Value Outstanding at January 1, 2023 365,447 $ 5.89 8 years $ 19,200 Forfeited (7,560 ) 15.34 (19,200 ) Outstanding at December 31, 2023 357,887 $ 5.69 8 years $ - Exercisable at December 31, 2023 186,594 $ 5.60 7 years $ - Weighted- Weighted- Average Shares Average Remaining Aggregate Under Exercise Contractual Intrinsic Option Price Life Value Outstanding at January 1, 2022 144,860 $ 5.61 8 years $ 19,200 Granted 220,587 6.08 Outstanding at December 31, 2022 365,447 $ 5.89 8 years $ 19,200 Exercisable at December 31, 2022 93,085 $ 6.44 7 years $ 19,200 F-22 During the years ended December 31, 2023 and 2022, stock-based compensation for options was $ 464,529 and $ 363,950 , respectively.
The weighted average assumptions that were used in calculating such values during the twelve months ended December 31, 2024, as well as the assumptions that were used in calculating such values, were based on estimates at the grant date in the table as follows: Schedule of Estimated Values of Stock Option Grants Valuation Assumptions Grant Date August 16, 2024 Grant Date September 4, 2024 Risk-free interest rate 3.77 % 3.61 % Weighted average expected term 5 years 6 years Expected volatility 100.97 % 101.00 % Expected dividend yield 0.00 % 0.00 % A summary of stock option activity during the years ended December 31, 2024 and 2023 is as follows: Schedule of Stock Options Activity Weighted- Weighted- Average Average Remaining Aggregate Shares Exercise Contractual Intrinsic Under Option Price Life Value Outstanding at January 1, 2024 357,887 $ 5.69 8 years $ - Granted 50,500 9.16 Exercised (29,976 ) 5.07 Forfeited (4,000 ) 4.63 - Outstanding at December 31, 2024 374,411 $ 6.22 7 years $ - Exercisable at December 31, 2024 284,912 $ 6.06 7 years $ - Weighted- Weighted- Average Average Remaining Aggregate Shares Exercise Contractual Intrinsic Under Option Price Life Value Outstanding at January 1, 2023 365,447 $ 5.89 8 years $ 19,200 Forfeited (7,560 ) 15.34 (19,200 ) Outstanding at December 31, 2023 357,887 $ 5.69 8 years $ - Exercisable at December 31, 2023 186,594 $ 5.60 7 years $ - During the years ended December 31, 2024 and 2023, stock-based compensation for options was $ 690,819 and $ 464,529 , respectively.
Diluted income or loss per share is computed by dividing net income or loss by the diluted weighted average number of shares of common stock outstanding during the period. The diluted weighted average number of shares gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method.
Earnings Per Share Basic income or loss per share is computed by dividing net income or loss by the weighted average number of shares of common stock outstanding during the period. Diluted income or loss per share is computed by dividing net income or loss by the diluted weighted average number of shares of common stock outstanding during the period.
The Document Conversion Segment provides services for scanning and indexing, converting images from paper to digital, paper to microfilm, and microfiche to microfilm, as well as long-term physical document storage and retrieval. This segment conducts its primary operations in the United States. Markets served include businesses and state, county, and municipal governments.
Solutions are sold both directly to end-users and through resellers. The Document Conversion Segment provides services for scanning and indexing, converting images from paper to digital, paper to microfilm, and microfiche to microfilm, as well as long-term physical document storage and retrieval. This segment conducts its primary operations in the United States.
Common Stock As of December 31, 2023, 4,113,621 shares of common stock were issued and outstanding, 255,958 shares of common stock were reserved for issuance upon the exercise of outstanding warrants, and 497,330 shares of common stock were reserved for issuance under our 2015 Equity Incentive Plan, as amended (the “2015 Plan”).
Common Stock As of December 31, 2024, 4,249,735 shares of common stock were issued and outstanding, 255,958 shares of common stock were reserved for issuance upon the exercise of outstanding warrants, 582,976 shares of common stock were reserved for issuance under our 2015 Equity Incentive Plan, as amended (the “2015 Plan”), and our 2024 Equity Incentive Plan (the “2024 Plan”), and 110,136 shares were reserved for issuance under our 2023 Non-Employee Director Compensation Plan.
The following tables present changes in our accounts receivable and contract assets during the years ended December 31, 2023, and 2022: Schedule of Changes in Contract Assets and Liabilities Balance at Beginning of Period Addition from acquisition (Note 5) Billings Payments Received Balance at End of Period Year ended December 31, 2023 Accounts receivable $ 1,121,083 $ - - - - $ 16,389,136 $ (15,659,844) $ 1,850,375 Year ended December 31, 2022 Accounts receivable $ 1,176,059 $ 68,380 $ 14,422,286 $ (14,545,641 ) $ 1,121,083 Balance at Beginning of Period Revenue Recognized in Advance of Billings Billings Balance at End of Period Year ended December 31, 2023 Accounts receivable, unbilled $ 596,410 $ 5,195,866 $ (4,471,439 ) $ 1,320,837 Year ended December 31, 2022 Accounts receivable, unbilled $ 444,782 $ 3,776,612 $ (3,624,984 ) $ 596,410 Balance at Beginning of Period Commissions Paid Commissions Recognized Balance at End of Period Year ended December 31, 2023 Contract assets $ 80,378 $ 194,455 $ (134,668 ) $ 140,165 Year ended December 31, 2022 Contract assets $ 78,556 $ 120,966 $ (119,144 ) $ 80,378 h) Deferred revenue Amounts that have been invoiced are recognized in accounts receivable, deferred revenue or revenue, depending on whether the revenue recognition criteria have been met.
The following tables present changes in our accounts receivable and contract assets during the years ended December 31, 2024, and 2023: Schedule of Changes in Contract Assets and Liabilities Balance at Beginning of Period Billings Payments Received Balance at End of Period Year ended December 31, 2024 Accounts receivable $ 1,850,375 $ 18,712,905 $ (19,451,776 ) $ 1,111,504 Year ended December 31, 2023 Accounts receivable $ 1,121,083 $ 16,389,136 $ (15,659,844 ) $ 1,850,375 Balance at Beginning of Period Revenue Recognized in Advance of Billings Billings Balance at End of Period Year ended December 31, 2024 Accounts receivable, unbilled $ 1,320,837 $ 5,812,863 $ (5,837,176 ) $ 1,296,524 Year ended December 31, 2023 Accounts receivable, unbilled $ 596,410 $ 5,195,866 $ (4,471,439 ) $ 1,320,837 Balance at Beginning of Period Commissions Paid Commissions Recognized Balance at End of Period Year ended December 31, 2024 Other contract assets $ 140,165 $ 173,417 $ (173,886 ) $ 139,696 Year ended December 31, 2023 Other contract assets $ 80,378 $ 194,455 $ (134,668 ) $ 140,165 h) Deferred revenue Amounts that have been invoiced are recognized in accounts receivable, deferred revenue or revenue, depending on whether the revenue recognition criteria have been met.
Intangible Assets, Net At December 31, 2023, intangible assets consisted of the following: Schedule of Intangible Assets Estimated Accumulated Useful Life Costs Amortization Net Trade names 10 years $ 297,000 $ (76,767 ) $ 220,233 Proprietary technology 10 years 861,000 (150,675 ) 710,325 Customer relationships 5 - 15 years 4,091,000 (1,112,220 ) 2,978,780 $ 5,249,000 $ (1,339,662 ) $ 3,909,338 At December 31, 2022, intangible assets consisted of the following: Estimated Accumulated Useful Life Costs Amortization Net Trade names 10 years $ 297,000 $ (47,067 ) $ 249,933 Proprietary technology 10 years 861,000 (64,575 ) 796,425 Customer relationships 5 - 15 years 4,091,000 (717,712 ) 3,373,288 $ 5,249,000 $ (829,354 ) $ 4,419,646 Amortization expense for the years ended December 31, 2023 and 2022, amounted to $ 510,308 and $ 436,850 , respectively.
Intangible Assets, Net At December 31, 2024, intangible assets consisted of the following: Schedule of Intangible Assets Estimated Accumulated Useful Life Costs Amortization Net Trade names 10 years $ 297,000 $ (106,467 ) $ 190,533 Proprietary technology 10 years 861,000 (236,775 ) 624,225 Customer relationships 5 - 15 years 4,091,000 (1,506,729 ) 2,584,271 $ 5,249,000 $ (1,849,971 ) $ 3,399,029 At December 31, 2023, intangible assets consisted of the following: Estimated Accumulated Useful Life Costs Amortization Net Trade names 10 years $ 297,000 $ (76,767 ) $ 220,233 Proprietary technology 10 years 861,000 (150,675 ) 710,325 Customer relationships 5 - 15 years 4,091,000 (1,112,220 ) 2,978,780 $ 5,249,000 $ (1,339,662 ) $ 3,909,338 Amortization expense for the years ended December 31, 2024 and 2023, amounted to $ 510,309 and $ 510,308 , respectively.
Capitalization ceases upon completion of all substantial testing. We also capitalize costs related to specific upgrades and enhancements when it is probable that the expenditure will result in additional functionality. Such costs in the amount of $ 436,837 were capitalized during 2023. Such costs in the amount of $ 376,345 were capitalized during 2022.
We also capitalize costs related to specific upgrades and enhancements when it is probable that the expenditure will result in additional functionality. Such costs in the amount of $ 388,570 were capitalized during 2024. Such costs in the amount of $ 436,837 were capitalized during 2023. Capitalized costs are stated at cost less accumulated amortization.
Notes Payable – Unrelated Parties Summary of Notes Payable to Unrelated Parties The table below summarizes all notes payable at December 31, 2023 and 2022, respectively with the exception of related party notes disclosed in Note 9 “Notes Payable - Related Parties.” Schedule of Notes Payable December 31, 2023 December 31, 2022 2022 Unrelated Notes $ 2,364,500 $ 2,364,500 2020 Notes - 980,450 Total notes payable $ 2,364,500 $ 3,344,950 Less unamortized debt issuance costs (155,258 ) (300,904 ) Less unamortized debt discount - (22,045 ) Less current portion, net - (936,966 ) Long-term portion of notes payable $ 2,209,242 $ 2,085,035 Subordinated Notes Payable Issue Date Interest Rate Interest Due Principal Due 2022 Unrelated Notes April 1, 2022 12 % Quarterly March 30, 2025 Future minimum principal payments of the Notes Payable to Unrelated Parties are as follows: Schedule of Future Minimum Principal Payments of Notes payable As of December 31, Amount 2025 $ 2,364,500 Total $ 2,364,500 As of December 31, 2023 and 2022, accrued interest for these notes payable with the exception of the related party notes in Note 9, “Notes Payable - Related Parties,” was $ 0 .
Notes Payable – Unrelated Parties Summary of Notes Payable to Unrelated Parties The table below summarizes all notes payable at December 31, 2024 and 2023, respectively, other than the related party notes disclosed in Note 8 “Notes Payable - Related Parties.” Schedule of Notes Payable December 31, 2024 December 31, 2023 Notes payable – “2022 Unrelated Notes” $ 807,331 $ 2,364,500 Less unamortized debt issuance costs (25,395 ) (155,258 ) Less current portion (781,936 ) - Long-term portion of notes payable $ - $ 2,209,242 The principal terms of the 2022 Unrelated Notes, which are subordinated notes, as of December 31, 2024 are as follows: Schedule of Subordinated Notes Issue Date Interest Rate Interest Due Principal Due April 1, 2022 12 % Quarterly December 31, 2025 Future minimum principal payments of the Notes Payable to Unrelated Parties of $ 807,331 are due on December 31, 2025 .
Schedule of Operating Lease Location Square Feet Monthly Rent Lease Expiry Columbus, OH 6,000 $ 5,100 December 31, 2028 Madison Heights, MI 36,000 $ 44,049 August 31, 2026 Sterling Heights, MI 37,000 $ 21,692 April 30, 2028 Traverse City, MI 5,200 $ 4,500 January 31, 2024 Temporary space Madison Heights, MI 3,200 $ 1,605 month to month Vehicles various n/a $ 4,901 September 30, 2028 The following table sets forth the future minimum lease payments under our leases: Schedule of Future Rental Payment for Operating Lease For the Year Ending December 31, Finance Lease Operating Leases 2024 $ 67,358 $ 955,427 2025 67,358 956,826 2026 59,253 721,664 2027 47,028 355,972 2028 26,912 166,884 Less imputed interest (42,040 ) (496,382 ) Less short-term lease payments - (4,814 ) Total $ 225,869 $ 2,655,577 F-19 The following table summarizes the components of lease expense: Summary of Components of Lease Expense For the Year Ending December 31, 2023 2022 Finance lease expense: Amortization of ROU assets $ 42,115 $ 6,708 Interest on lease liabilities 16,514 2,933 Operating lease expense 954,040 952,270 Short-term lease expense 19,254 19,254 The following tables set forth additional information pertaining to our leases: Schedule of Additional Information Pertaining to Leases For the Year Ending December 31, 2023 2022 Cash paid for amounts included in the measurement of lease liabilities: Financing cash flows from finance leases (interest) $ 16,514 $ 2,933 Financing cash flows from finance leases (principal) 34,954 5,366 Operating cash flows from operating leases 720,889 635,324 ROU assets obtained in exchange for new finance lease liabilities 107,610 160,990 Weighted average remaining lease term – finance leases 4.2 years 5.8 years Weighted average remaining lease term – operating leases 3.5 years 4.5 years Discount rate – finance leases 8.87 % 7.50 Weighted average discount rate – operating leases 7.01 % 6.97 % Schedule of Operating and Finance Leases December 31, 2023 December 31, 2022 Operating leases: Right-of-use assets, operating $ 2,532,928 $ 3,200,191 Lease liabilities, operating – current $ 712,607 $ 692,074 Lease liabilities, operating – net of current 1,942,970 2,624,608 Total operating lease liabilities $ 2,655,577 $ 3,316,682 Finance leases: Right-of-use assets, finance $ 268,600 $ 160,990 Accumulated amortization (48,823 ) (6,708 ) Right-of-use assets, finance, net 219,777 154,282 Lease liabilities, finance – current 49,926 22,493 Lease liabilities, finance – net of current 175,943 133,131 Total finance lease liabilities $ 255,869 $ 155,624 12.
Schedule of Operating Lease Location Square Feet Monthly Rent Lease Expiry Columbus, OH 6,000 $ 5,400 December 31, 2028 Madison Heights, MI 36,000 $ 44,930 August 31, 2026 Sterling Heights, MI 37,000 $ 22,312 April 30, 2028 Traverse City, MI 5,200 $ 5,100 January 31, 2026 Temporary space Madison Heights, MI 3,200 $ 1,605 month to month Vehicles and equipment various n/a $ 10,160 September 30, 2028 The following table sets forth the future minimum lease payments under our leases: Schedule of Future Rental Payment for Operating Lease For the Years Ending December 31 Finance Lease Operating Leases 2025 $ 89,954 $ 956,826 2026 81,849 721,664 2027 69,624 355,972 2028 49,508 166,884 2029 7,533 - Less imputed interest (45,183 ) (197,474 ) $ 253,285 $ 2,003,872 F-17 The following table summarizes the components of lease expense: Summary of Components of Lease Expense For the Year Ending December 31, 2024 2023 Finance lease expense: Amortization of ROU assets $ 71,326 $ 42,115 Interest on lease liabilities 26,198 16,514 Operating lease expense 945,001 954,040 Short-term lease expense 19,254 19,254 The following tables set forth additional information pertaining to our leases: Schedule of Additional Information Pertaining to Leases For the Year Ending December 31, 2024 2023 Cash paid for amounts included in the measurement of lease liabilities: Financing cash flows from finance leases (interest) $ 26,198 $ 16,514 Financing cash flows from finance leases (principal) 61,874 34,954 Operating cash flows from operating leases 787,537 720,889 ROU assets obtained in exchange for new finance lease liabilities 89,289 107,610 Weighted average remaining lease term – finance leases 3.6 years 4.2 years Weighted average remaining lease term – operating leases 2.6 years 3.5 years Discount rate – finance leases 9.72 % 8.87 % Weighted average discount rate – operating leases 6.89 % 7.01 % 10.
As of December 31, 2023 and 2022, unamortized debt issuance costs and unamortized debt discount were reflected within short and long term liabilities on the consolidated balance sheets, netted with the corresponding notes payable balance.
As of December 31, 2024 and 2023, accrued interest for these notes payable – related parties was $ 0 . As of December 31, 2024 and 2023, unamortized deferred financing costs were reflected within long term liabilities on the condensed consolidated balance sheets, netted with the corresponding notes payable balance.
We finalize the purchase price allocation once certain initial accounting valuation estimates are finalized, and no later than 12 months following the acquisition date. Leases We determine if an arrangement is a lease at inception. Operating leases in which we are the lessee are included in operating lease right-of-use (“ROU”) assets and operating lease liabilities in the consolidated balance sheets.
F-10 Leases We determine if an arrangement is a lease at inception. Operating leases in which we are the lessee are included in operating lease right-of-use (“ROU”) assets and operating lease liabilities in the consolidated balance sheets.
The Document Management Segment provides cloud-based and premise-based content services software, including document management and payables automation. Its modular suite of solutions complements existing operating and accounting systems to serve a mission-critical role for organizations to make content secure, compliant, and process-ready. This segment conducts its primary operations in the United States.
Its modular suite of solutions complements existing operating and accounting systems to serve a mission-critical role for organizations to make content secure, compliant, and process-ready. This segment conducts its primary operations in the United States. Markets served include highly regulated, risk and compliance-intensive markets in K-12 education, public safety, other public sector, healthcare, risk management, financial services, and others.
Notes Payable - Related Parties Summary of Notes Payable to Related Parties The table below summarizes all notes payable to related parties at December 31, 2023 and 2022: Schedule of Notes Payable December 31, 2023 December 31, 2022 Notes payable – “2022 Related Note” $ 600,000 $ 600,000 Less unamortized debt issuance costs (39,398 ) (70,916 ) Long-term portion of notes payable $ 560,602 $ 529,084 Future minimum principal payments of the 2022 Notes to related parties are as follows: Schedule of Future Minimum Principal Payments of Notes Payable As of December 31, Amount 2025 $ 600,000 Total $ 600,000 As of December 31, 2023 and 2022, accrued interest for these notes payable – related parties was $ 0 .
Notes Payable - Related Parties Summary of Notes Payable to Related Parties The table below summarizes all notes payable to related parties at December 31, 2024 and 2023: Schedule of Notes Payable December 31, 2024 December 31, 2023 Notes payable – “2022 Related Notes” $ 532,169 $ 600,000 Less unamortized debt issuance costs (16,657 ) (39,398 ) Less current portion (515,512 ) - Long-term portion of notes payable $ - $ 560,602 The principal terms of the 2022 Related Notes, which are subordinated notes, as of December 31, 2024 are as follows: Schedule of Subordinated Notes Issue Date Interest Rate Interest Due Principal Due April 1, 2022 12 % Quarterly December 31, 2025 Future minimum principal payments of the 2022 Notes to related parties of $ 532,169 are due on December 31, 2025 .
Information by operating segment is as follows: Schedule of Segment Information Year ended December 31, 2023 Year ended December 31, 2022 Revenues Document Management $ 7,298,264 $ 5,999,726 Document Conversion 9,588,117 8,017,202 Total revenues $ 16,886,381 $ 14,016,928 Gross profit Document Management $ 6,133,130 $ 4,978,163 Document Conversion 4,430,825 3,930,995 Total gross profit $ 10,563,955 $ 8,909,158 Capital additions, net Document Management $ 441,990 $ 434,654 Document Conversion 106,087 186,442 Total capital additions, net $ 548,077 $ 621,096 December 31, 2023 December 31, 2022 Goodwill Document Management $ 3,989,645 $ 3,989,645 Document Conversion 1,800,176 1,800,176 Total goodwill $ 5,789,821 $ 5,789,821 December 31, 2023 December 31, 2022 Total assets Document Management $ 10,104,004 $ 10,284,143 Document Conversion 8,922,256 9,658,959 Total assets $ 19,026,260 $ 19,943,142 Statement of Cash Flows For purposes of reporting cash flows, cash includes cash on hand and demand deposits held by banks.
Information by operating segment is as follows: Schedule of Segment Information Year ended December 31, 2024 Year ended December 31, 2023 Revenues Document Management $ 7,523,874 $ 7,298,264 Document Conversion 10,494,499 9,588,117 Total revenues $ 18,018,373 $ 16,886,381 Cost of revenues Document Management $ 978,262 $ 1,165,134 Document Conversion 5,515,185 5,157,292 Total cost of revenues $ 6,493,447 $ 6,322,426 Gross profit Document Management $ 6,545,612 $ 6,133,130 Document Conversion 4,979,314 4,430,825 Total gross profit $ 11,524,926 $ 10,563,955 Capital additions, net Document Management $ 593,471 $ 441,990 Document Conversion 234,302 106,087 Total capital additions, net $ 827,773 $ 548,077 December 31, 2024 December 31, 2023 Goodwill Document Management $ 3,989,645 $ 3,989,645 Document Conversion 1,800,176 1,800,176 Total goodwill $ 5,789,821 $ 5,789,821 December 31, 2024 December 31, 2023 Total assets Document Management $ 9,641,347 $ 10,104,004 Document Conversion 8,933,609 8,922,256 Total assets $ 18,574,956 $ 19,026,260 Statement of Cash Flows For purposes of reporting cash flows, cash includes cash on hand and demand deposits held by banks. 4.
During the years ended December 31, 2023 and 2022, our largest customer, the State of Michigan, accounted for 35 % and 38 %, respectively, of our total revenues for each period, and our second largest customer, Rocket Mortgage, accounted for 5 % and 6 %, respectively, of our total revenues.
F-20 12. Concentrations Revenues from a limited number of customers have accounted for a substantial percentage of our total revenues. During the years ended December 31, 2024 and 2023, our largest customer, the State of Michigan, accounted for 40 % and 35 %, respectively, of our total revenues for each period.
Diluted earnings per share exclude all diluted potential shares if their effect is anti-dilutive, including warrants or options which are out-of-the-money and for those periods with a net loss. The twelve months ended December 31, 2023 and 2022 reported net income. Income Taxes We file a consolidated federal income tax return with our subsidiaries.
The diluted weighted average number of shares gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method. Diluted earnings per share exclude all diluted potential shares if their effect is anti-dilutive, including warrants or options which are out-of-the-money and for those periods with a net loss.
Restricted Stock On December 28, 2023 and January 6, 2022, we issued 39,864 shares and 8,097 shares, respectively, of restricted common stock to our directors as part of their annual compensation plan. The grants of restricted common stock were made outside the 2015 Plan and were not subject to vesting.
Stock compensation of $ 805,955 was recorded on the issuance of the common stock for the year ended December 31, 2024. On December 28, 2023, we issued 39,864 shares of restricted common stock to our directors as part of their annual compensation plan.
As of December 31, 2023 and 2022, unamortized deferred financing costs were reflected within long term liabilities on the consolidated balance sheets.
As of December 31, 2024 and 2023, unamortized deferred financing costs were reflected within short term and long term liabilities, respectively, on the consolidated balance sheets, netted with the corresponding notes payable balance. In July 2024, a principal amount of $ 250,000 of the 2022 Unrelated Notes were sold by the unrelated noteholder to related parties at face value.
Stock compensation of $ 147,500 and $ 57,500 was recorded on this issuance of restricted common stock for the years ended December 31, 2023 and 2022, respectively. Stock Options We did not make any stock option grants during 2023.
The grants of restricted common stock were made in accordance with our 2023 Non-Employee Director Compensation Plan and were not subject to vesting. Stock compensation of $ 147,500 was recorded on this issuance of restricted common stock for the year ended December 31, 2023.
Solutions are sold both directly to end-users and through a reseller distributor.
Markets served include businesses and state, county, and municipal governments. Solutions are sold both directly to end-users and through resellers.
Principal in the amount of $ 845,000 remains due and payable on March 30, 2025 . Interest on the 2022 Unrelated Notes accrues at the rate of 12 % per annum, payable quarterly in cash, beginning on September 30, 2022. Any accrued but unpaid quarterly installment of interest will accrue interest at the rate of 14.0 % per annum.
Any accrued but unpaid quarterly installment of interest will accrue interest at the rate of 14.0 % per annum.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.
Shares in the amount of 9,541 were issued in a cashless exercise. F-21 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.
Interest on the 2020 Notes accrued at the rate of 12 % per annum, payable quarterly in cash, beginning on June 30, 2021. We used a portion of the net proceeds from the private placement offering to finance the acquisitions of Graphic Sciences and CEO Image and the remaining net proceeds for working capital and general corporate purposes.
We used a portion of the net proceeds from the private placement offering to finance the acquisition of Yellow Folder and the remaining net proceeds for working capital and general corporate purposes. F-16 9.
For the years ended December 31, 2023, and 2022, our expensed software development costs were $ 558,976 and $ 253,797 , respectively. F-11 Recently Issued Accounting Pronouncements Not Yet Effective No Accounting Standards Updates that have been issued but are not yet effective are expected to have a material effect on our future consolidated financial statements.
There are no other accounting standards that have been issued but not yet adopted that we believe could have a material impact on our consolidated financial statements. Advertising We expense the cost of advertising as incurred. Advertising expense for the years ended December 31, 2024 and 2023 amounted to $ 70,242 and $ 26,404 , respectively.
On March 13, 2024, we agreed with the note holder to amend the Related Notes to extend the maturity date to December 31, 2025, Interest on the 2022 Related Note accrues at the rate of 12 % per annum, payable quarterly in cash, beginning on September 30, 2022.
Taglich (each a more than 5% beneficial owner of the Company’s shares), and $ 100,000 sold to Nicholas Taglich and Juliana Taglich. Interest on the 2022 Related Note accrues at the rate of 12 % per annum, payable quarterly in cash, beginning on September 30, 2022.
On April 14, 2022, we granted employees stock options to purchase 220,587 shares at an exercise price of $ 6.08 per share in accordance with the 2015 Plan, with vesting continuing until 2025. The total fair value of $ 1,152,470 for these stock options is being recognized over the requisite service period.
On September 4, 2024, we granted employees stock options to purchase 14,500 shares at an exercise price of $ 10.12 per share, the fair market value of the shares on the grant date, under the 2015 Plan, with annual vesting through 2027 based on service time.
Schedule of Estimated Values of Warrants Valuation Assumptions Warrants Issued April 1, 2022 Risk-free interest rate 2.55 % Weighted average expected term 5 years Expected volatility 116.32 % Expected dividend yield 0.00 % F-21 13. Stock-Based Compensation From time to time, we issue stock options and restricted stock as compensation for services rendered by our directors and employees.
(2) Issued to certain 5% stockholders. 11. Stock-Based Compensation From time to time, we issue stock options and restricted stock as compensation for services rendered by our directors and employees. Restricted Stock On March 19, 2024, we granted 127,500 shares of restricted common stock to certain employees.
Removed
Our Document Management segment, which includes the Yellow Folder, LLC (“Yellow Folder”) asset acquisition in April 2022 and the CEO Imaging Systems, Inc.
Added
For the years ended December 31, 2024, and 2023, our expensed software development costs were $ 690,926 and $ 558,976 , respectively. F-11 Recently Adopted Accounting Pronouncements In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (“ASU 2023-07”).
Removed
F-10 Purchase Accounting Related Fair Value Measurements We allocate the purchase price, including contingent consideration, of our acquisitions to the assets and liabilities acquired, including identifiable intangible assets, based on their respective fair values at the date of acquisition, with the exception of acquired contract assets and contract liabilities, which are measured under ASC 606.
Added
ASU 2023-07 requires disclosure of significant segment expenses that are regularly provided to the chief operating decision maker (“CODM”) and included within each reported measure of segment profit or loss, an amount and description of its composition for other segment items to reconcile to segment profit or loss, and the title and position of the entity’s CODM.
Removed
Such fair market value assessments are primarily based on third-party valuations using assumptions developed by management that require significant judgments and estimates that can change materially as additional information becomes available.
Added
The amendments in this update also expand the interim segment disclosure requirements. ASU 2023-07 became effective for us for the fiscal year ending December 31, 2024 and we applied the amendments retrospectively to all prior periods presented in our consolidated financial statements.
Removed
The purchase price allocated to intangibles is based on unobservable factors, including but not limited to, projected revenues, expenses, customer attrition rates, a weighted average cost of capital, among others. The weighted average cost of capital uses a market participant’s cost of equity and after-tax cost of debt and reflects the risks inherent in the cash flows.
Added
See the Segment Information section of this Note 3 to our Consolidated Financial Statements for more information regarding our reportable segments. Recently Issued Accounting Pronouncements Not Yet Effective In December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures, which amends the guidance in ASC 740, Income Taxes.
Removed
The approach to valuing the initial contingent consideration associated with the purchase price also uses similar unobservable factors such as projected revenues and expenses over the term of the contingent earn-out period, discounted for the period over which the initial contingent consideration is measured, and volatility rates.
Added
The ASU is intended to improve the transparency of income tax disclosures by requiring (1) consistent categories and greater disaggregation of information in the rate reconciliation and (2) income taxes paid disaggregated by jurisdiction. It also includes certain other amendments to improve the effectiveness of income tax disclosures.
Removed
Advertising We expense the cost of advertising as incurred. Advertising expense for the years ended December 31, 2023 and 2022 amounted to $ 26,404 and $ 25,830 , respectively. Earnings Per Share Basic income or loss per share is computed by dividing net income or loss by the weighted average number of shares of common stock outstanding during the period.
Added
The ASU’s amendments are effective for public business entities for annual periods beginning after December 15, 2024. Entities are permitted to early adopt the standard “for annual financial statements that have not yet been issued or made available for issuance.” We are currently evaluating the impact of this ASU but do not expect any material impact upon adoption.
Removed
Markets served include highly regulated, risk and compliance-intensive markets in K-12 education, public safety, other public sector, healthcare, risk management, financial services, and others. Solutions are sold both directly to end-users and through resellers.
Added
We have outstanding warrants and stock options which have not been included in the calculation of diluted net loss per share for the twelve months ended December 31, 2024 because to do so would be anti-dilutive. As such, the numerator and the denominator used in computing both basic and diluted net loss per share for those periods are the same.
Removed
F-13 Reclassifications Certain amounts reported in prior filings of the consolidated financial statements have been reclassified to conform to current presentation. 4. Business Acquisitions On April 1, 2022, we entered into an asset purchase agreement to acquire substantially all of the assets of Yellow Folder.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

32 edited+9 added−20 removed145 unchanged
Biggest changeConcerns about our practices with regard to the collection, use, disclosure, or security of personal information or other privacy-related matters, even if unfounded and even if we are in compliance with applicable laws, could damage our reputation and harm our business. 15 Breaches, or perceived breaches, in security could result in a negative impact for us and for our customers, potentially affecting our business, assets, revenues, brand, and reputation, and resulting in penalties, fines, litigation, remediation costs, increased insurance costs, and other potential liabilities, in each case depending upon the nature of the information disclosed.
Biggest changeConcerns about our practices with regard to the collection, use, disclosure, or security of personal information or other privacy-related matters, even if unfounded and even if we are in compliance with applicable laws, could damage our reputation and harm our business. 14 We may become involved in litigation that may materially adversely affect us.
Additionally, government contracts are generally subject to audits and investigations that could result in various civil and criminal penalties and administrative sanctions, including termination of contracts, refund of a portion of fees received, forfeiture of profits, suspension of payments, fines and suspensions, or debarment from future government business. 14 We are subject to the reporting requirements of federal securities laws, causing us to make significant compliance-related expenditures that may divert resources from other projects, thus impairing its ability to grow.
Additionally, government contracts are generally subject to audits and investigations that could result in various civil and criminal penalties and administrative sanctions, including termination of contracts, refund of a portion of fees received, forfeiture of profits, suspension of payments, fines and suspensions, or debarment from future government business. 13 We are subject to the reporting requirements of federal securities laws, causing us to make significant compliance-related expenditures that may divert resources from other projects, thus impairing its ability to grow.
If future financing is not available or is not available on acceptable terms, we may not be able to fund our future needs, which would have a material adverse effect on our business plans, prospects, results of operations, and financial condition. 16 Shares of our common stock that have not been registered under the Securities Act, regardless of whether such shares are restricted or unrestricted, are subject to resale restrictions imposed by Rule 144.
If future financing is not available or is not available on acceptable terms, we may not be able to fund our future needs, which would have a material adverse effect on our business plans, prospects, results of operations, and financial condition. 15 Shares of our common stock that have not been registered under the Securities Act, regardless of whether such shares are restricted or unrestricted, are subject to resale restrictions imposed by Rule 144.
Any disruption of service at data centers that house our equipment and deliver our solutions could harm our business. Our users expect to be able to access our solutions 24-hours a day, seven-days a week, without interruption. We have computing and communications hardware operations located in data centers owned and operated by third parties.
Any disruption of service at data centers that house our data could harm our business. Our users expect to be able to access our solutions 24-hours a day, seven-days a week, without interruption. We have computing and communications hardware operations located in data centers owned and operated by third parties.
In the absence of such operating results and resources, we could face substantial liquidity problems and might be required to reduce or curtail our operations. 13 The terms of our promissory notes will restrict our financing flexibility. The terms of promissory notes we issued in 2022 contain standard negative covenants customary for transactions of this type.
In the absence of such operating results and resources, we could face substantial liquidity problems and might be required to reduce or curtail our operations. 12 The terms of our promissory notes will restrict our financing flexibility. The terms of promissory notes we issued in 2022 contain standard negative covenants customary for transactions of this type.
The FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability to buy and sell our stock and have an adverse effect on the market for our shares. 18 We do not expect to pay any dividends on our common stock for the foreseeable future.
The FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability to buy and sell our stock and have an adverse effect on the market for our shares. 17 We do not expect to pay any dividends on our common stock for the foreseeable future.
Any substantial sale of our common stock pursuant to Rule 144 may have an adverse effect on the market price of our common stock. 17 The price of our common stock may fluctuate significantly and lead to losses by stockholders. The common stock of public companies can experience extreme price and volume fluctuations.
Any substantial sale of our common stock pursuant to Rule 144 may have an adverse effect on the market price of our common stock. 16 The price of our common stock may fluctuate significantly and lead to losses by stockholders. The common stock of public companies can experience extreme price and volume fluctuations.
This could have a material adverse effect on our business. 12 The loss of licenses to use third-party software or the lack of support or enhancement of such software could adversely affect our business. We currently depend upon a limited number of third-party software products.
This could have a material adverse effect on our business. 11 The loss of licenses to use third-party software or the lack of support or enhancement of such software could adversely affect our business. We currently depend upon a limited number of third-party software products.
Labor is a significant portion of our cost structure and is subject to many external factors, including minimum wage laws, prevailing wage rates, unemployment levels, health insurance costs and other insurance costs and changes in employment and labor legislation or other workplace regulation. Most companies experienced an increase in labor costs in 2023 and expect additional increases in 2024.
Labor is a significant portion of our cost structure and is subject to many external factors, including minimum wage laws, prevailing wage rates, unemployment levels, health insurance costs and other insurance costs and changes in employment and labor legislation or other workplace regulation. Many companies experienced an increase in labor costs in 2024 and expect additional increases in 2025.
As a public company, we expect these rules and regulations to continue to keep our compliance costs high in 2024 and beyond, and to make certain activities more time-consuming and costly.
As a public company, we expect these rules and regulations to continue to keep our compliance costs high in 2025 and beyond, and to make certain activities more time-consuming and costly.
Our competitive position may be adversely affected by our possible inability to effectively protect our intellectual property. 20
Our competitive position may be adversely affected by our possible inability to effectively protect our intellectual property. 19
Enforcement of our intellectual property rights may be difficult or cost prohibitive. While U.S. copyright laws may provide meaningful protection against unauthorized duplication of software, software piracy has been, and is expected to be, a persistent problem for the software industry, and piracy of our products represents a loss of revenue to us.
While U.S. copyright laws may provide meaningful protection against unauthorized duplication of software, software piracy has been, and is expected to be, a persistent problem for the software industry, and piracy of our products represents a loss of revenue to us.
We are highly dependent on our ability to protect our proprietary technology. We rely on a combination of intellectual property laws, trademark laws, as well as non-disclosure agreements and other contractual provisions to establish and maintain our proprietary rights. We intend to protect our rights vigorously; however, there can be no assurance that these measures will be successful.
We rely on a combination of intellectual property laws, trademark laws, as well as non-disclosure agreements and other contractual provisions to establish and maintain our proprietary rights. We intend to protect our rights vigorously; however, there can be no assurance that these measures will be successful. Enforcement of our intellectual property rights may be difficult or cost prohibitive.
For some customers with multi-year fixed pricing contracts, increases in the minimum wage could decrease our profit margins or result in losses and could have a material adverse effect on our business, financial condition and results of operations.
For some customers with multi-year fixed pricing contracts, increases in the minimum wage could decrease our profit margins or result in losses and could have a material adverse effect on our business, financial condition and results of operations. Current and future competitors could have a significant impact on our ability to generate future revenues and profits.
Any meaningful reduction in IT or enterprise software spending or weakness in the economic health of our current and prospective customers could harm our business in a number of ways, including longer sales cycles and lower prices for our solutions. Current and future competitors could have a significant impact on our ability to generate future revenues and profits.
Any meaningful reduction in IT or enterprise software spending or weakness in the economic health of our current and prospective customers could harm our business in a number of ways, including longer sales cycles and lower prices for our solutions.
As a result, a significant portion of the revenue we report in each quarter is generated from customer agreements entered into during previous periods, which is reflected as deferred revenue on our balance sheet.
We recognize revenue from subscription agreements ratably over the terms of these agreements, which are typically one year. As a result, a significant portion of the revenue we report in each quarter is generated from customer agreements entered into during previous periods, which is reflected as deferred revenue on our balance sheet.
Our ability to meet our capital needs in the future will depend on many factors, including maintaining and enhancing our operating cash flow, successfully managing the transition of our recent acquisitions, successfully retaining and growing our client base in the midst of general economic uncertainty including an inflationary environment.
We have an accumulated deficit of $21.6 million as of December 31, 2024. Our ability to meet our capital needs in the future will depend on many factors, including maintaining and enhancing our operating cash flow and successfully retaining and growing our client base in the midst of general economic uncertainty including an inflationary environment.
In addition, in our effort to attract and retain critical personnel, we may experience increased compensation costs that are not offset by either improved productivity or higher prices for our products or services.
In addition, in our effort to attract and retain critical personnel, we may experience increased compensation costs that are not offset by either improved productivity or higher prices for our products or services. Failure to protect our intellectual property could harm our ability to compete effectively. We are highly dependent on our ability to protect our proprietary technology.
For 2021, we had a net income of $1.4 million, including $0.8 million of PPP forgiveness income. For 2020, we had a net loss of $2.2 million, including a change in fair value of earnout liabilities of $1.6 million. We have an accumulated deficit of $21.0 million as of December 31, 2023.
For 2023, we had net income of approximately $0.5 million. For 2022, we had a net income of approximately zero (break-even). For 2021, we had a net income of $1.4 million, including $0.8 million of PPP forgiveness income. For 2020, we had a net loss of $2.2 million, including a change in fair value of earnout liabilities of $1.6 million.
Our business, financial condition, liquidity or results of operations could be materially adversely affected by any of these risks. Risks Relating to Our Business General inflation and increases in the minimum wage and general labor costs have affected and may continue to adversely affect our business, financial condition and results of operations.
This may reduce the growth of our SaaS revenue and could materially affect our business and operating results. General inflation and increases in the minimum wage and general labor costs have affected and may continue to adversely affect our business, financial condition and results of operations.
The occurrence of a natural disaster or an act of terrorism, vandalism or other misconduct, or a decision to close the data centers without adequate notice or other unanticipated problems could result in lengthy interruptions in availability of our solutions.
The occurrence of a natural disaster or an act of terrorism, vandalism or other misconduct, or a decision to close the data centers without adequate notice or other unanticipated problems could result in lengthy interruptions in availability of our solutions. 18 Any changes in third-party service levels at our data centers or any errors, defects, disruptions or other performance problems with our solutions could harm our reputation and may damage our customers’ businesses.
Errors may be found in new software products or improvements to existing products after delivery to our customers. If these defects are discovered, we may not be able to successfully correct such defects in a timely manner.
If these defects are discovered, we may not be able to successfully correct such defects in a timely manner.
The United States has laws and regulations relating to data privacy, security, and retention and transmission of information. We have certain measures to protect our information systems against unauthorized access and disclosure of our confidential information and confidential information belonging to our customers. We have policies and procedures in place dealing with data security and records retention.
We have certain measures to protect our information systems against unauthorized access and disclosure of our confidential information and confidential information belonging to our customers. We have policies and procedures in place dealing with data security and records retention. However, there is no assurance that the security measures we have put in place will be effective in every case.
The United States’ and world economies are currently experiencing slowing inflation, high interest rates, uncertainty, and other adverse conditions, caused by disruptions in the global economy from the effects of the conflict in Palestine and the ongoing war in Ukraine, including global sanctions on Russia, and trade tensions between the US and China, and those conditions will continue to adversely impact the business community and financial markets for some time.
The United States’ and world economies are currently recovering from recent inflation and higher interest rates, although uncertainty posed by the imposition of new tariffs, ongoing conflicts in the Middle East and Ukraine, global sanctions on Russia, and trade tensions between the US and China, may continue to adversely impact the business community and financial markets for some time.
Our products may contain defects that could harm our reputation, be costly to correct, delay revenues, and expose us to litigation. Our products are highly complex and sophisticated and, from time to time, may contain design defects or software errors that are difficult to detect and correct.
Our products are highly complex and sophisticated and, from time to time, may contain design defects or software errors that are difficult to detect and correct. Errors may be found in new software products or improvements to existing products after delivery to our customers.
Commercial success depends on many factors including the degree of innovation of the products developed through our research and development efforts, sufficient support from our strategic partners, and effective distribution and marketing. Accelerated product introductions and short product life cycles require high levels of expenditures for research and development.
Commercial success depends on many factors including the degree of innovation of the products developed through our research and development efforts, sufficient support from our strategic partners, and effective distribution and marketing. We may determine that certain product candidates do not have sufficient potential to warrant the continued allocation of resources.
We currently have approximately $3 million in principal amount of debt maturing in March of 2025. In addition, prior to 2021, we operated with a history of losses. For 2023, we had net income of approximately $0.6 million. For 2022, we had a net income of approximately zero (break-even).
We currently have approximately $1.3 million in principal amount of debt maturing in December of 2025. In addition, prior to 2021, we operated with a history of losses. For 2024, we had net loss of approximately $0.5 million, including $1.4 million in total non-cash share-based compensation expense, an increase of $0.8 million from 2023.
Significant assumptions and estimates used in preparing our consolidated financial statements include those related to revenue recognition, deferred contract costs and commission expense, accounting for business combination, troubled debt restructuring and stock compensation. The loss of a major customer or the failure to collect a large account receivable could negatively affect our results of operations and financial condition.
Significant assumptions and estimates used in preparing our consolidated financial statements include those related to revenue recognition, stock compensation, and deferred contract costs and commission expense. A significant downturn in our business may not be immediately reflected in our operating results because of the way we recognize revenue.
Moreover, new products and services may not be profitable, and even if they are profitable, operating margins for new products and businesses may not be as high as the margins we have experienced for our current or historical products and services. 11 Product development is a long, expensive, and uncertain process, and we may terminate one or more of our development programs.
Moreover, new products and services may not be profitable, and even if they are profitable, operating margins for new products and businesses may not be as high as the margins we have experienced for our current or historical products and services. 10 Our products may contain defects that could harm our reputation, be costly to correct, delay revenues, and expose us to litigation.
There has also been an increase in the incidence of data breaches in public companies operating in the US, resulting in unfavorable publicity and high amounts of damages against the breached companies, including the cost of obtaining credit monitoring services for all persons whose information was compromised.
There has also been an increase in the incidence of data breaches and ransomware events in public companies operating in the US, resulting in unfavorable publicity and high amounts of damages against the breached companies, including penalties, fines, litigation, remediation costs, increased insurance costs, and other potential liabilities, in each case depending upon the nature of the information disclosed.
For the years ended December 31, 2023, and 2022, government contracts, including K-12 education, represented approximately 80% and 77% of our net revenues, respectively. The loss of one of our clients or the loss of a meaningful percentage of government contracts could materially affect our business and operating results.
Our two largest clients account for approximately 40% and 4%, and 35% and 5%, of our revenues for the years ended December 31, 2024 and 2023, respectively. For the years ended December 31, 2024, and 2023, government contracts, including K-12 education, represented approximately 80% of our net revenues in each period.
Moreover, instability in the global economy affects countries, including the United States, with varying levels of severity, which makes the impact on our business complex and unpredictable. During adverse economic conditions, many customers delay or reduce technology purchases.
Moreover, instability in the global economy affects countries, including the United States, with varying levels of severity, which makes the impact on our business complex and unpredictable. As an example, our IntelliCloud Payables Automation Solution is currently targeted to industries such as home-building and construction, which may be adversely affected by the imposition of new tariffs.
Removed
If our existing customers fail to renew their support agreements, or if customers do not license updated products on terms favorable to us, our revenues could be adversely affected.
Added
Our business, financial condition, liquidity or results of operations could be materially adversely affected by any of these risks.
Removed
We currently derive a significant portion of our overall revenues from maintenance services and software subscriptions, and we depend on our installed customer base for future revenue from maintenance services and software subscriptions and licenses of updated products. The IT industry generally has been experiencing increasing pricing pressure from customers when purchasing or renewing support agreements.
Added
Risks Relating to Our Business Our largest customer awards long-term contracts through a competitive bidding process that is open as of the date of this Report, and any loss or volume reduction of this or any other major customer or the failure to collect a large account receivable could negatively affect our results of operations and financial condition.
Removed
Moreover, the trend towards consolidation in certain industries that we serve, such as financial services, could result in a reduction of the software under agreement and put pressure on our maintenance and support terms with customers who have merged.
Added
Our largest customer awards long-term contracts through a competitive bidding process that is open as of the date of this Report.
Removed
Given this environment, there can be no assurance that our current customers will renew their subscription agreements or agree to the same terms when they renew, which could result in a reduction or loss of subscription fees.
Added
We believe we are well suited to continue to provide services to this client, but there can be no assurance that we will be awarded continuing contracts or that our work volumes with this customer will continue at their current levels and/or pricing. Revenues from a limited number of customers have accounted for a substantial percentage of our total revenues.
Removed
If our existing customers fail to renew their subscription agreements, or if we are unable to generate additional subscription fees through the licensing of updated products to existing or new customers, our business and future operating results could be adversely affected.
Added
The loss or volume reduction of one of our clients or the loss of a meaningful percentage of government contracts could materially affect our business and operating results. Uncertainty in the education industry or reduced governmental spending on education may have a chilling effect on our prospective K-12 Education clients, making it more difficult to close sales with new customers.
Removed
Any future acquisition involves risks commonly encountered in business relationships, including: ● difficulties in assimilating and integrating the operations, personnel, systems, technologies, finance and accounting functions, internal controls, business policies, and products and services of the acquired business; ● technologies, products or businesses that we acquire may not achieve expected levels of revenue, profitability, benefits or productivity; ● we may not be able to achieve the expected synergies from an acquisition, or it may take longer than expected to achieve those synergies; ● unexpected costs and liabilities and unknown risks associated with the acquisition; ● diversion of management’s time and resources away from our daily operations; ● risks of entering markets in which we have no or limited direct prior experience; ● potential need for restructuring operations or reductions in workforce, which may result in substantial charges to our operations; ● incurring future impairment charges related to diminished fair value of businesses acquired as compared to the price we paid for them; and ● issuing potentially dilutive equity securities, or incurring debt or contingent liabilities, which could harm our financial condition. 10 We cannot assure you that we will make any additional acquisitions, or that any future acquisitions will be successful, will assist us in the accomplishment of our business strategy, or will generate sufficient revenues to offset the associated costs and other adverse effects or will otherwise result in us receiving the intended benefits of the acquisition.
Added
A significant portion of our revenues comes from contracts with local school districts. Current uncertainties relating to the activities and funding of the Department of Education may have an indirect chilling effect on the activities of local school districts, leading our prospective new customers to delay spending decisions.
Removed
We may determine that certain product candidates or programs do not have sufficient potential to warrant the continued allocation of resources. Accordingly, we may elect to terminate one or more of our programs for such product candidates.
Added
We cannot assure you that we will make any additional acquisitions, or that any future acquisitions will be successful, will assist us in the accomplishment of our business strategy, or will generate sufficient revenues to offset the associated costs and other adverse effects or will otherwise result in us receiving the intended benefits of the acquisition.
Removed
If we terminate a product in development in which we have invested significant resources, our prospects may suffer, as we will have expended resources on a project that does not provide a return on our investment and we may have missed the opportunity to have allocated those resources to potentially more productive uses, and this may negatively impact our business operating results or financial condition.
Added
Breaches, or perceived breaches, in security could result in a negative impact for us and for our customers, potentially affecting our business, assets, revenues, brand, and reputation.
Removed
Revenues from a limited number of customers have accounted for a substantial percentage of our total revenues. Our two largest clients account for approximately 35% and 5%, and 38% and 6%, of our revenues for the years ended December 31, 2023 and 2022, respectively.
Added
During adverse economic conditions, many customers delay or reduce technology purchases.
Removed
A significant downturn in our business may not be immediately reflected in our operating results because of the way we recognize revenue. We recognize revenue from subscription agreements ratably over the terms of these agreements, which are typically one year.
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However, there is no assurance that the security measures we have put in place will be effective in every case. There has been an increase in the number of private privacy-related lawsuits filed against companies in recent years.
Removed
In addition, we are unable to predict what additional legislation or regulation in the area of privacy of personal information could be enacted and what effect that could have on our operations and business.
Removed
These risks to our business may increase as we expand the number of products and services we offer. We may become involved in litigation that may materially adversely affect us.
Removed
We expect that we will experience interruptions, delays and outages in service and availability from time to time. 19 The owners of our data centers have no obligation to renew agreements with us on commercially reasonable terms, or at all.
Removed
If we are unable to renew these agreements on commercially reasonable terms, we may be required to move to new data centers, and we may incur significant costs and possible service interruption in connection with doing so.
Removed
Any changes in third-party service levels at our data centers or any errors, defects, disruptions or other performance problems with our solutions could harm our reputation and may damage our customers’ businesses.
Removed
Our products rely on the stability of infrastructure software that, if not stable, could negatively impact the effectiveness or reliability of our products, resulting in harm to our reputation and business. Our development of internet and intranet applications depends and will continue to depend on the stability, functionality, and scalability of the infrastructure software of the underlying internet and intranet.
Removed
If weaknesses in such infrastructure exist, we may not be able to correct or compensate for such weaknesses. If we are unable to address weaknesses resulting from problems in the infrastructure software such that our products do not meet customer needs or expectations, our reputation and, consequently, our business may be significantly harmed.
Removed
In addition, our business and operations are highly automated, and a disruption or failure of our systems may delay our ability to complete sales and to provide services.
Removed
A major disaster or other catastrophic event that results in the destruction or disruption of any of our critical business or information technology systems could severely affect our ability to conduct normal business operations, which may materially and adversely affect our future operating results. Failure to protect our intellectual property could harm our ability to compete effectively.

Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

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Biggest changeWe use third-party service providers to perform a variety of functions throughout our business, such as Amazon Web Services, Expedient (Columbus, OH), and Corespace (Dallas, TX). Depending on the nature of the services provided, certain providers are subject to cybersecurity risk assessments at the time of onboarding.
Biggest changeOur CTO is one of our founders and has been in technology since 1996. One of our board members has been employed with a cyber security company. We use third-party service providers to perform a variety of functions throughout our business, such as Amazon Web Services, Expedient (Columbus, OH), and Corespace (Dallas, TX).
The results of such reviews are reported to certain members of our senior management, who evaluate material risks from cybersecurity threats against our overall business objectives and report to the Board of Directors (Board), which evaluates our overall enterprise risk. Within our senior management our Chief Financial Officer and Chief Technology Officer (CTO) review our cybersecurity program at least quarterly.
The results of such reviews are reported to certain members of our senior management, who evaluate material risks from cybersecurity threats against our overall business objectives and report to our board of directors, which evaluates our overall enterprise risk. Within our senior management, our Chief Financial Officer and Chief Technology Officer (CTO) review our cybersecurity program at least quarterly.
We maintain various technical, physical, and organizational measures, in the form of policies, standards, processes, and technical capabilities, designed to manage and mitigate material risks from cybersecurity threats to our Systems and Data, including, among other things, internal reporting, annual and ongoing cybersecurity awareness training for employees, mechanisms to detect and monitor unusual network activity, as well as threat detection, containment, incident response and backup recovery tools.
We maintain various technical, physical, and organizational measures, in the form of policies, standards, processes, and technical capabilities, designed to manage and mitigate material risks from cybersecurity threats to our Systems and Data, including, among other things, risk and threat assessment, internal reporting, annual and ongoing cybersecurity awareness training for employees, mechanisms to detect and monitor unusual network activity, as well as threat detection, containment, incident response and backup recovery tools.
Our cybersecurity risk management efforts leverage the National Institute of Standards and Technology (NIST) cybersecurity framework, that also directly conforms to the SP800-53 r5 Information Security controls framework.
Our cybersecurity risk management efforts leverage the National Institute of Standards and Technology (NIST) cybersecurity framework, that also aligns with the SP800-53 r5 Information Security controls framework.
For a description of the risks from cybersecurity threats that may materially affect the Company and how they may do so, please see “Risk Factors” included in Part I, Item 1A of this Annual Report on Form 10-K, including “Risks Related to Product Development” and “Financial Risks.”
For a description of the risks from cybersecurity threats that may materially affect the Company and how they may do so, please see “Risk Factors” included in Part I, Item 1A of this Annual Report on Form 10-K, including “Legal and Regulatory Risks” and “General Risks.”
We also use various inputs to assess the risk of our third-party service providers, including information supplied by them.
Depending on the nature of the services provided, certain providers are subject to cybersecurity risk assessments at the time of onboarding. We also use various inputs to assess the risk of our third-party service providers, including information supplied by them.
Removed
Our CTO is one of our founders and has been in technology since 1996. One of our board members is CEO of a technology company and another has been employed with a cyber security company.

Item 2. Properties

Properties — owned and leased real estate

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Biggest changeThe monthly rental payment is $4,500, with, pursuant to an extension, an increase in February 2024 up to $5,100 and a lease term continuing until January 31, 2026. We also lease and use vehicles for logistics pertaining to our Document Conversion segment, primarily pickup and delivery of client materials, including storage and retrieval operations.
Biggest changeWe also lease and use vehicles for logistics pertaining to our Document Conversion segment, primarily pickup and delivery of client materials, including storage and retrieval operations. The monthly rental payments for these vehicles total $7,605, with lease terms continuing until September 30, 2028.
The lease commenced on January 1, 2010 and, pursuant to a lease extension dated September 18, 2021, the lease expires on December 31, 2028. The monthly rental payment is $5,100, with gradually higher annual increases each January up to $5,850 for the final year.
The lease commenced on January 1, 2010 and, pursuant to a lease extension dated September 18, 2021, the lease expires on December 31, 2028. The monthly rental payment is $5,400, with gradually higher annual increases each January up to $5,850 for the final year.
The monthly rental payment is $44,049, with gradually higher annual increases each September up to $45,828 for the final year, and with a lease term continuing until August 31, 2026.
The monthly rental payment is $44,929, with gradually higher annual increases each September up to $45,828 for the final year, and with a lease term continuing until August 31, 2026.
The monthly rental payment is $21,692, with gradually higher annual increases each May up to $24,171 for the final year, and with a lease term continuing to April 30, 2028. 21 We lease office space in Traverse City, Michigan for Document Conversion production.
The monthly rental payment is $22,312, with gradually higher annual increases each May up to $24,171 for the final year, and with a lease term continuing to April 30, 2028. 20 We lease office space in Traverse City, Michigan for Document Conversion production. The monthly rental payment is $5,100, with a lease term continuing until January 31, 2026.
The monthly rental payments for these vehicles total $4,901, with lease terms continuing until September 30, 2028. We also lease and use an additional temporary office space in Madison Heights for our Document Conversion operations, with a monthly rental payment of $1,605 and a lease term on a month-to-month basis.
We also lease and use an additional temporary office space in Madison Heights for our Document Conversion operations, with a monthly rental payment of $1,605 and a lease term on a month-to-month basis.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeHolders As of March 23, 2024 we had 76 stockholders of record. Such number of record stockholders does not include additional stockholders or other beneficial owners whose shares are held in street or nominee name by banks, brokerage firms, and other institutions on their behalf.
Biggest changeSuch number of record stockholders does not include additional stockholders or other beneficial owners whose shares are held in street or nominee name by banks, brokerage firms, and other institutions on their behalf. Dividends Dividends may be declared and paid out of legally available funds at the discretion of our board of directors.
We currently intend to utilize all available funds to develop our business. 22 Unregistered Securities Issuances in Fiscal Year 2022 There have been no unregistered securities issuances in Fiscal Year 2023 that have not previously been disclosed in Current Reports on 8-K or Forms 10-Q. Issuer Purchase of Securities None. ITEM 6. [RESERVED]
We currently intend to utilize all available funds to develop our business. 21 Unregistered Securities Issuances in Fiscal Year 2024 There have been no unregistered securities issuances in Fiscal Year 2024 that have not previously been disclosed in Current Reports on 8-K or Forms 10-Q. Issuer Purchase of Securities None. ITEM 6. [RESERVED]
Dividends Dividends may be declared and paid out of legally available funds at the discretion of our board of directors (“Board of Directors,” or “Board”). No dividends on our common stock were paid in either of the two most recent fiscal years, and we do not anticipate paying dividends on our common stock in the foreseeable future.
No dividends on our common stock were paid in either of the two most recent fiscal years, and we do not anticipate paying dividends on our common stock in the foreseeable future.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market Information As of September 9, 2022, our common stock trades on the NYSE American under the symbol “INLX.” Prior to such date, our common stock was available for quotation on the OTCQB under the same symbol.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market Information Our common stock trades on the NYSE American under the symbol “INLX.” Holders As of March 19, 2025 we had 79 stockholders of record.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeThese reportable segments are discussed above under “Company Overview.” Results of Operations Revenues The following table sets forth our revenues by reportable segment for the periods indicated: For the years ended December 31, 2023 2022 Revenues by segment Document Management $ 7,298,264 $ 5,999,726 Document Conversion 9,588,117 8,017,202 Total revenues $ 16,886,381 $ 14,016,928 Gross profit by segment Document Management $ 6,133,130 $ 4,978,163 Document Conversion 4,430,825 3,930,995 Total gross profit $ 10,563,955 $ 8,909,158 The following table sets forth our revenues by revenue source for the periods indicated: For the years ended December 31, 2023 2022 Revenues: Sale of software $ 100,260 $ 159,084 Software as a service 5,133,215 4,017,409 Software maintenance services 1,407,064 1,387,885 Professional services 9,167,428 7,357,937 Storage and retrieval services 1,078,414 1,094,613 Total revenues $ 16,886,381 $ 14,016,928 25 The following tables sets forth our revenues by revenue source and segment for the periods indicated: For the years ended December 31, 2023 2022 Document management segment revenues: Sale of software $ 100,260 $ 159,084 Software as a service 5,133,215 4,017,409 Software maintenance services 1,407,064 1,387,885 Professional services 657,725 435,348 Total document management segment revenues $ 7,298,264 $ 5,999,726 For the years ended December 31, 2023 2022 Document conversion segment revenues: Professional services $ 8,509,703 $ 6,922,589 Storage and retrieval services 1,078,414 1,094,613 Total document conversion segment revenues $ 9,588,117 $ 8,017,202 Our total revenues in 2023 increased by $2,869,453, or 21%, over 2022 revenues, driven primarily by the acquisition of Yellow Folder and the strong performance in professional services.
Biggest changeBusiness.” Results of Operations Revenues The following table sets forth our revenues by reportable segment for the periods indicated: For the years ended December 31, 2024 2023 Revenues by segment Document Management $ 7,523,874 $ 7,298,264 Document Conversion 10,494,499 9,588,117 Total revenues $ 18,018,373 $ 16,886,381 Gross profit by segment Document Management $ 6,545,612 $ 6,133,130 Document Conversion 4,979,314 4,430,825 Total gross profit $ 11,524,926 $ 10,563,955 The following table sets forth our revenues by revenue source for the periods indicated: For the years ended December 31, 2024 2023 Revenues: Sale of software $ 32,946 $ 100,260 Software as a service 5,688,936 5,133,215 Software maintenance services 1,410,387 1,407,064 Professional services 9,985,028 9,167,428 Storage and retrieval services 901,076 1,078,414 Total revenues $ 18,018,373 $ 16,886,381 24 The following tables sets forth our revenues by revenue source and segment for the periods indicated: For the years ended December 31, 2024 2023 Document management segment revenues: Sale of software $ 32,946 $ 100,260 Software as a service 5,688,936 5,133,215 Software maintenance services 1,410,387 1,407,064 Professional services 391,605 657,725 Total document management segment revenues $ 7,523,874 $ 7,298,264 For the years ended December 31, 2024 2023 Document conversion segment revenues: Professional services $ 9,593,423 $ 8,509,703 Storage and retrieval services 901,076 1,078,414 Total document conversion segment revenues $ 10,494,499 $ 9,588,117 Our total revenues in 2024 increased by $1,131,992, or 6.7%, over 2023 revenues, driven by software as a service and our document conversion professional services, more than offsetting expected weakness in storage and retrieval, expected inactivity in software maintenance services sales, and volatility in sales of direct premise software and document management professional services.
Net cash used in financing activities during 2023 amounted to $700,000 in earnout liability payments, $980,450 in repayment of notes payable, $34,954 in the principal portion of finance lease liabilities, and $2,411 in other net changes in finance lease assets and liabilities.
Net cash used in financing activities during 2023 amounted to $700,000 in earnout liability payments, $980,450 in repayment of notes payable, $34,954 in payments for the principal portion of finance lease liabilities, and $2,411 in other net changes in finance lease assets and liabilities.
This decrease was the result of a slight reduction in volume of work from our largest storage and retrieval customer, Rocket Mortgage, due to the continued impact of the slowdown in the home mortgage and refinancing industry.
This decrease was the result of a reduction in volume of work from our largest storage and retrieval customer, Rocket Mortgage, due to the continued impact of the slowdown in the home mortgage and refinancing industry.
When we evaluate our results, we assess whether our cloud-based software revenues are increasing, relative to prior periods and relative to other sources of revenue. ● With respect to our Document Conversion segment, our strategy is to maintain and grow our core document conversion, storage, and retrieval business, while simultaneously leveraging our software products and services to provide more attractive total digital transformation solutions for the customers of our Document Conversion segment.
When we evaluate our results, we assess whether our cloud-based software revenues are increasing, relative to prior periods and relative to other sources of revenue. ● With respect to our Document Conversion segment, our strategy is to maintain and grow our core document conversion business, while simultaneously leveraging our software products and services to provide more attractive total digital transformation solutions for the customers of our Document Conversion segment.
For the twelve months ended December 31, 2022, we recorded a change in fair value of earnout liabilities for both Graphic Sciences and CEO Image. The assumptions were updated to reflect the improved performance of both acquisitions against their threshold targets, a reduction of pandemic-related uncertainty, and the decreasing impact of time value of money.
For the twelve months ended December 31, 2023, we recorded a change in fair value of earnout liabilities for both Graphic Sciences and CEO Image. The assumptions were updated to reflect the improved performance of both acquisitions against their threshold targets, a reduction of pandemic-related uncertainty, and the decreasing impact of time value of money.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following management’s discussion and analysis of financial conditions and results of operations for the fiscal years ended December 31, 2023, and 2022 should be read in conjunction with our consolidated financial statements and the notes to those consolidated financial statements that are included elsewhere in this Annual Report on Form 10-K.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following management’s discussion and analysis of financial conditions and results of operations for the fiscal years ended December 31, 2024, and 2023 should be read in conjunction with our consolidated financial statements and the notes to those consolidated financial statements that are included elsewhere in this Annual Report on Form 10-K.
We generally do not offer rights of return or any other incentives such as concessions, product rotation, or price protection and, therefore, do not provide for or make estimates of rights of return and similar incentives. 32 We establish allowances for doubtful accounts when available information causes us to believe that credit loss is probable.
We generally do not offer rights of return or any other incentives such as concessions, product rotation, or price protection and, therefore, do not provide for or make estimates of rights of return and similar incentives. 30 We establish allowances for doubtful accounts when available information causes us to believe that credit loss is probable.
Net cash provided by operating activities during 2023 was $784,659, primarily attributable to the net income adjusted for non-cash expenses of $1,955,715, an increase in operating assets of $1,669,780 and a decrease in operating liabilities of $20,542.
Net cash provided by operating activities during 2023 was $784,659, primarily attributable to the net income adjusted for non-cash expenses of $1,955,715, an increase in operating assets of $1,669,780 and a decrease in operating liabilities of $20,542. Cash Used in Investing Activities.
Critical Accounting Policies and Estimates These critical accounting policies and estimates by our management should be read in conjunction with Note 3 Summary of Significant Accounting Policies to the Consolidated Financial Statements. 31 The preparation of our consolidated financial statements in accordance GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses in the reporting period.
Critical Accounting Policies and Estimates These critical accounting policies and estimates made by management should be read in conjunction with Note 3 Summary of Significant Accounting Policies to the Consolidated Financial Statements. 29 The preparation of our consolidated financial statements in accordance GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses in the reporting period.
In this Annual Report, we sometimes refer to the twelve month period ended December 31, 2023 as 2023, and to the twelve month period ended December 31, 2022 as 2022.
In this Annual Report, we sometimes refer to the twelve month period ended December 31, 2024 as 2024, and to the twelve month period ended December 31, 2023 as 2023.
Once technological feasibility has been established, certain software development costs incurred during the application development stage are eligible for capitalization. Based on our software development process, technical feasibility is established upon completion of a working model. Technological feasibility is typically reached shortly before the release of such products. No such costs were capitalized during 2023.
Once technological feasibility has been established, certain software development costs incurred during the application development stage are eligible for capitalization. Based on our software development process, technical feasibility is established upon completion of a working model. Technological feasibility is typically reached shortly before the release of such products. No such costs were capitalized during the periods presented in this report.
Our customers typically enter into our software as a service agreement for periods of one year or more. Under these agreements, we generally provide access to the applicable software, data storage and related customer assistance and support.
Software as a Service Revenues We provide access to our software solutions as a service, accessible through the internet. Our customers typically enter into our software as a service agreement for periods of one year or more. Under these agreements, we generally provide access to the applicable software, data storage and related customer assistance and support.
Absent global economic disruptions, and based on the current trend of our business operations and our continued focus on strategic initiatives to grow our customer base, we believe in the strength of our brand and that our focus on our strategic priorities will deliver consistent growth. Reportable Segments We have two reportable segments: Document Management and Document Conversion.
However, absent economic disruptions, and based on the current trend of our business operations and our continued focus on strategic initiatives to grow our customer base, we believe in the strength of our brand and our focus on our strategic priorities. Reportable Segments We have two reportable segments: Document Management and Document Conversion.
Based on our current plans and assumptions, we believe our capital resources, including our cash and cash equivalents, along with funds expected to be generated from our operations and potential financing options, will be sufficient to meet our anticipated cash needs arising in the ordinary course of business for at least the next 12 months, including to satisfy our expected working capital needs and capital and debt service commitments.
Based on our current plans and assumptions, we believe our capital resources, including our cash and cash equivalents, along with funds expected to be generated from our operations and potential financing options, will be sufficient to meet our anticipated cash flow needs for at least the next 12 months, including to satisfy our expected working capital needs and our capital and debt service commitments over that period.
Revenues from storage and retrieval services, which are reported as part of our Document Conversion segment, decreased by $16,199, or 1%, during 2023 compared to 2022.
Revenues from storage and retrieval services, which are reported as part of our Document Conversion segment, decreased by $177,338, or 16.4%, during 2024 compared to 2023.
Professional Services Revenues Professional services revenues consist of revenues from document scanning and conversion services, consulting, discovery, training, and advisory services to assist customers with document management needs, as well as repair and maintenance services for customer equipment. These revenues include arrangements that do not involve the sale of software.
Professional Services Revenues Professional services revenues primarily consist of revenues from document scanning and conversion services, plus consulting, discovery, training, and advisory services to assist customers with document management needs. These revenues include arrangements that do not involve the sale of software.
This small increase in these revenues in 2023 compared to 2022 was driven by expansion of services with existing customers and price increases being partially offset by normal attrition.
The small increase in these revenues in 2024 compared to 2023, consistent with previous years and expectation, was driven by expansion of services with existing customers and price increases being partially offset by normal attrition.
Such costs in the amount of $43,771 were capitalized during 2022. In accordance with ASC 350-40, “Internal-Use Software,” we capitalize purchase and implementation costs of internal use software. Once an application has reached development stage, internal and external costs, if direct and incremental, are capitalized until the software is substantially complete and ready for its intended use.
In accordance with ASC 350-40, “Internal-Use Software,” we capitalize purchase and implementation costs of internal use software. Once an application has reached development stage, internal and external costs, if direct and incremental, are capitalized until the software is substantially complete and ready for its intended use. Capitalization ceases upon completion of all substantial testing.
Capitalized costs are stated at cost less accumulated amortization. Amortization is computed over the estimated useful lives of the related assets on a straight-line basis, which is three years. 33 Stock-Based Compensation We maintain two stock-based compensation plans.
Amortization is computed over the estimated useful lives of the related assets on a straight-line basis, which is three years. Stock-Based Compensation We maintain three stock-based compensation plans.
How We Evaluate our Business Performance and Opportunities The major qualitative and quantitative factors we consider in the evaluation of our operating results include the following: ● With respect to our Document Management segment, including the solutions acquired from Yellow Folder, our current strategy is to focus on cloud-based delivery of our software products.
Factors that may affect our results include, but are not limited to, the risk factors that are included in Part I, Item 1A of this report. 22 How We Evaluate our Business Performance and Opportunities The major qualitative and quantitative factors we consider in the evaluation of our operating results include the following: ● With respect to our Document Management segment, our current strategy is to focus on cloud-based delivery of our software products.
From our inception, we have generated revenues from the sales, implementation, subscriptions, and maintenance of our internally generated software applications, as well as significantly increased revenues from document conversion services beginning in 2020.
This is slightly higher than recent years as we continue to enhance our security environment. Cash Provided by Operating Activities. From our inception, we have generated revenues from the sales, implementation, subscriptions, and maintenance of our internally generated software applications, as well as significantly increased revenues from document conversion services beginning in 2020.
Indebtedness As of December 31, 2023, our outstanding long-term indebtedness consisted of the 2022 Notes issued to accredited investors on April 1, 2022, with an aggregate outstanding principal balance of $2,964,500 and accrued interest of $0. 30 Capital Expenditures There were no material commitments for capital expenditures at December 31, 2023. Cash Provided by Operating Activities.
Indebtedness As of December 31, 2024, our outstanding long-term indebtedness consisted of the 2022 Notes issued to accredited investors on April 1, 2022, with an aggregate outstanding principal balance of $1,339,500 and accrued interest of $0. 28 Capital Expenditures We anticipate capital expenditures in the range of $350,000 to $450,000 for 2025, although t here were no material commitments for capital expenditures at December 31, 2024.
Capitalization ceases upon completion of all substantial testing. We also capitalize costs related to specific upgrades and enhancements when it is probable that the expenditure will result in additional functionality. Such costs in the amount of $436,837 were capitalized during 2023. Such costs in the amount of $376,345 were capitalized during 2022.
We also capitalize costs related to specific upgrades and enhancements when it is probable that the expenditure will result in additional functionality. Such costs in the amount of $388,570 were capitalized during 2024. Such costs in the amount of $436,837 were capitalized during 2023. Capitalized costs are stated at cost less accumulated amortization.
Cost of Software as a Service Cost of software as a service, or SaaS, consists primarily of technical support personnel, hosting services, and related costs. Cost of software as a service increased by $187,702, or 27%, during 2023 over 2022.
Cost of Software as a Service Cost of software as a service, or SaaS, consists primarily of technical support personnel, hosting services, and related costs. Cost of software as a service decreased by $32,361, or 3.6%, from 2023.
For the years ended December 31, 2023 2022 Gross profit: Sale of software $ 74,524 $ 94,507 Software as a service 4,244,080 3,315,976 Software maintenance services 1,347,691 1,308,147 Professional services 4,174,602 3,449,732 Storage and retrieval services 723,058 740,796 Total gross profit $ 10,563,955 $ 8,909,158 Gross profit percentage: Sale of software 74.3 % 59.4 % Software as a service 82.7 % 82.5 % Software maintenance services 95.8 % 94.3 % Professional services 45.5 % 46.9 % Storage and retrieval services 67.0 % 67.7 % Total gross profit percentage 62.6 % 63.6 % 27 Our overall gross profit decreased slightly to approximately 63% in 2023 from 64% in 2022.
For the years ended December 31, 2024 2023 Gross profit: Sale of software $ 24,460 $ 74,524 Software as a service 4,832,162 4,244,080 Software maintenance services 1,352,720 1,347,691 Professional services 4,762,511 4,174,602 Storage and retrieval services 553,073 723,058 Total gross profit $ 11,524,926 $ 10,563,955 Gross profit percentage: Sale of software 74.2 % 74.3 % Software as a service 84.9 % 82.7 % Software maintenance services 95.9 % 95.8 % Professional services 47.7 % 45.5 % Storage and retrieval services 61.4 % 67.0 % Total gross profit percentage 64.0 % 62.6 % 26 Our overall gross profit increased to approximately 64.0% in 2024 from 62.6% in 2023.
Cost of Software Revenues Cost of software revenues consists primarily of labor costs of our software engineers and implementation consultants and third-party software licenses that are sold in connection with our core software applications. During 2023, cost of software revenues decreased by $38,841, or 60%, from 2022, decreasing more than revenues due to more complex solutions sold in 2022.
Cost of Software Revenues Cost of software revenues consists primarily of labor costs of our software engineers and implementation consultants and third-party software licenses that are sold in connection with our core software applications. During 2024, cost of software revenues decreased by $17,250, or 67.0%, from 2023, decreasing at the same rate as the reduced revenues.
Costs of Revenues and Gross Profits The following table sets forth our cost of revenues by reportable segment for the periods indicated: For the years ended December 31, 2023 2022 Cost of revenues by segment Document Management $ 1,165,134 $ 1,021,563 Document Conversion 5,157,292 4,086,207 Total cost of revenues $ 6,322,426 $ 5,107,770 The following table sets forth our cost of revenues, by revenue source, for the periods indicated: For the years ended December 31, 2023 2022 Cost of revenues: Sale of software $ 25,736 $ 64,577 Software as a service 889,135 701,433 Software maintenance services 59,373 79,738 Professional services 4,992,826 3,908,205 Storage and retrieval services 355,356 353,817 Total cost of revenues $ 6,322,426 $ 5,107,770 The following tables sets forth our cost of revenues by revenue source and segment for the periods indicated: For the years ended December 31, 2023 2022 Document management segment cost of revenues: Sale of software $ 25,736 $ 64,577 Software as a service 889,135 701,433 Software maintenance services 59,373 79,738 Professional services 190,890 175,815 Total document management segment cost of revenues $ 1,165,134 $ 1,021,563 For the years ended December 31, 2023 2022 Document conversion segment cost of revenues: Professional services $ 4,801,936 $ 3,732,390 Storage and retrieval services 355,356 353,817 Total document conversion segment cost of revenues $ 5,157,292 $ 4,086,207 Our total cost of revenues during 2023 increased by $1,214,656 or 24%, over 2022.
Costs of Revenues and Gross Profits The following table sets forth our cost of revenues by reportable segment for the periods indicated: For the years ended December 31, 2024 2023 Cost of revenues by segment Document Management $ 978,262 $ 1,165,134 Document Conversion 5,515,185 5,157,292 Total cost of revenues $ 6,493,447 $ 6,322,426 The following table sets forth our cost of revenues, by revenue source, for the periods indicated: For the years ended December 31, 2024 2023 Cost of revenues: Sale of software $ 8,486 $ 25,736 Software as a service 856,774 889,135 Software maintenance services 57,667 59,373 Professional services 5,222,517 4,992,826 Storage and retrieval services 348,003 355,356 Total cost of revenues $ 6,493,447 $ 6,322,426 The following tables sets forth our cost of revenues by revenue source and segment for the periods indicated: For the years ended December 31, 2024 2023 Document management segment cost of revenues: Sale of software $ 8,486 $ 25,736 Software as a service 856,774 889,135 Software maintenance services 57,667 59,373 Professional services 55,335 190,890 Total document management segment cost of revenues $ 978,262 $ 1,165,134 For the years ended December 31, 2024 2023 Document conversion segment cost of revenues: Professional services $ 5,167,182 $ 4,801,936 Storage and retrieval services 348,003 355,356 Total document conversion segment cost of revenues $ 5,515,185 $ 5,157,292 Our total cost of revenues during 2024 increased by $171,021 or 2.7%, over 2023.
Cost of Storage and Retrieval Services Cost of storage and retrieval services consists primarily of compensation for employees performing the document storage and retrieval services, including logistics, provided primarily by our Michigan operations and to a much lesser extent, Yellow Folder. Cost of storage and retrieval services relatively flat, increasing by $1,539, or 0%, during 2023 compared to 2022.
Cost of Storage and Retrieval Services Cost of storage and retrieval services consists primarily of compensation for employees performing the document storage and retrieval services, including logistics, provided primarily by our Michigan operations and to a much lesser extent, our K-12 customers in Texas.
Of our professional services revenues during 2023, $8,645,403 was derived from our Document Conversion operations and $522,025 was derived from our Document Management operations. Our overall professional services revenues increased by $1,809,491, or 25%, in 2023 compared to 2022.
Of our professional services revenues during 2024, $9,593,423 was derived from our Document Conversion operations and $391,605 was derived from our Document Management operations. Our overall professional services revenues increased by $817,600, or 8.9%, in 2024 compared to 2023.
Cost of Professional Services Cost of professional services consists primarily of compensation for employees performing the document conversion services, compensation of our software engineers and implementation consultants and related third-party costs.
As a result, our gross margin for software maintenance services was consistent at 95.9% in 2024 compared to 95.8% in 2023. Cost of Professional Services Cost of professional services consists primarily of compensation for employees performing the document conversion services, compensation of our software engineers and implementation consultants and related third-party costs.
We believe that our balance sheet and financial statements would support a full or partial refinancing or other appropriate modification of the current promissory notes, such as an extension or conversion to equity. We are confident in our ability to prudently manage our current debt on terms acceptable to us.
While we are confident in our ability to satisfy our current debt requirements, we also believe that our capital resources, business operations and financial results would allow us to seek a full or partial refinancing or other appropriate modification of the current notes payable, such as an extension or conversion to equity, if we deem necessary or desirable.
We expect the volatility of this revenue line item to continue as the frequency of on-premise software solution sales decreases over time and project timing is unpredictable. Software as a Service Revenues We provide access to our software solutions as a service, accessible through the internet.
These period over period changes are due to timing of direct sales projects compared to the same periods in 2023. We expect the volatility of this revenue line item to continue as the frequency of on-premise software solution sales decreases over time and project timing is unpredictable.
The increase was due to additional labor costs in 2023 and slightly eroding transaction volumes, which carry a higher margin than straight storage. Gross margins for our storage and retrieval services, which exclude the cost of facilities rental, maintenance, and related overheads, decreased to 67% during 2023 compared to 68% in 2022.
Gross margins for our storage and retrieval services, which exclude the cost of facilities rental, maintenance, and related overheads, decreased to 61.4% during 2024 compared to 67.0% in 2023.
Since 2012, we have raised a net total of approximately $24.5 million in cash through issuances of debt and equity securities, net of $2 million in debt repayments. As of December 31, 2023, we had approximately $1.2 million in cash and cash equivalents, net working capital deficit of $0.6 million, and an accumulated deficit of $21.0 million.
Since 2012, we have raised a net total of approximately $21.6 million in cash through issuances of equity securities and a further $5.0 million in cash through issuances of debt securities, of which all but approximately $1.3 million has been repaid.
We assess whether our sales resulting from relationships with resellers are increasing, relative to prior periods and relative to direct sales to customers, and whether reseller or direct efforts offer the best opportunities for growth in our targeted vertical markets. ● Our customer engagements often involve tailoring a document conversion program to meet customer requirements or sometimes involve the development and licensing of customer-specific document solutions and related consulting and software maintenance services.
We assess whether our sales resulting from relationships with resellers are increasing, relative to prior periods and relative to direct sales to customers, and whether reseller or direct efforts offer the best opportunities for growth in our targeted vertical markets. ● Our software sales cycle averages 1-3 months; however, large projects can be longer, lasting 4-6 months.
Operating Expenses The following table sets forth our operating expenses for the periods indicated: For the years ended December 31, 2023 2022 Operating expenses: General and administrative $ 6,455,088 $ 4,945,214 Change in fair value of earnout liabilities - 87,652 Transaction costs - 355,281 Sales and marketing 2,026,871 1,971,493 Depreciation and amortization 974,527 722,197 Total operating expenses $ 9,456,486 $ 8,081,837 28 General and Administrative Expenses General and administrative expenses increased in 2023 by 1,509,874, or 31%, over 2022, principally related to the full year of Yellow Folder expenses in 2023.
Operating Expenses The following table sets forth our operating expenses for the periods indicated: For the years ended December 31, 2024 2023 Operating expenses: General and administrative $ 8,166,567 $ 6,455,088 Sales and marketing 2,403,251 2,026,871 Depreciation and amortization 1,128,613 974,527 Total operating expenses $ 11,698,431 $ 9,456,486 General and Administrative Expenses General and administrative expenses increased in 2024 by 1,711,479, or 26.5%, over 2023.
In 2023 and 2022, we engaged in several actions that significantly improved our liquidity and cash flows, including (i) effective October 1, 2023 through September 30, 2024, securing a renewal contract with our largest customer, the State of Michigan, containing an estimated net rate increase of approximately 21%, compared to the current rates in effect for the contract period commencing June 1, 2018 and (ii), on April 1, 2022: ● acquiring the positive cash flow generated by Yellow Folder, ● receiving aggregate gross proceeds of approximately $5.7 million from the private placement of our common stock (all which was used to acquire Yellow Folder), and ● receiving approximately $3.0 million in proceeds from the issuance of 12% subordinated promissory notes due March 30, 2025, which we refer to as the 2022 Notes (some of which was used to acquire Yellow Folder, with the remainder used for general working capital).
In 2024 and 2023, we engaged in several actions that significantly improved our liquidity and cash flows, including (i) effective October 1, 2023 through May 30, 2025, securing a renewal contract with our largest customer, containing an estimated net rate increase for all non-fixed pricing projects of approximately 21%, compared to the current rates in effect for the contract period commencing June 1, 2018, and (ii) on March 13, 2024, we agreed with the note holders to amend the Unrelated Notes and Related Notes to extend the maturity date to December 31, 2025, for the remaining $807,331 in 2022 Unrelated Notes and $532,169 of the 2022 Related Notes.
Revenues from the sale of software as a service, which are reported as part of our Document Management segment increased by $1,115,806, or 28% in 2023 compared to 2022. This increase was primarily the result of the Yellow Folder acquisition. Excluding Yellow Folder, software as a service revenues grew by 5% in 2023 compared to 2022.
Revenues from the sale of software maintenance services, which are reported as part of our Document Management segment, increased by $3,323, or 0.2%, in 2024 compared to 2023.
Software Maintenance Services Revenues Software maintenance services revenues consist of fees for post-contract customer support services provided to license (premise-based) holders through support and maintenance agreements. These agreements allow our customers to receive technical support, enhancements and upgrades to new versions of our software products when and if available.
These agreements allow our customers to receive technical support, enhancements and upgrades to new versions of our software products when and if available. A substantial portion of these revenues were generated from renewals of maintenance agreements, which typically run on a year-to-year basis.
Our cost of revenues for our Document Management segment increased by $143,571, or 14%, primarily due to the impact of a full year of Yellow Folder in that segment. Our cost of revenues for our Document Conversion segment increased by $1,071,085, or 26%, in 2023 compared to 2022, corresponding with the increase in revenues.
Our cost of revenues for our Document Conversion segment increased by $357,893, or 6.9%, in 2024 compared to 2023, corresponding with the increase in revenues.
Revenues from the sale of software, which are reported as part of our Document Management segment decreased by $58,824, or 37% during 2023 compared to 2022. These period over period changes are due to timing of direct sales projects compared to the same periods in 2022.
Sale of Software Revenues Revenues from the sale of software principally consist of sales of additional or upgraded software licenses and applications to existing customers and resellers. Revenues from the sale of software, which are reported as part of our Document Management segment decreased by $67,314, or 67.1% during 2024 compared to 2023.
Our gross margin for software revenues increased to 74% from 59% in 2022. The 2022 margins were unusually weak, driven by more complex third-party bundles and similar solutions that required more costs to deliver the solution. Yellow Folder had no impact to this category.
Our gross margin for software revenues was consistent at approximately 74% in 2024 and 2023. Margins can vary in software revenues, driven by the level of complexity of third-party bundles or modular solutions that required more costs to deliver.
Other volatility, particularly from global supply chain disruptions, has had and are expected to continue to have a minimal impact on us as we consume relatively little in raw materials.
Volatility from increased trade protectionism is likely to have a minimal direct impact on us because we consume relatively little in raw materials. However, we have customers in industries that are likely to be affected, such as homebuilding and construction.
We look for acquisitions that can add value for our customers and are expected to be accretive to our financial performance. 24 Executive Overview of Results The biggest factor in the changes in our results of operations during 2023 compared to 2022 was our acquisition of Yellow Folder on April 1, 2022.
We look for acquisitions that can add value for our customers and are expected to be accretive to our financial performance. 23 Executive Overview of Results 2024 results reflected our current strategy to grow our SaaS revenue. All comparison amounts of 2024 over 2023 represent organic growth.
Depreciation and Amortization Depreciation and amortization during 2023 increased by $252,330, or 35%, over 2022, driven by increased amortization on capitalizable software, as well as a full year of amortization of new intangible assets related to the Yellow Folder acquisition. 29 Other Items of Income and Expense Interest Expense Interest expense, net was $588,203 during 2023 as compared with $803,294 during 2022, representing a decrease of $215,091 or 27%.
Depreciation and Amortization Depreciation and amortization increased by $154,086, or 15.8%, in 2024 over 2023, driven by both increased amortization on capitalizable software, which has increased in recent quarters as we bring new functionality to our payables automation solution, and by purchases of server hardware in 2024 to update our infrastructure. 27 Other Items of Income and Expense Interest Expense Interest expense, net was $372,710 during 2024 as compared with $588,203 during 2023, representing a decrease of $215,493 or 36.6%.
Our ability to meet our capital needs in the short term will depend on many factors, including maintaining and enhancing our operating cash flow and successfully retaining and growing our client base in the midst of global inflation and general economic uncertainty.
Our ability to meet our capital needs in the short term will depend on many factors, including maintaining and enhancing our operating cash flow and successfully retaining and growing our client base in the midst of continuing uncertainty regarding inflation and economic growth, the impact of contract renegotiations with our largest customer, the timing of sales, the success of our new business partners expanding our product and service lines, the mix of products and services, unanticipated events over which we have no control increasing our operating costs or reducing our revenues beyond our current expectations, and other factors discussed in this Annual Report.
Net cash provided by operating activities during 2022 was $1,988,778, primarily attributable to the net income adjusted for non-cash expenses of $1,623,390, an increase in operating assets of $243,527 and an increase in operating liabilities of $584,888. Cash Used in Investing Activities. Net cash used in investing activities in 2023 was $548,077, primarily $436,837 in capitalized internal use software.
Net cash provided by operating activities during 2024 was $3,858,160, primarily attributable to the net loss adjusted for non-cash expenses of $2,840,747, a decrease in operating assets of $812,924 and an increase in operating liabilities of $750,704.
Cost of professional services increased in 2023 by $1,084,621, or 28%, over 2022, primarily following the increase in revenues, as well as impact from a significant lower-margin project delivered across the first three quarters of 2023. As a result, our gross margin for professional services decreased to 46% during 2023 compared to 47% in 2022.
Cost of professional services increased in 2024 by $229,691, or 4.6%, over 2023, slightly lagging the increase in revenues for the year. Consolidated, our gross margin for professional services increased to 47.7% during 2024 compared to 45.5% in 2023.
The decrease resulted from partial principal repayments of the 2020 Notes on December 1, 2022 and February 28, 2023, and final payment on August 31, 2023, partially offset by a full year of the 2022 Notes, issued on April 1, 2022. Interest expense, net, included interest income of $29,795 and $15,226 during 2023 and 2022, respectively.
The reduced interest on lower principal balances year over year was partially offset by accelerating amortization of debt issue costs corresponding with the prepaid notes principal. Interest expense, net, included interest income of $38,539 and $29,795 during 2024 and 2023, respectively.
Removed
Factors that may affect our results include, but are not limited to, the risk factors that are included in Part I, Item 1A of this report. Company Overview We are a document services and software solutions company serving both the small-to-medium business and governmental sectors with their digital transformation and process automation initiatives.
Added
Our most recent acquisition was in 2022 and has no comparative impact on the periods reported. Our sales revenues in software as a service and in professional services, primarily document conversion, provided our revenue growth, more than offsetting expected weakness in storage and retrieval and sales of direct premise software.
Removed
On April 1, 2022, we made a significant business acquisition that has significantly impacted our financial operations and grown our business operations. For further information about this acquisition, please see Note 4 to our consolidated financial statements included in Item 8, Part I, Item 1 of this Annual Report.
Added
We generated strong cash flow in 2024, enabling us to pay down our notes payable by $1,625,000. Operating expenses for 2024 increased 23.7%, primarily driven by share-based compensation.
Removed
Our digital transformation products and services are provided through two reporting segments: Document Management and Document Conversion.
Added
In 2024, we recorded an incremental $805,955 expense related to our restricted stock awards to employees and an incremental $254,885 related to new stock option grants to employees and directors, bringing the grand total of share-based compensation to $1,496,774 in 2024 compared to $662,653 in 2023.
Removed
Our Document Management segment, which includes the Yellow Folder, LLC (“Yellow Folder”) asset acquisition in April 2022, consists primarily of solutions involving our software platform, allowing customers to capture and manage their documents across operations such as scanned hard-copy documents and digital documents including those from Microsoft Office 365, digital images, audio, video and emails.
Added
The balance of our operating expenses (excluding cost of revenues) increased 14.0% year over year, primarily driven by intentional investments in sales and marketing to accelerate revenue growth and investments in general and administrative to build structure in order to better scale, as well as expanding our development team to bring product enhancements to market more swiftly.
Removed
Our Document Conversion segment provides assistance to customers as a part of their overall document strategy to convert documents from one medium to another, predominantly paper to digital, including migration to our software solutions, as well as long-term storage and retrieval services.
Added
Below are our key financial results for 2024 (consolidated unless otherwise noted): ● Revenues were $18,018,373, representing revenue growth of 6.7% year over year. ● Cost of revenues was $6,493,447, an increase of 2.7% year over year. ● Operating expenses (excluding cost of revenues) were $11,698,431, an increase of 23.7% year over year.
Removed
Our solutions create value for customers by making it easy to connect business-critical documents to the people who need them by making those documents easy to find and access, while also being secure and compliant with the customers’ audit requirements. Solutions are sold both directly to end-users and through resellers.
Added
This amount includes share-based compensation expense of $1,496,744 in 2024 compared to 662,653 in 2023. ● Loss from operations was $173,505, compared to income from operations of $1,107,469 for 2023. ● Net loss was $546,215 with basic and diluted net loss per share of $0.13, compared to net income of $519,266 with basic and diluted net income per share of $0.13 and $0.11, respectively, for 2023. ● Net cash provided by operating activities was $3,858,160, compared to $784,659 for 2023. ● Investing activities, including both capitalization of internal use software and purchases of property and equipment, were $827,773, compared to $548,077 for 2023. ● Financing activities included $1,625,000 in prepayments of our notes payables, as a result of our strong operating cash flow. ● As of December 31, 2024, we had 154 employees, including 16 part-time employees, compared to 171 employees, including 31 part-time employees, as of December 31, 2023.
Removed
Our customers use our software by one of two methods: purchasing our software and installing it onto their own equipment, which we refer to as a “premise” model, or licensing and accessing our platform via the Internet, which we refer to as a “software as a service” or “SaaS” model and also as a “cloud-based” model.
Added
Financial Impact of Current Economic Conditions Our overall performance depends on economic conditions, and our continuing growth will be due in part to continued growth in the US economy and stability of state and local governmental spending in the US.
Removed
Licensing of our software through our SaaS model has become increasingly popular among our customers, especially in light of remote workforce policies, and it is a key ingredient in our revenue growth strategy.
Added
We do not have direct risk exposure to federal spending levels, but we could face exposure indirectly if federal spending reductions have a corresponding effect on state and local budgets, particularly in the K-12 Education sector. Our performance will also continue to be affected by uncertainty with respect to wage inflation, as well as slowing-to-modest global growth rates.
Removed
Our SaaS products are hosted with Amazon Web Services, Expedient, and Corespace, providing our customers with reliable hosting services that we believe are consistent with industry best practices in data security and performance. 23 We operate a U.S.-based business with concentrated sales to the State of Michigan for our Document Conversion segment, complemented by our diverse set of document management software solutions and services.
Added
Any industry-specific or macroeconomic downturn could affect our customers’ and potential customers’ budgets for technology procurement and stall our growth plans.
Removed
We hold or compete for leading positions regionally in select markets and attribute this leadership to several factors including the strength of our brand name and reputation, our comprehensive offering of innovative solutions, and the quality of our service support.
Added
These reportable segments are discussed above under “Item 1.
Removed
Net growth in sales of software as a service in recent years reflects market demand for these solutions over traditional sales of on-premise software. We expect to continue to benefit from our select niche leadership market positions, innovative product offering, growing customer base, and the impact of our sales and marketing programs.
Added
Revenues from the sale of software as a service, which are reported as part of our Document Management segment increased by $555,721, or 10.8% in 2024 compared to 2023. This increase was primarily the result of new cloud-based solution sales, primarily our IntelliCloud Payables Automation Solution, as well as expanded data storage, user seats, and hosting fees for existing customers.
Removed
Examples of these programs include identifying and investing in growth and expanded market penetration opportunities, more effective products and services pricing strategies, demonstrating superior value to customers, increasing our sales force effectiveness through improved guidance and measurement, and continuing to optimize our lead generation and lead nurturing processes.
Added
Those growth areas were partially offset by weakness in our content management solutions, particularly YellowFolder in K-12, which was impacted by higher than normal churn rate in those customers. Software Maintenance Services Revenues Software maintenance services revenues consist of fees for post-contract customer support services provided to license (premise-based) holders through support and maintenance agreements.
Removed
When analyzing whether to undertake a particular customer engagement, we often consider the following factors as part of our overall strategy to grow the business: (i) the profit margins the project may yield, and (ii) whether the project would help to develop new product and service features that we could integrate into our suite of products, resulting in an overall product portfolio that better aligns with the needs of our target customers. ● Our software sales cycle averages 1-3 months; however, large projects can be longer, lasting 4-6 months.
Added
This increase is the result of a significant project in our Document Conversion segment during the year, along with realized price increases in late 2023, more than offsetting fewer projects in our Document Management segment, which can be more volatile with its significantly smaller volumes.
Removed
Our results for 2023 include the results of Yellow Folder operations for the full year of four quarters, while our 2022 results include Yellow Folder operations for three quarters. Additionally, our Document Conversion business delivered record professional services revenue for the 2023 year.
Added
Our largest customer awards long-term professional services contracts through a competitive bidding process that is open as of the date of this Report.
Removed
Below are our key financial results for 2023 (consolidated unless otherwise noted): ● Revenues were $16,886,381, representing revenue growth of 21% year over year. ● Cost of revenues was $6,322,426, an increase of 24% year over year. ● Operating expenses (excluding cost of revenues) were $9,456,486, an increase of 17% year over year. ● Income from operations was $1,107,469, an increase of 34% year over year. ● Net income was $519,266 with basic and diluted net income per share of $0.13 and $0.11, respectively, compared to net income of $24,027 in 2022. ● 2022 included $355,281 of transaction costs. ● 2022 included $87,652 of earnout fair value adjustments. ● Net cash provided by operating activities was $784,659, compared to $1,988,778 for 2022. ● Capital expenditures were $548,077, compared to $577,325, excluding cash paid to acquire the Yellow Folder business, for 2022. ● As of December 31, 2023, we had 171 employees, including 31 part-time employees, compared to 161 employees, including 25 part-time employees, as of December 31, 2022.
Added
We believe we are well suited to continue to provide services to this client, but there can be no assurance that we will be awarded continuing contracts or that our work volumes with this customer will continue at their current levels and/or pricing.
Removed
Financial Impact of Current Economic Conditions Our overall performance depends on economic conditions, including the current inflationary environment, increased interest rates, and the widespread expectation of near-term global recession. Employee wages, our largest expense, have recently increased due to wage inflation.

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