INTELLINETICS INC

Previous wording

The following discussion and analysis of our financial conditions and results of operations should be read together with our condensed consolidated financial statements and notes thereto included in Part I, Item 1, “Financial Statements,” of this Quarterly Report on Form 10-Q, and with the condensed consolidated financial statements and notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023. Historical results and percentage relationships among any amounts in the financial statements are not necessarily indicative of trends in operating results for any future periods. Any forward-looking statements in this discussion and analysis should be read in conjunction with the information set forth in “Note Regarding Forward-Looking Statements” elsewhere herein. In this Quarterly Report, we sometimes refer to the three and six-month periods ended June 30, 2024 as the second quarter 2024 and the six-month period 2024 respectively, and to the three and six-month periods ended June 30, 2023 as the second quarter 2023 and the six-month period 2023.

Current wording

The following discussion and analysis of our financial conditions and results of operations should be read together with our condensed consolidated financial statements and notes thereto included in Part I, Item 1, “Financial Statements,” of this Quarterly Report on Form 10-Q, and with the condensed consolidated financial statements and notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023. Historical results and percentage relationships among any amounts in the financial statements are not necessarily indicative of trends in operating results for any future periods. Any forward-looking statements in this discussion and analysis should be read in conjunction with the information set forth in “Note Regarding Forward-Looking Statements” elsewhere herein. In this Quarterly Report, we sometimes refer to the three and nine-month periods ended September 30, 2024 as the third quarter 2024 and the nine-month period 2024 respectively, and to the three and nine-month periods ended September 30, 2023 as the third quarter 2023 and the nine-month period 2023.

Previous wording

There has been no material change during the six-month period 2024 to the major qualitative and quantitative factors we consider in the evaluation of our operating results as set forth in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations —How We Evaluate our Business Performance and Opportunities” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2023.

Current wording

There has been no material change during the nine-month period 2024 to the major qualitative and quantitative factors we consider in the evaluation of our operating results as set forth in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations —How We Evaluate our Business Performance and Opportunities” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2023.

Previous wording

Revenues were up for the second quarter and six-month period 2024 by $383,163, or 9.0%, and $703,414, or 8.3%, respectively, primarily driven by software as a service and professional services more than offsetting expected weakness in storage and retrieval and sales of direct premise software. In expenses, for the six-month period 2024 we recorded $533,919 in stock compensation expense related to our restricted stock awards to employees, without which our operating expenses (excluding cost of revenues) would have increased 12.4% year over year, instead of 23.8%.

Current wording

Revenues were up for the third quarter and nine-month period 2024 compared to the same periods in 2023 by $341,196, or 8.0%, and $1,044,610, or 8.2%, respectively, primarily driven by software as a service and professional services more than offsetting expected weakness in storage and retrieval and sales of direct premise software. Operating expenses for the nine-month period 2024 increased 28.2%, primarily driven by share based compensation. In the nine month period 2024, we recorded $669,937 in share based compensation expense related to our restricted stock awards to employees and $245,023 in new stock option grants in the third quarter to employees and directors. The balance of our operating expenses (excluding cost of revenues) increased 15.6% 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.

Previous wording

Below are our key financial results for the second quarter 2024 (consolidated unless otherwise noted):

Current wording

Below are our key financial results for the third quarter 2024 (consolidated unless otherwise noted):

Previous wording

Below are our key financial results for the six-month period 2024 (consolidated unless otherwise noted):

Current wording

Below are our key financial results for the nine-month period 2024 (consolidated unless otherwise noted):

Previous wording

Our overall performance depends on economic conditions, and our continuing growth will be due in part to continued recovery and growth in the US economy and continued stability of state and local governmental spending in the US. Our performance will also continue to be affected by the recent inflationary environment, increased interest rates, and slowing-to-modest global growth rates.

Current wording

Our overall performance depends on economic conditions, and our continuing growth will be due in part to continued growth in the US economy and continued stability of state and local governmental spending in the US. Our performance will also continue to be affected by uncertainty in the inflationary environment and uncertainty in interest rates, as well as slowing-to-modest global growth rates.

Previous wording

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. Any macroeconomic downturn could affect our customers’ and potential customers’ budgets for technology procurement. 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 that our focus on our strategic priorities will deliver consistent growth.

Current wording

Other volatility, particularly from global supply chain disruptions, has had and is expected to continue to have a minimal impact on us as we consume relatively little in raw materials. Any macroeconomic downturn could affect our customers’ and potential customers’ budgets for technology procurement. 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 that our focus on our strategic priorities will deliver consistent growth.

Previous wording

Our operating results have fluctuated significantly in the past and are expected to continue to fluctuate in the future due to a variety of factors, in addition to economic conditions, that are discussed in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Uncertainties, Trends, and Risks that can cause Fluctuations in our Operating Results” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2023. Due to all these factors and the other risks discussed Part I, Item IA, “Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, and Part II, Item IA,“Risk Factors” of our Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2024, our past results of operations should not be relied upon as an indication of our future performance. Comparisons of our operating results with prior periods is not necessarily meaningful or indicative of future performance.

Current wording

Our operating results have fluctuated significantly in the past and are expected to continue to fluctuate in the future due to a variety of factors, in addition to economic conditions, that are discussed in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Uncertainties, Trends, and Risks that can cause Fluctuations in our Operating Results” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2023. Due to all these factors and the other risks discussed Part I, Item IA, “Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, and Part II, Item IA,“Risk Factors” of our Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2024 filed on May 14, 2024, our past results of operations should not be relied upon as an indication of our future performance. Comparisons of our operating results with prior periods is not necessarily meaningful or indicative of future performance.

Previous wording

Revenues were up for the second quarter and six-month period 2024 by $383,163, or 9.0%, and $703,414, or 8.3%, respectively, primarily driven by software as a service and professional services in the Document Conversion segment more than offsetting expected weakness in storage and retrieval and sales of direct premise software.

Current wording

Revenues were up for the third quarter and nine-month period 2024 by $341,196, or 8.0%, and $1,044,610, or 8.2%, respectively, primarily driven by software as a service and professional services in the Document Conversion segment more than offsetting weakness in storage and retrieval, which is expected to continue in the near term, and normal volatility in sales of direct premise software.

Previous wording

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. Revenues from the sale of software as a service, which are reported as part of our Document Management segment increased by $122,673, or 9.6%, in the second quarter 2024 compared to the second quarter 2023 and increased by $289,394, or 11.5% in the six-month period 2024 compared to the six-month period 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.

Current wording

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. Revenues from the sale of software as a service, which are reported as part of our Document Management segment increased by $110,197, or 8.5%, in the third quarter 2024 compared to the third quarter 2023 and increased by $399,591, or 10.5% in the nine-month period 2024 compared to the nine-month period 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. Those growth areas were partially offset by weakness in the YellowFolder growth in K-12, which was impacted by higher than normal churn rate in those customers.

Previous wording

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. Of our professional services revenues during the second quarter 2024 and six-month period 2024, $2,572,760 and $5,000,933, respectively, were derived from our Document Conversion operations and $89,598 and $141,103, respectively, were derived from our Document Management operations. Our overall professional services revenues increased by $364,042, or 15.8%, in the second quarter 2024 compared to the second quarter 2023 and increased by $544,431, or 11.8%, in the six-month period 2024 compared to the six-month period 2023. This increase is the result of a strong pipeline in our Document Conversion segment, along with realized price increases in late 2023. However, we believe that our largest customer intends to renegotiate, and accordingly reduce, our pricing on a significant portion of our work for this customer, which could have a significant adverse impact on our future professional services revenues as well as our overall revenues, margins, net income and cash flows beginning near the end of this year.

Current wording

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. Of our professional services revenues during the third quarter 2024 and nine-month period 2024, $2,456,456 and $7,457,389, respectively, were derived from our Document Conversion operations and $143,774 and $284,877, respectively, were derived from our Document Management operations. Our overall professional services revenues increased by $267,140, or 11.5%, in the third quarter 2024 compared to the third quarter 2023 and increased by $811,571, or 11.7%, in the nine-month period 2024 compared to the nine-month period 2023. This increase is the result of a significant project in our Document Conversion segment, 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. However, we believe that our largest Document Conversion customer intends to renegotiate, and accordingly reduce, our pricing on a significant portion of our work for this customer, which could have a significant adverse impact on our future professional services revenues as well as our overall revenues, margins, net income and cash flows next year.

Previous wording

Our total cost of revenues during the second quarter 2024 decreased by $29,383, or 1.8%, over second quarter 2023 and increased by $37,063, or 1.2%, during the six-month period 2024 over the six-month period 2023. Our cost of revenues for our Document Management segment decreased by $103,683, or 30.2%, in the second quarter 2024 compared to the second quarter 2023 and decreased $147,279, or 22.6%, in the six-month period 2024 compared to the six-month period 2023 due to scale, efficiencies, and low support demands. Our cost of revenues for our Document Conversion segment increased by $74,300, or 5.6%, in the second quarter 2024 compared to the second quarter 2023 and increased by $184,342, or 7.2%, during the six-month period 2024 compared to the six-month period 2023 primarily due to the staffing ramp up to accommodate more work volume.

Current wording

Our total cost of revenues during the third quarter 2024 increased by $140,933, or 8.6%, over third quarter 2023 and increased by $177,996, or 3.7%, during the nine-month period 2024 over the nine-month period 2023. Our cost of revenues for our Document Management segment decreased by $13,320, or 4.7%, in the third quarter 2024 compared to the third quarter 2023 and decreased $137,489, or 15.1%, in the nine-month period 2024 compared to the nine-month period 2023 following the reduced volume in sales of software and professional services in that segment. Our cost of revenues for our Document Conversion segment increased by $154,253, or 11.3%, in the third quarter 2024 compared to the third quarter 2023 and increased by $315,485, or 8.0%, during the nine-month period 2024 compared to the nine-month period 2023 due to the staffing ramp up to accommodate more work volume, as well as a higher cost project mix in the third quarter 2024.

Previous wording

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 during the second quarter 2024 decreased by $40,796, or 15.8%, from the second quarter 2023 and decreased by $45,444, or 9.5%, during the six-month period 2024 from the six-month period 2023. This decrease in the cost of SaaS was due to increased staffing allocations in 2023, affecting that quarter and six-month period. Gross profit in 2024 returned to more historical levels, improving slightly on those, where our gross margin in the second quarter 2024 increased to 84.5% compared to 79.8% in the second quarter 2023 and to 84.5% in the six-month period 2023 compared to 81.0% during the six-month period 2023.

Current wording

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 during the third quarter 2024 increased by $28,819, or 14.4%, from the third quarter 2023 and decreased by $16,625, or 2.4%, during the nine-month period 2024 over the nine-month period 2023. While our cost to support SaaS is generally stable and consistent, in the third quarter 2024 we hired two additional personnel, a help desk support and an implementations project manager, in order to meet growing demand. Our gross margin in the third quarter 2024 decreased to 83.7% compared to 84.5% in the third quarter 2023 and increased to 84.3% in the nine-month period 2024 compared to 82.2% during the nine-month period 2023.

Previous wording

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. Cost of professional services during the second quarter 2024 increased by $37,200, or 2.8%, over the second quarter 2023 and increased in the six-month period 2024 by $134,147, or 5.4%, over the six-month period 2023. The growth in cost of sales was less than the growth in revenues due to stabilization of wages, price increases, and favorable project profitability year over year in our Document Conversion segment. Gross margins related to consulting services in Document Management and digital transformation services in Document Conversion may vary widely, depending upon the nature of the project and the amount of labor required to complete a project. Our gross margins in professional services increased to 49.5% in the second quarter 2024 compared to 43.1% in the second quarter 2023 and increased to 48.9% during the six-month period 2024 compared to 45.7% in the six-month period 2023.

Current wording

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. Cost of professional services during the third quarter 2024 increased by $92,715, or 6.9%, over the third quarter 2023 and increased in the nine-month period 2024 by $226,862, or 5.9%, over the nine-month period 2023, primarily due to growing the Document Conversion staff to process the growing revenues. Our gross margins in professional services increased to 45.0% in the third quarter 2024 compared to 42.6% in the third quarter 2023 and increased to 47.6% during the nine-month period 2024 compared to 44.7% in the nine-month period 2023. Price increases in the Document Conversion segment offset a less profitable project mix in professional services within that segment in the third quarter 2024, and was strengthened by an overall solid project mix in the segment for the nine month period 2024. Gross margins related to professional services projects may vary widely, depending upon the nature of the digital conversion or consulting project and the amount of labor it takes to complete a project.

Previous wording

General and administrative expenses during the second quarter 2024 increased by $463,857, or 29.7%, over the second quarter 2023, and increased in the six-month period 2024 by $1,037,739, or 33.3%, over the six-month period 2023, primarily related to $136,018 and $533,919 in expense related to our restricted stock award grant to employees in the second quarter and six-month period 2024, respectively. Excluding the restricted stock award expense, total expenses increased by $503,820, or 16.2% in the six-month period 2024 over 2023, related to investments made in order to scale, such as development, finance, and our SOC2 process, as well as wage increases. This was primarily reflected in our Document Management segment, in which, including the restricted stock grant expense, our general and administrative expenses increased to $1,204,509 and $2,349,541 in the second quarter 2024 and the six-month period 2024, respectively, from $794,718 and $1,597,846 in the second quarter 2023 and the six-month period 2023, respectively. In our Document Conversion segment, our general and administrative expenses increased to $821,287 in the second quarter 2024 compared to $767,221 in the second quarter 2023, and increased to $1,804,748 in the six-month period 2024 compared to $1,518,704 in the six-month period 2023.

Current wording

Excluding the share based compensation expense, total general and administrative expenses increased by $216,792, or 14.3% in the third quarter 2024 over 2023 and $1,038,181, or 15.0% in the nine-month period 2024 over 2023, related to investments made in order to scale, such as development, finance, and our SOC2 process, as well as wage increases. These increases in investments were reflected in both our reportable segments. Our Document Management segment, which includes the share based compensation expense, reported a general and administrative expenses of $1,189,789 and $3,539,330 in the third quarter 2024 and the nine-month period 2024, respectively, from $794,177 and $2,392,023 in the third quarter 2023 and the nine-month period 2023, respectively. In our Document Conversion segment, our general and administrative expenses increased to $924,053 and $2,728,801, and $721,832 and $2,240,536, in the third quarter and nine-month period 2024 and 2023, respectively.

Previous wording

Depreciation and amortization during the second quarter 2024 increased by $34,835, or 14.5%, over the second quarter 2023 and increased by $71,127, or 15.2%, during the six-month period 2024 over the six-month period 2023, primarily as a result of increased amortization of capitalized software costs.

Current wording

Depreciation and amortization during the third quarter 2024 increased by $39,985, or 16.1%, over the third quarter 2023 and increased by $111,112, or 15.5%, during the nine-month period 2024 over the nine-month period 2023 primarily as a result of increased amortization of capitalized software costs.

Previous wording

Interest expense decreased by $63,598, or 39.6%, in the second quarter 2024 as compared to the second quarter 2023, and decreased by $94,800, or 28.5% during the six-month period 2024 as compared to the six-month period 2023. The decrease resulted from reduced interest resulting from principal repayments as follows: the 2020 Notes on February 28, 2023 and August 31, 2023, and the 2022 Notes principal repayment of $500,000 on March 30, 2024. The 2022 Notes principal prepayment of $325,000 on June 30, 2024 had a negligible impact on interest expense in the six-month period 2024.

Current wording

Interest expense decreased by $41,585, or 30.5%, in the third quarter 2024 as compared to the third quarter 2023, and decreased by $136,385, or 29.1% during the nine-month period 2024 as compared to nine-month period 2023. The decrease resulted from reduced interest resulting from principal repayments as follows: the 2020 Notes principal payments of $263,000 on February 28, 2023 and $717,500 on August 31, 2023, and the 2022 Notes principal repayments of $500,000 on March 30, 2024, $325,000 on June 30, 2024 and $800,000 on August 30, 2024. 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.

Previous wording

We have financed our operations primarily through a combination of cash on hand, cash generated from operations, borrowings from third parties and related parties, and proceeds from private sales of equity. Since 2012, we have raised a net total of approximately $23.7 million in cash through issuances of debt and equity securities, net of $2.8 million in debt repayments. As of June 30, 2024, we had approximately $1.7 million in cash and cash equivalents, net working capital of $0.5 million, and an accumulated deficit of $21.2 million. In March and June 2024, we prepaid $0.5 million and $0.35 million in principal of the 2022 Notes, respectively.

Current wording

We have financed our operations primarily through a combination of cash on hand, cash generated from operations, borrowings from third parties and related parties, and proceeds from private sales of equity. Since 2012, we have raised a net total of approximately $22.9 million in cash through issuances of debt and equity securities, net of $3.6 million in debt repayments. In March, June and August 2024, we prepaid an aggregate of $1.65 million of the principal balances of the 2022 Notes, respectively.

Previous wording

In 2024 and 2023, 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, 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 $1,539,500 in 2022 Unrelated Notes and all $600,000 of the 2022 Related Notes. However, we believe that our largest customer intends to renegotiate our pricing on a significant portion of our work for this customer, which could have an adverse impact on our overall revenues, cash flows, liquidity and capital resources.

Current wording

In 2024 and 2023, 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, 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. However, we believe that our largest customer intends to renegotiate our pricing on a significant portion of our work for this customer, which could have an adverse impact on our overall revenues, cash flows, liquidity and capital resources.

Previous wording

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.

Current wording

At September 30, 2024, we had $2.5 million in cash and cash equivalents, working capital deficit of $0.2 million, and long-term debt relating to our notes payable of approximately $1.3 million due December 31, 2025. 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.

Previous wording

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 global inflation and generally slow economic growth.

Current wording

However, our future cash resources and capital requirements may vary materially from those now planned. For example, from time to time we evaluate opportunities to expand our current or to develop new products and services and technology or to acquire or invest in complementary businesses, which could increase our capital needs. 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 Quarterly Report.

Previous wording

As of June 30, 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 $2,139,500 and accrued interest of $0.

Current wording

As of September 30, 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.

Previous wording

Net cash provided by operating activities during the six-month period 2024 was $1,718,855, primarily attributable to the net income adjusted for non-cash expenses of $1,363,842, a decrease in operating assets of $286,249 and an increase in operating liabilities of $168,428. Net cash used in operating activities during the six-month period 2023 was 299,631, primarily attributable to the net income adjusted for non-cash expenses of $856,555, an increase in operating assets of $702,381 and a decrease in operating liabilities of $702,102.

Current wording

Net cash provided by operating activities during the nine-month period 2024 was $3,652,417, primarily attributable to the net income adjusted for non-cash expenses of $2,203,699, a decrease in operating assets of $780,011 and an increase in operating liabilities of $1,161,221. Net cash provided by operating activities during the nine-month period 2023 was $1,128,314, primarily attributable to the net income adjusted for non-cash expenses of $1,312,276, an increase in operating assets of $1,037,575 and an increase in operating liabilities of $395,985.

Previous wording

Net cash used in investing activities in the six-month period 2024 was $398,766, including $198,051 in capitalized software. Net cash used in investing activities in the six-month period 2023 was $291,101, including $208,417 in capitalized software.

Current wording

Net cash used in investing activities in the nine-month period 2024 was $695,359, including $302,396 in capitalized software and $203,900 in servers to replace end-of-life Yellow Folder software as a service servers. Net cash used in investing activities in the nine-month period 2023 was $432,053, including $348,051 in capitalized software.

Previous wording

Net cash used by financing activities during the six-month period 2024 amounted to $825,000 in repayment of notes payable, and $29,668 in the principal portion of a finance lease liability. Net cash used by financing activities during the six-month period 2023 amounted to $700,000 in earnout liability payments, $262,950 in repayment of notes payable, and $12,312 in the principal portion of a finance lease liability.

Current wording

Net cash used by financing activities during the nine-month period 2024 amounted to $1,625,000 in repayment of notes payable and $45,577 in the principal portion of a finance lease liability. Net cash used by financing activities during the nine-month period 2023 amounted to $700,000 in earnout liability payments, $980,450 in repayment of notes payable, and $23,167 in the principal portion of a finance lease liability.

Previous wording

Our critical accounting policies and estimates are set forth in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and Estimates” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023. There were no material changes to our critical accounting policies and estimates during the second quarter 2024.

Current wording

Our critical accounting policies and estimates are set forth in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and Estimates” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023. There have been no material changes to our critical accounting policies and estimates since our Annual Report on Form 10-K for the fiscal year ended December 31, 2023.