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, 2025. 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 month period ended March 31, 2026 as the first quarter 2026, and to the three month period ended March 31, 2025 as the first quarter 2025.

Current wording

The following discussion and analysis of our financial condition 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, 2025. 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 “Cautionary Note Regarding Forward-Looking Statements” elsewhere herein. In this Quarterly Report, we sometimes refer to the three and six-month periods ended June 30, 2026 as the second quarter 2026 and the six-month period 2026 respectively, and to the three and six-month periods ended June 30, 2025 as the second quarter 2025 and the six-month period 2025.

Previous wording

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 an “on-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. Licensing of our software through our SaaS model has become increasingly popular among our customers, especially in light of the increased deployment of remote workforce policies, and is a key ingredient in our revenue growth strategy. Our SaaS products are hosted with leading third-party cloud infrastructure providers, including Amazon Web Services and other U.S.-based data center providers, delivering reliable hosting services consistent with industry best practices in data security and performance.

Current wording

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 an “on-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. We believe our SaaS model is an important part of our revenue growth strategy. Our SaaS products are hosted with third-party cloud infrastructure providers, including Amazon Web Services and other U.S.-based data center providers, delivering reliable hosting services consistent with industry best practices in data security and performance.

Previous wording

There has been no material change during the first quarter 2026 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, 2025.

Current wording

There has been no material change during the six-month period 2026 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, 2025.

Previous wording

First quarter 2026 results reflected challenges on multiple, unrelated fronts. Our Document Services segment faced a continued reduction in volume, plus an unfavorable mix shift from first quarter 2025. Our Software segment experienced improved bookings and order intake relative to first quarter 2025. However, GAAP revenue from these orders will primarily begin to be recognized in second quarter 2026 and beyond. Our margins reduced slightly overall, driven by a reduction in Professional Services in our Document Services segment.

Current wording

Our 2026 results reflected continuing challenges in our Document Services segment, which faced a continued reduction in volume, plus an unfavorable project and pricing mix shift from 2025. Our Software segment grew modestly in Q2 and was flat for the six-month period 2026 over 2025. Our SaaS revenues grew 4.2% in the quarter, maintained strong margins, and we experienced improved bookings and order intake relative to the six-month period 2025. However, GAAP revenue from these orders will primarily begin to be recognized in second half of 2026 and beyond. Our margins decreased slightly overall, driven by a reduction in Professional Services in our Document Services segment.

Previous wording

Below are our key financial results for the first quarter 2026 (consolidated unless otherwise noted):

Current wording

Below are our key financial results for the second quarter 2026 (consolidated unless otherwise noted):

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, 2025. Due to all these factors and the other risks discussed in Part I, Item 1A, “Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2025, 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, 2025. Due to all these factors and the other risks discussed in Part I, Item 1A, “Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2025, 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 are not necessarily meaningful or indicative of future performance.

Previous wording

The following tables sets forth our revenues by revenue source and segment for the periods indicated:

Current wording

The following table sets forth our revenues by revenue source and segment for the periods indicated:

Previous wording

Our total revenues in the first quarter 2026 decreased by $338,163, or 8.0%, from our first quarter 2025 revenues, driven primarily by project timing in our professional services revenues, which decreased 14.3% year over year for the first quarter 2026. Software as a service revenues grew 0.1% and Storage and retrieval grew 3.4%, while erosion in revenues for Software maintenance services of 11.6% exacerbated the impact of the professional services decrease.

Current wording

Revenues were down for the second quarter and six-month period 2026 by $64,336, or 1.6%, and $402,499, or 4.9%, respectively, primarily driven by a reduction in professional services in our document services segment. Professional services were negatively impacted by project timing. Software as a service revenues grew 4.2% and Storage and retrieval grew 8.8%, while erosion in revenues for Software maintenance services of 11.7% exacerbated the impact of the professional services decrease.

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 Software segment increased by $1,678, or 0.1% in the first quarter 2026 compared to 2025. Higher than usual customer churn nearly offset normal growth, across both YellowFolder and IntelliCloud solutions, including an individually significant IntelliCloud customer who implemented a new ERP system and no longer required our solution.

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 Software segment increased by $66,312, or 4.2%, in the second quarter 2026 compared to the second quarter 2025 and increased by $67,990, or 2.2% in the six-month period 2026 compared to the six-month period 2025. This increase was primarily the result of new payables automation 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 Software needs. These revenues include arrangements that do not involve the sale of software. Of our $1,850,163 in professional services revenues during the first quarter 2026, $1,815,522 was derived from our Document Services operations and $34,641 was derived from our Software operations. Our overall professional services revenues decreased by $308,152, or 14.3%, in the first quarter 2026 compared to 2025. This decrease is the result of continued reduced scanning projects in our Document Services segment.

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 second quarter 2026 and six-month period 2026, $1,645,566 and $3,461,088, respectively, were derived from our Document Services operations and $144,202 and $178,843, respectively, were derived from our Software operations. Our overall professional services revenues decreased by $109,851, or 5.8%, in the second quarter 2026 compared to the second quarter 2025 and decreased by $418,003, or 10.3%, in the six-month period 2026 compared to the six-month period 2025. This decrease was primarily attributable to reduced scanning project activity in our Document Services segment, reflecting the timing of customer projects and a lower backlog during the period. We have since taken orders to refill our project backlog.

Previous wording

The following tables sets forth our cost of revenues by revenue source and segment for the periods indicated:

Current wording

The following table sets forth our cost of revenues, by revenue source and segment, for the periods indicated:

Previous wording

Our total cost of revenues during the first quarter 2026 increased by $6,978, or 0.5%, from 2025. Our cost of revenues for our Software segment increased by $16,696, or 6.5%, primarily due to expanded payables automation efforts, as well as increased hosting costs. Our cost of revenues for our Document Services segment decreased by $9,718, or 0.8%, in the first quarter 2026 compared to 2025.

Current wording

Our total cost of revenues during the second quarter 2026 increased by $43,234, or 3.4%, from second quarter 2025 and increased by $50,212, or 1.9%, during the six-month period 2026 from the six-month period 2025. Our cost of revenues for our Software segment increased by $31,625, or 10.9%, in the second quarter 2026 compared to the second quarter 2025 and increased $48,321, or 8.8%, in the six-month period 2026 compared to the six-month period 2025, primarily due to expanded payables automation efforts, as well as increased hosting costs. Our cost of revenues for our Document Services segment increased by $11,609, or 1.2%, in the second quarter 2026 compared to the second quarter 2025 and increased by $1,891, or 0.1%, during the six-month period 2026 compared to the six-month period 2025, despite decreased work volume, due to the nature of the projects.

Previous wording

Our overall gross profit decreased to 63.5% in the first quarter 2026 from 66.6% in 2025. The increase in storage and retrieval, driven by reduced low-margin destruction work, was not sufficient to offset the decrease in professional services, driven by a product mix and pricing shift in document scanning and conversion projects.

Current wording

Our overall gross profit decreased to 66.4% in the second quarter 2026 from 68.0% in the second quarter 2025 and decreased to 64.9% during the six-month period 2026 from 67.3% for the six-month period 2025. The increase in storage and retrieval, driven by reduced low-margin destruction work, was not sufficient to offset the decrease in professional services, driven by a product mix and pricing shift in document scanning and conversion projects.

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 first quarter 2026 increased by $41,827, or 19.4%, from the first quarter 2025. Cost of software as a service is impacted by increasing our implementations team and support desk staff, hosting costs, the volume of support calls, and periodic improvements to infrastructure, of which, the implementation costs and hosting costs increased in the first quarter 2026, exacerbated by a tough comparison to a high margin quarter in 2025. Our gross margin in the first quarter 2026 decreased to 83.4% compared to 86.1% in the first quarter 2025.

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 second quarter 2026 increased by $30,563, or 12.4%, from the second quarter 2025 and increased by $72,390, or 15.7%, during the six-month period 2026 from the six-month period 2025. Cost of software as a service is impacted by increasing our implementations team and support desk staff, hosting costs, the volume of support calls, and periodic improvements to infrastructure, of which, the implementation costs and hosting costs increased in the first six months 2026 over 2025. Gross profit in the second quarter 2026 decreased to 83.1% compared to 84.3% in the second quarter 2025 and decreased to 83.2% during the six-month period 2026 compared to 85.2% during the six-month period 2025.

Previous wording

Cost of professional services consists primarily of compensation for employees performing the Document Services division conversion services, as well as compensation of our software engineers and implementation consultants, and related third-party costs. Cost of professional services increased in the first quarter 2026 by $29,443, or 2.7% over 2025, due to lower margin projects requiring more labor. Further, while there were fewer Software division projects in the first quarter 2026 than 2025, the impact was not material to the overall cost of revenues. On a consolidated basis, our gross margin for professional services decreased to 39.9% during the first quarter 2026 compared to 49.9% in 2025. Gross margins related to consulting services in Software and Document Services (ranging from scanning to micrographics conversion) may vary widely, depending upon the nature of the project and the amount of labor required to complete a project.

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 second quarter 2026 increased by $10,913, or 1.1%, from the second quarter 2025 and increased in the six-month period 2026 by $40,356, or 2.0%, over the six-month period 2025. The increase in cost of sales, despite lower revenues, was driven by our Document Services segment where lower margin projects required more labor. Gross margins related to consulting services in Software and digital transformation services in Document Services may vary widely, depending upon the nature of the project and the amount of labor required to complete a project, and declined in the periods reported. Our gross margins in professional services decreased to 45.5% in the second quarter 2026 compared to 49.2% in the second quarter 2025 and decreased to 42.7% during the six-month period 2026 compared to 49.6% in the six-month period 2025.

Previous wording

General and administrative expenses increased $237,981 or 9.1% in the first quarter 2026, primarily related to severance expense to our outgoing CEO and overlap wages with our new CEO, as well as recruiting fees related to our CEO search. These increases were reflected in both our Software segment, in which our general and administrative expenses increased 3.5% to $1,561,135 in first quarter 2026 from $1,508,965 in 2025, and also in our Document Services segment, in which our general and administrative expenses increased 16.8% to $1,292,592 in first quarter 2026 from $1,106,781 in 2025. Additionally, share-based compensation expense, which is largely non-cash, continues to be a significant portion of general and administrative expenses, amounting to $263,316 in first quarter 2026 and $536,763 in first quarter 2025.

Current wording

General and administrative expenses during the second quarter 2026 increased by $577,958, or 24.4%, over the second quarter 2025, and increased in the six-month period 2026 by $815,939, or 16.4%, over the six-month period 2025, including severance expense to our outgoing CEO and overlap wages with our new CEO, as well as recruiting fees related to our CEO search.

Previous wording

Interest income was $4,699 during the first quarter 2026, as compared with $43,006 of interest expense, net, during the first quarter 2025, representing a change of $47,705 or 110.9%. The reduced interest expense resulted from early principal repayments of the 2022 Notes June 18, 2025.

Current wording

Interest income was $3,921 and $8,620 during the second quarter and six-month period 2026, respectively, as compared with $59,112 and $102,118 of interest expense, net, during the second quarter and six-month period 2025, respectively. The reduced interest expense resulted from early principal repayments of the 2022 Notes on June 18, 2025.

Previous wording

We have historically 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 sales of equity. Since 2012, we have raised a net total of approximately $23.1 million in cash through issuances of equity securities and a further $5.0 million in cash through issuances of debt securities, of which all have been repaid as of June 18, 2025.

Current wording

We have historically 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 sales of equity. Since 2012, we have raised a net total of approximately $23.1 million in cash through issuances of equity securities and a further $5.0 million in cash through issuances of debt securities, which have been repaid as of June 18, 2025.

Previous wording

At March 31, 2026, we had $2.1 million in cash and cash equivalents, net working capital deficit of $0.5 million, which includes $2.9 million in deferred revenues. 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.

Current wording

At June 30, 2026, we had $1.7 million in cash and cash equivalents, net working capital deficit of $1.3 million, which includes $2.9 million in deferred revenues. 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

We maintain an effective registration statement covering up to $12.9 million of common stock, warrants, and units. The registration statement includes a prospectus covering the offer, issuance and sale of up to $10.0 million in our common stock from time to time in “at-the-market offerings” pursuant to an At the Market Agreement (the “ATM Program”) with Lucid Capital Markets, LLC as our sales agent. We sold no shares during the first quarter 2026 or 2025. We have sold 145,938 shares of our common stock pursuant to the ATM Program during the full year 2025, and received aggregate net proceeds totaling $1,621,325. As of the filing date of this Quarterly Report, approximately $8.2 million remained available under the ATM Program.

Current wording

We maintain an effective registration statement covering up to $12.9 million of common stock, warrants, and units. The registration statement includes a prospectus covering the offer, issuance and sale of up to $10.0 million in our common stock from time to time in “at-the-market offerings” pursuant to an At the Market Agreement (the “ATM Program”) with Lucid Capital Markets, LLC as our sales agent. We sold no shares during the six-month period 2026 and 139,945 shares during the six-month period 2025. We sold 145,938 shares of our common stock pursuant to the ATM Program during the full year 2025, and received aggregate net proceeds totaling $1,621,325. As of the filing date of this Quarterly Report, approximately $8.2 million remained available under the ATM Program.

Previous wording

Net cash used in operating activities during the first quarter 2026 was $228,433, primarily attributable to the net loss adjusted for non-cash expenses of $604,870, a decrease in operating assets of $44,793 and an increase in operating liabilities of $299,757. Net cash used in operating activities during the first quarter 2025 was $27,053, primarily attributable to the net loss adjusted for non-cash expenses of $907,979, an increase in operating assets of $29,841 and a decrease in operating liabilities of $177,626.

Current wording

Net cash used in operating activities during the six-month period 2026 was $186,094, primarily attributable to the net loss adjusted for non-cash expenses of $1,550,628, a decrease in operating assets of $574,148 and a decrease in operating liabilities of $46,879. Net cash provided by operating activities during the six-month period 2025 was $112,521, primarily attributable to the net loss adjusted for non-cash expenses of $1,698,350, a decrease in operating assets of $424,943 and a decrease in operating liabilities of $715,617.

Previous wording

Net cash used in investing activities in the first quarter 2026 was $203,665, including $178,700 related to capitalized internal use software. Net cash used in investing activities in the first quarter 2025 was $223,934, including $102,854 related to capitalized internal use software.

Current wording

Net cash used in investing activities in the six-month period 2026 was $352,925, including $277,254 in capitalized software. Net cash used in investing activities in the six-month period 2025 was $471,904, including $209,171 in capitalized software.

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, 2025. There were no material changes to our critical accounting policies and estimates during the first quarter 2026.

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, 2025. There were no material changes to our critical accounting policies and estimates during the second quarter 2026.