INTELLINETICS, INC.
For the period ended Dec 31, 2024. Filed Mar 24, 2025.
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A company's yearly report to the SEC, with audited financial statements. It is the fullest account a company gives of its business, its finances and the risks it sees.
FY2024 · Filed Mar 24, 2025
INLX$3.82-5.0%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-K
Period ended 2023-12-31; filed 2024-03-28.
0001493152-24-011731
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-K
Period ended 2024-12-31; filed 2025-03-24.
0001641172-25-000274
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 111 previous paragraphs and 101 current paragraphs.
64 unchanged; 26 reworded; 11 added; 19 removed; 2 previous and 0 current paragraphs rearranged.
Tables are not compared: 16 previous and 15 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (11)
Current report
2024 results reflected our current strategy to grow our SaaS revenue. All comparison amounts of 2024 over 2023 represent organic growth. 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. We generated strong cash flow in 2024, enabling us to pay down our notes payable by $1,625,000.
Current report
Operating expenses for 2024 increased 23.7%, primarily driven by share-based compensation. 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. 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.
Current report
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. 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.
Current report
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.
Current report
Our overall gross profit increased to approximately 64.0% in 2024 from 62.6% in 2023. The revenue mix between segments did not shift significantly, contributing to stability in margins. Price increases in the Document Conversion segment offset a less profitable project mix in professional services within that segment, and consolidated margins were further bolstered by continued strong performance in Document Management subscriptions services, driven by software as a service.
Current report
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. Cost of software as a service is impacted by increasing our implementations team and support desk, as well as periodic improvements to infrastructure, which occurred in 2024 but was more than offset by a reduction in support calls. As a result, in 2024, our gross margin increased to 84.9% from 82.7% in 2023.
Current report
General and administrative expenses increased in 2024 by 1,711,479, or 26.5%, over 2023. The primary driver of the increase is the share-based compensation expense of $1,496,774 in 2024 compared to $662,653 in 2023. The share-based compensation expense components for 2024 and 2023 are described in the following table:
Current report
Excluding the share-based compensation expense, total general and administrative expenses increased by $877,358, or 13.6% in 2024 over 2023, related to investments made in order to scale, such as development, finance, and our SOC2 process, as well as wage increases.
Current report
Sales and marketing expenses increased by $376,380, or 18.6%, during 2024 over 2023. The increases were primarily driven by the expansion of our sales team as part of our investments intended to accelerate our sales. Additionally, we increased in our spending on lead generation, both internally and through an outsourced service, and on select campaigns and increased travel and trade show materials and attendance.
Current report
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.
Current report
We believe we could seek additional debt or equity financing on acceptable terms. 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. However, our ability to obtain additional capital, or to modify our existing debt arrangements, when needed or desired, will depend on many factors, including general economic and market conditions, our operating performance and investor and lender sentiment, and thus cannot be assured.
Removed paragraphs (19)
Previous report
Company Overview
Previous report
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. 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.
Previous report
Our digital transformation products and services are provided through two reporting segments: Document Management and Document Conversion. 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. 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. 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.
Previous report
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. 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. 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.
Previous report
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. 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. 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. 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.
Previous report
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. 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.
Previous report
Our overall performance depends on economic conditions, including the current inflationary environment, increased interest rates, and the widespread expectation of near-term global recession.
Previous report
Employee wages, our largest expense, have recently increased due to wage inflation. These increased labor costs have slightly decreased our profit margin over 2022, but we continue to mitigate this by appropriately increasing customer renewal rates whenever we have the contractual ability to do so. We anticipate that the inflationary effect on our wages has stabilized.
Previous report
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. Yellow Folder operations included four quarters for 2023 and three quarters for 2022, primarily in the Document Management segment. Professional services revenue increased 25% year over year, driven by strong Document Conversion revenues, as further described below.
Previous report
Our overall gross profit decreased slightly to approximately 63% in 2023 from 64% in 2022. The increase in the mix of professional services revenue was the principal driver of the increase, due to the strong performance in the Document Conversion segment. Professional services revenue was 54% of total revenues in 2023 compared to 52% in 2022.
Previous report
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. This increase in the cost of SaaS proportionately followed the increase in associated SaaS revenues, so our gross margin in 2023 remained stable at 83%.
Previous report
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. This was reflected equally in our Document Management segment, in which our general and administrative expenses increased to $3,277,432 in 2023 from $2,512,879 in 2022, and in our Document Conversion segment, at $3,177,656 in 2023 compared to $2,432,335 in 2022. Increases in 2023 were driven by stock compensation and services increases totaling $241,203, or 57%, as well as investments in scaling our business, including our investment in NetSuite to bring all acquired companies to a single general ledger, and a full year of increased costs after uplisting to NYSE American in the last half of 2022.
Previous report
There were no fair value adjustments during 2023. Fair value adjustments amounted to $87,652 for 2022. The fair value adjustments were driven by updated assumptions to reflect the improved performance of both acquisitions against their threshold targets and the decreasing impact of present value discounting.
Previous report
Transaction Costs
Previous report
There were no transaction costs during 2023. The transactions costs during 2022 were comprised of investment banker success fees, as well as legal and consulting fees, in connection with our acquisition of Yellow Folder and related fundraising activities.
Previous report
Sales and marketing expenses increased by $55,378, or 3%, during 2023 over 2022. Increases from enhancements to our web site and increased trade show activity were partially offset by reductions from partial sales rep vacancies during 2023.
Previous report
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.
Previous report
Our existing debt as of December 31, 2023 is comprised of approximately $0.8 million due March 30, 2025 and approximately $2.1 million due December 31, 2025. Our operating cash flow alone may be insufficient to meet the debt obligations in full in 2025. We believe we could seek additional debt or equity financing on acceptable terms. 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.
Previous report
Our ability to meet our capital needs further into the future will depend primarily on strategically managing the business and successfully retaining our client base.
Reworded paragraphs (26)
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. A global recession may affect our customers’ and potential customers’ budgets for technology procurement, but as of the date of this report, we have not experienced diminished customer demand due to adverse economic conditions. 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.
Current wording
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. Any industry-specific or macroeconomic downturn could affect our customers’ and potential customers’ budgets for technology procurement and stall our growth plans. 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.
Previous wording
We have two reportable segments: Document Management and Document Conversion. These reportable segments are discussed above under “Company Overview.”
Current wording
We have two reportable segments: Document Management and Document Conversion. These reportable segments are discussed above under “Item 1. Business.”
Previous wording
Revenues from the sale of software principally consist of sales of additional or upgraded software licenses and applications to existing customers and resellers. Yellow Folder does not earn revenue in this category. 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.
Current wording
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.
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 $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.
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 $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. 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.
Previous wording
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. A substantial portion of these revenues were generated from renewals of maintenance agreements, which typically run on a year-to-year basis. Yellow Folder does not earn revenue in this category. Revenues from the sale of software maintenance services, which are reported as part of our Document Management segment, increased by $19,179, or 1%, in 2023 compared to 2022. 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.
Current wording
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. A substantial portion of these revenues were generated from renewals of maintenance agreements, which typically run on a year-to-year basis. 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. 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.
Previous wording
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. 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. This increase is primarily driven by returning to full staff after hiring challenges in 2022 and a strong project backlog of work all year, augmented by certain price increases effective in the fourth quarter 2023.
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 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. 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. Our largest customer awards long-term professional services contracts through a competitive bidding process that is open as of the date of this Report. 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. Any reduction in contract volume or pricing 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
We provide document storage and retrieval services to customers, primarily in Michigan. 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. 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.
Current wording
We provide document storage and retrieval services to customers, primarily in Michigan. 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. 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.
Previous wording
Our total cost of revenues during 2023 increased by $1,214,656 or 24%, over 2022. 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.
Current wording
Our total cost of revenues during 2024 increased by $171,021 or 2.7%, over 2023. Our cost of revenues for our Document Management segment decreased by $186,872, or 16.0%, impacted by the reduced volume in sales of software and professional services in that segment, as well as some efficiencies from scale. 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.
Previous wording
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. 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.
Current wording
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. 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.
Previous wording
Cost of software maintenance services consists primarily of technical support personnel and related costs. Cost of software maintenance services decreased by $20,365, or 26%, in 2023 from 2022, due to slightly reduced support activity. As a result, our gross margin for software maintenance services increased to 96% in 2023 from 94% in 2022.
Current wording
Cost of software maintenance services consists primarily of technical support personnel and related costs. Cost of software maintenance services decreased by $1,706, or 2.9%, in 2024 from 2023, which is consistent with the relatively flat sales volume for this revenue line. As a result, our gross margin for software maintenance services was consistent at 95.9% in 2024 compared to 95.8% in 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 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. Gross margins may vary in professional services, depending on the type of project, such as paper scanning, micrographics, or consulting services, as well as depending upon the nature of each project and the amount of labor required to complete that 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 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. In our Document Conversion segment, towards the end of the year, as inbound document conversion project volume dipped, we adjusted our workforce accordingly, reducing temporary workers first, wherever possible. Due to the manual nature of the prepping and scanning work required to convert documents from paper to digital, the business has staffed to the levels of the work available. As a result, our gross margin for professional services in our Document Conversion segment increased to 46.1% during 2024 compared to 43.6% in 2023. In our much smaller Document Management segment, our professional services cost of professional services decreased more significantly than the sales revenue, due to the nature of the projects completed, resulting in gross margin for professional services in our Document Management segment increasing to 85.9% during 2024 compared to 71.0% in 2023. Gross margins may vary in professional services, depending on the type of project, such as paper scanning, micrographics, or consulting services, as well as depending upon the nature of each project and the amount of labor required to complete that project.
Previous wording
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. 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.
Current wording
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. Cost of storage and retrieval services were relatively flat, decreasing by $7,353, or 2.1%, during 2024 compared to 2023. The decrease was less than the revenue decrease due to an increase in document destruction, which carries a higher cost than other components of storage and retrieval. 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.
Previous wording
Interest expense, net was $588,203 during 2023 as compared with $803,294 during 2022, representing a decrease of $215,091 or 27%. 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.
Current wording
Interest expense, net was $372,710 during 2024 as compared with $588,203 during 2023, representing a decrease of $215,493 or 36.6%. The decrease resulted 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. Interest expense, net, included interest income of $38,539 and $29,795 during 2024 and 2023, respectively.
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 $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. In January 2023, we paid $0.7 million in final earnout payments and in February and August 2023 and December 2022 we repaid a total of $2 million in principal, representing full payments on the 2020 Notes.
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 $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.
Previous wording
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:
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 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. However, we are currently engaged in a cyclical competitive bidding process with our largest customer, which process is open as of the date of this Report. Any reduction in contract volume or pricing could have a significant adverse impact on our future liquidity and cash flow. In the event we were to lose this contract, due to the necessary transition period to a new vendor, we anticipate that we would still receive approximately 70% of the anticipated revenue from this contract for fiscal year 2025. Additionally, at December 31, 2024 and 2023 we had approximately $1.3 million in unbilled accounts receivable. Due to certain image processing inefficiencies, combined with exacting customer terms regarding acceptance for certain projects, we have a number of projects where all of the document conversion work is completed, and the associated revenue has been recognized, but we are unable to invoice until the customer has received and approved the images. The balance is also affected by the timing of completion of major projects. We have initiatives in place to mitigate the bottlenecks and invoice more promptly.
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 December 31, 2024, we had $2.5 million in cash and cash equivalents, working capital deficit of $1.1 million, of which the largest liabilities include $3.4 million in deferred revenues and short-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 global inflation and general economic uncertainty.
Current wording
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 offerings 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 Annual Report.
Previous wording
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.
Current wording
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.
Previous wording
There were no material commitments for capital expenditures at December 31, 2023.
Current wording
We anticipate capital expenditures in the range of $350,000 to $450,000 for 2025, although there were no material commitments for capital expenditures at December 31, 2024. This is slightly higher than recent years as we continue to enhance our security environment.
Previous wording
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 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.
Current wording
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. 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.
Previous wording
Net cash used in investing activities in 2023 was $548,077, primarily $436,837 in capitalized internal use software. Net cash used in investing activities in 2022 was $6,960,594, primarily $6,383,269 in cash paid to acquire Yellow Folder, as well as $376,345 in capitalized internal use software.
Current wording
Net cash used in investing activities in 2024 was $827,773, including purchases of property and equipment of $439,203, which included server upgrades, and $388,570 in capitalized internal use software. Net cash used in investing activities in 2023 was $548,077, primarily $436,837 in capitalized internal use software.
Previous wording
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 provided by financing activities during 2022 amounted to $5,915,667, as the result of cash generated from the sale of common stock of $5,740,758 and from new borrowings of $2,964,500, partially offset by issuance costs of $746,342, as well as a further offset of $1,018,333 in earnout liability payments and $1,019,550 in repayment of notes payable and $5,366 in the principal portion of a finance lease liability.
Current wording
Net cash used in financing activities during 2024 amounted to $1,625,000 in repayment of notes payable and $61,874 in payments for the principal portion of finance lease liabilities, as well as $69,525 in payments to taxing authorities in connection with shares directly withheld from employees. 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.
Previous wording
These critical accounting policies and estimates by our management should be read in conjunction with Note 3Summary of Significant Accounting Policiesto the Consolidated Financial Statements.
Current wording
These critical accounting policies and estimates made by management should be read in conjunction with Note 3Summary of Significant Accounting Policiesto the Consolidated Financial Statements.
Previous wording
We design, develop, test, market, license, and support new software products and enhancements of current products. We continuously monitor our software products and enhancements to remain compatible with standard platforms and file formats. In accordance with ASC 985-20 “Costs of Software to be Sold, Leased or Otherwise Marketed,” we expense software development costs, including costs to develop software products or the software component of products to be sold, leased, or marketed to external users, before technological feasibility is reached. 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. Such costs in the amount of $43,771 were capitalized during 2022.
Current wording
We design, develop, test, market, license, and support new software products and enhancements of current products. We continuously monitor our software products and enhancements to remain compatible with standard platforms and file formats. In accordance with ASC 985-20 “Costs of Software to be Sold, Leased or Otherwise Marketed,” we expense software development costs, including costs to develop software products or the software component of products to be sold, leased, or marketed to external users, before technological feasibility is reached. 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.
Previous wording
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 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.
Current wording
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 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.
Previous wording
We maintain two stock-based compensation plans. We account for stock-based payments to employees and directors in accordance with ASC 718, “Compensation - Stock Compensation.” Stock-based payments to employees include grants of stock that are recognized in the consolidated statements of income based on their fair values at the date of grant. We account for stock-based payments to non-employees in accordance with ASC 718, “Compensation - Stock Compensation,” which requires that such equity instruments are recorded at their fair value on the grant date.
Current wording
We maintain three stock-based compensation plans. We account for stock-based payments to employees and directors in accordance with ASC 718, “Compensation - Stock Compensation.” Stock-based payments to employees include grants of stock that are recognized in the consolidated statements of income based on their fair values at the date of grant. We account for stock-based payments to non-employees in accordance with ASC 718, “Compensation - Stock Compensation,” which requires that such equity instruments are recorded at their fair value on the grant date.
Rearranged previous paragraphs (2)
Previous report — wording carried elsewhere
Change in Fair Value of Earnout Liabilities
Previous report — wording carried elsewhere
In addition, subsequent to the balance sheet date, 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 $1,519,500 of the remaining $2,364,500 in 2022 Unrelated Notes and all $600,000 of the 2022 Related Notes.