Intellinetics(INLX) - 2020 Q2 - Quarterly Report

Revenue Growth - Revenues for the six months ended June 30, 2020, were $3,049,846, representing a growth of 164$1,836,182, an increase of $1,195,574 or 187$1,748,418 of total sales, representing 92% of the revenue increase for the six months ended June 30, 2020 [198]. - Revenues from software sales for the six months ended June 30, 2020, were $103,774, an increase of 1,072$8,852 in the same period of 2019 [199]. - Software as a Service revenues increased to $248,693 for Q2 2020, up 8$229,982 in Q2 2019 [200]. - Software maintenance support revenue rose to $314,111 for Q2 2020, reflecting a 24$252,713 in Q2 2019 [201]. - Professional services revenues surged to $1,045,679 for Q2 2020, a significant increase of 593$150,811 in Q2 2019, largely due to the acquisition of Graphic Sciences [202]. Cost and Expenses - Operating cash deficit was $132,287 as of June 30, 2020 [197]. - The company experienced a loss from operations of$997,067 for the six months ended June 30, 2020 [197]. - Total costs of revenue for Q2 2020 were $664,789, an increase of 411$130,104 in Q2 2019, primarily driven by the Graphic Sciences acquisition [204]. - General and administrative expenses for Q2 2020 were $844,657, up 62$521,057 in Q2 2019, mainly due to the addition of Graphic Sciences expenses [216]. - Significant transaction expenses amounted to $175,673 for Q2 2020, compared to$0 in Q2 2019, related to investment banking and legal fees [217]. - Overall gross margin for Q2 2020 decreased to 64% from 80% in Q2 2019, reflecting the impact of the Graphic Sciences acquisition [215]. Financing and Cash Flow - The company had $1,876,816 in cash and net working capital of$118,214 as of June 30, 2020 [224]. - A loan of $838,700 was received through the Paycheck Protection Program in April 2020, with expectations for full forgiveness [227]. - As of June 30, 2020, the net cash used in operating activities was$132,287, a significant decrease from $648,124 in the same period of 2019, primarily due to a net loss adjusted for non-cash expenses of$799,319 [238]. - The company completed a private placement on March 2, 2020, raising gross proceeds of $5.5 million, with$3.5 million from common stock sales, retaining approximately $530,000 for working capital after acquisition costs [230]. - Net cash provided by financing activities for the six months ended June 30, 2020, was$5,644,681, resulting from new borrowings of $3,008,700 and the sale of common stock generating$2,859,633 [242]. - The company has outstanding indebtedness of $170,000 related to Seller Notes Payable, with$70,000 due by August 1, 2020, and $100,000 due by November 1, 2020, at an interest rate of 1.5$838,700 on April 15, 2020, with a two-year term and a 1.0% interest rate, which may be eligible for forgiveness based on specific criteria [233]. - The company’s outstanding principal balance of 12% subordinated promissory notes issued on March 2, 2020, is $2 million, maturing on February 28, 2023 [234]. Strategic Focus - The company anticipates that cloud-based delivery will become the principal software business and a primary source of revenue growth [190]. - The company is focused on organic growth while monitoring potential acquisitions of complementary solutions [190]. - The company plans to enhance market share through targeted marketing and strategic acquisitions to strengthen product offerings [226]. - The company plans to enhance sales and market share through targeted marketing, expanding reseller networks, and developing additional software capabilities, although no new financing commitments are currently in place [237]. Going Concern and Accounting Policies - The company’s ability to continue as a going concern is contingent upon enhancing operating cash flow and managing cash requirements effectively amid significant economic uncertainties [228]. - The company expenses software development costs before technological feasibility is reached, which is typically shortly before product release [261]. - No internal-use software costs were capitalized during the periods presented in the report [262]. - The company maintains one stock-based compensation plan, accounting for stock-based payments to employees based on fair values at the date of grant [263]. - Stock option awards' fair value is recognized as stock-based compensation cost over the requisite service period using the straight-line attribution method [264]. - The fair value of stock option awards is estimated using the Black-Scholes-Merton option pricing model [264]. - The expected volatility for stock options is based on historical volatility for the previous period equal to the expected term of the options [264]. - The risk-free interest rate for stock options is based on a U.S. Treasury instrument with a life similar to the expected term of the options [264]. - The expected dividend yield for stock options is based on the yield expected on the date of grant [264]. - Item 3 regarding market risk disclosures is not applicable to smaller reporting companies [265].