Revenue Sources and Risks - The company's two largest clients accounted for approximately 47% and 9% of total revenues for the year ending December 31, 2021, with government contracts representing about 62% of net revenues[87]. - A significant portion of revenues comes from government contracts, which are subject to early termination and funding authorizations, posing risks to financial stability[89]. - Revenue recognition from subscription agreements is ratable over typically one-year terms, meaning a decline in new subscriptions may not be immediately reflected in current revenue[88]. - The company anticipates that adverse economic conditions may lead to delayed or reduced technology purchases by customers[111]. - Any disruptions in service at data centers could lead to revenue reductions and potential customer terminations[117]. Legal and Compliance Risks - Compliance with federal securities laws results in higher expenses compared to privately held companies, impacting resource allocation for growth[90]. - The company may face substantial expenditures due to indemnification obligations for directors and officers, potentially discouraging legal actions against them[91]. - The company is subject to increased litigation risks, which could materially adversely affect its financial condition and operating results[97]. - Claims of intellectual property infringement could lead to increased costs and harm future revenue generation capabilities[98]. Operational Risks - Security breaches could lead to loss of confidential information and significant liabilities, affecting the company's reputation and business operations[92]. - The company is vulnerable to disruptions at third-party data centers, which could harm its business and affect service availability[113]. - The company may incur significant costs and service interruptions if it cannot renew agreements with data center owners on commercially reasonable terms[115]. - The company faces risks related to the recruitment and retention of key personnel, which is critical for its competitive position[118]. - The company relies on the stability of infrastructure software, and weaknesses in this area could negatively impact its products and reputation[119]. Financial Position and Shareholder Impact - The company does not expect to pay any dividends on its common stock for the foreseeable future, as it plans to retain earnings to maintain and expand operations[110]. - The company may need to issue additional securities, which could dilute existing shareholders' ownership and affect stock value[99]. - The common stock is quoted on the OTCQB, leading to limited trading and higher volatility, which may not reflect the actual value of the stock[102]. - The company is subject to loan covenants that may restrict its ability to pay dividends until certain loans are repaid[110]. Economic Conditions - Global economic conditions, including uncertainty and inflation, are likely to adversely affect the company's operating results and financing[111].
Intellinetics(INLX) - 2021 Q4 - Annual Report