Client Dependence - The company's two largest clients accounted for approximately 38% and 6% of total revenues for the year ended December 31, 2022, and 47% and 9% for 2021, indicating a significant reliance on a limited number of customers [86]. - Government contracts represented approximately 77% and 72% of net revenues for the years ended December 31, 2022, and 2021, respectively, highlighting the importance of government business [86]. Revenue Recognition and Financial Impact - Revenue recognition from subscription agreements occurs ratably over typically one-year terms, meaning a decline in new or renewed subscriptions may not be immediately reflected in current revenue [87]. - The company faces risks related to early termination and audits of government contracts, which could materially affect revenues [88]. - Global economic conditions, including anticipated recession and inflation, are likely to adversely affect the company's operating results and financial markets [108]. - Market fluctuations and external financial developments may adversely affect the company's ability to raise capital and access credit [109]. Compliance and Regulatory Risks - Compliance with federal securities laws results in higher expenses compared to privately held companies, impacting resource allocation for growth [89]. - The company must comply with NYSE American listing requirements, and failure to do so could result in delisting, limiting trading and capital-raising opportunities [100]. - The company is subject to FINRA sales practice requirements, which may limit shareholders' ability to buy and sell its stock [105]. Operational Risks - Security breaches could lead to loss of confidential information and significant liabilities, affecting the company's reputation and business [91]. - The company is subject to increased scrutiny and potential liabilities related to data privacy and security, which could impact operations [92]. - The company is vulnerable to disruptions at third-party data centers, which could lead to service interruptions and harm its business reputation [110]. - The company expects to experience interruptions in service and availability from time to time due to reliance on third-party data centers [110]. Financial Management and Shareholder Impact - Future financing may dilute existing shareholders' ownership if additional securities are issued [97]. - The common stock is expected to experience significant price volatility, which may lead to losses for stockholders [104]. - The company does not anticipate paying any cash dividends in the foreseeable future, as it plans to retain earnings for operational expansion [107]. Human Resources and Talent Management - Recruitment and retention of key personnel are critical for the company's success, with intense competition for top talent in the current labor market [115]. Intellectual Property and Competitive Position - The company faces risks related to the protection of its intellectual property, which is essential for maintaining its competitive position [118]. Infrastructure and Product Reliability - The company relies on the stability of infrastructure software, and weaknesses in this area could negatively impact product effectiveness and reliability [116].
Intellinetics(INLX) - 2022 Q4 - Annual Report