Intellinetics, Inc.: Form 10-Q for the period ended Jun 30, 2026

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.

Company Overview

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. Our digital transformation products and services are provided through two reporting segments: Software and Document Services. Our Software segment 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 Services 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 micrographics conversions and 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 channel partners.

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.

We operate a U.S.-based business with concentrated sales to the State of Michigan for our Document Services 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 offerings, growing customer base, and the impact of our increased spending in 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.

For further information about our consolidated revenue and earnings, please see our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report.

How We Evaluate our Business Performance and Opportunities

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.

Executive Overview of Results

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.

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

• Revenues were $3,946,477, representing a decrease in revenue of 1.6% year over year.
• SaaS revenues were $1,643,416, representing revenue growth of 4.2% year over year.
• Cost of revenues was $1,327,490, an increase of 3.4% year over year.
• Operating expenses (excluding cost of revenues) were $3,709,046, an increase of 14.7% year over year. This amount includes share-based compensation expense of $657,458, which is an increase of $228,770 compared to the second quarter 2025.
• Loss from operations was $1,090,059, compared to loss from operations of $508,478 in second quarter 2025.
• Net loss was $1,086,138 with basic and diluted net loss per share of $0.24, compared to net loss of $567,590 with basic and diluted net loss per share of $0.13 in the second quarter 2025.
• Operating cash generated was $42,339, compared to operating cash generated of $276,190 in second quarter 2025.
• Investing activities, including both capitalization of internal use software and purchases of property and equipment, were $149,260, compared to $247,970 in second quarter 2025.

Below are our key financial results for the six-month period 2026 (consolidated unless otherwise noted):

• Revenues were $7,855,659, representing revenue reduction of 4.9% year over year.
• SaaS revenues were $3,187,263, representing revenue growth of 2.2% year over year.
• Cost of revenues was $2,754,613, an increase of 1.9% year over year.
• Operating expenses (excluding cost of revenues) were $7,373,657, an increase of 9.3% year over year.

21

• Loss from operations was $2,272,611, compared to loss from operations of $1,193,037 for the six-month period 2025.
• Net loss was $2,263,991 with basic and diluted net loss per share of $0.51, compared to net loss of $1,295,155 with basic and diluted net loss per share of $0.31 for the six-month period 2025.
• Net cash used in operating activities was $186,094, compared to net cash provided by operating activities of $112,521 for the six-month period 2025.
• Investing activities, including both capitalization of internal use software and purchases of property and equipment, were $352,925, compared to $471,904 for the six-month period 2025.
• As of June 30, 2026, we had 141 employees, including 12 part-time employees, compared to 164 employees, including 21 part-time employees, as of June 30, 2025.

Financial Impact of Current Economic Conditions

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 any increased wage inflation, as well as modest GDP growth rates.

Volatility from international conflicts and 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.

Uncertainties, Trends, and Risks that can cause Fluctuations in our Operating Results

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.

Reportable Segments

We have two reportable segments: Software and Document Services. These reportable segments are discussed above under “Company Overview.”

Results of Operations

Revenues

The following table sets forth our revenues by reportable segment for the periods indicated:

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

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

23

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.

Software as a Service Revenues

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.

Professional Services Revenues

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.

Costs of Revenues and Gross Profits

The following table sets forth our cost of revenues by reportable segment for the periods indicated:

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

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

25

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.

26

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.

Cost of Software as a Service

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.

Cost of Professional Services

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.

Operating Expenses

The following table sets forth our operating expenses for the periods indicated:

General and Administrative Expenses

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.

Additionally, share-based compensation expense in total continues to be a significant portion of general and administrative expenses, amounting to $920,795 in the six-month period 2026 and $965,471 in the six-month period 2025. A portion of share-based compensation expense pertains to payments to taxing authorities in connection with shares directly withheld from employees, and is reported in our condensed consolidated statements of cash flow under cash flows from financing activities.

In total, our general and administrative expenses in our Software segment increased to $1,970,877 in the second quarter 2026 compared to $1,289,821 in the second quarter 2025, and increased to $3,532,012 in the six-month period 2026 compared to $2,798,787 in the six-month period 2025. In our Document Services segment, our general and administrative expenses decreased to $978,611 in the second quarter 2026 compared to $1,081,709 in the second quarter 2025, and increased to $2,271,203 in the six-month period 2026 compared to $2,188,489 in the six-month period 2025.

Sales and Marketing Expenses

Sales and marketing expenses during the second quarter 2026 decreased by $77,261, or 13.9%, from the second quarter 2025 and decreased by $157,586, or 13.8%, during the six-month period 2026 over the six-month period 2025. The decreases are driven by timing of variable expenses and trade show participation, as well as open positions.

Depreciation and Amortization

Depreciation and amortization during the second quarter 2026 decreased by $26,686, or 8.7%, from the second quarter 2025 and decreased by $31,490, or 5.1%, during the six-month period 2026 from the six-month period 2025, primarily driven by reduced amortization of intangible costs from prior acquisitions as certain amounts became fully amortized.

Other Items of Income and Expense

Interest Expense, Net

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.

Liquidity and Capital Resources

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.

In recent years we engaged in several actions that significantly improved our liquidity and cash flows, including (i) effective June 1, 2025 through May 31, 2030, securing a renewal contract with our largest customer, (ii) on May 28, 2025, commencing an at-the-market offering, discussed below, (iii) repaying all of our debt securities as of June 18, 2025, and (iv) on February 16, 2026, securing a line of credit through JPMorgan Chase Bank, N.A. (“JPMorgan Chase”) in the amount of $1 million, as discussed in more detail below.

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.

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 AI disruption in our markets, 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 Quarterly Report.

We believe we could seek additional debt or equity financing on acceptable terms. 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.

At-the-Market Offering

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.

Indebtedness

As of June 30, 2026, we have no outstanding indebtedness.

On February 16, 2026, we entered into a $1 million secured term loan line of credit pursuant to a Credit Agreement (the “Credit Agreement”) and other related agreements with JPMorgan Chase. The line of credit will expire on December 31, 2026, unless renewed by mutual agreement of the Company and JPMorgan Chase. The Company expects the proceeds of any borrowings under the line of credit to be used for, among other things, working capital, capital expenditures, and general corporate purposes.

Capital Expenditures

There were no material commitments for capital expenditures at June 30, 2026.

Cash Used in and Provided by Operating Activities

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.

Cash Used in Investing Activities

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.

Cash Used in Financing Activities

Net cash used in financing activities during the six-month period 2026 amounted to $275,625, including $238,402 related to the exercise of share-based compensation and warrants, and $37,223 in the principal portion of payments on the finance lease liabilities. Net cash used in financing activities during the six-month period 2025 amounted to $58,378, including $1,716,957 in gross proceeds from the issuance of common stock, offset by $118,629 in costs paid for issuance of common stock, $1,339,500 in repayment of notes payable, $283,411 related to the exercise of share-based compensation and warrants, and $33,795 in the principal portion of payments on the finance lease liabilities.

Critical Accounting Policies and Estimates

The preparation of our condensed consolidated financial statements in accordance with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses in the reporting period. We monitor and analyze these items for changes in facts and circumstances, and material changes in these estimates could occur in the future. We base our estimates and assumptions on current facts, historical experience and various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. Changes in estimates are reflected in reported results for the period in which they become known. The actual results experienced by us may differ materially from our estimates. To the extent there are material differences between our estimates and the actual results, our future results of operations will be affected.

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.

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) at the end of the period covered by this Quarterly Report.

Based on this evaluation, we concluded that, as of June 30, 2026, our disclosure controls and procedures were effective to provide reasonable assurance that the information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

In designing and evaluating our disclosure controls and procedures, management recognizes that any controls system, no matter how well designed and operated, can provide only reasonable assurance of achieving its desired objectives. In addition, the design of disclosure controls and procedures must reflect resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the period covered by this Quarterly Report that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act).

We regularly review our internal control over financial reporting and, from time to time, we have made changes as we deemed appropriate to maintain and enhance the effectiveness of our internal controls over financial reporting, although these changes do not have a material effect on our overall internal control.

Our business and operating results are subject to many risks, uncertainties and other factors. If any of these risks were to occur, our business, affairs, assets, financial condition, results of operations, cash flows and prospects could be materially and adversely affected. There have been no material changes to the risk factors set forth in Part I, Item 1A, “Risk Factors,” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2025.