For the transition period from _____________________to _________________________

~~Securities registered pursuant to Section 12(g) of the Act: Common stock, $0.001 par value.~~

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule ~~12b-2~~12b- 2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes ☐ No ☒

As of ~~November 10, 2022,~~May 11, 2023, there were 4,073,757 shares of the issuer’s common stock outstanding, each with a par value of $0.001 per share.

This Amendment No. 1 on Form 10-Q/A (this “Amendment”) amends our quarterly report on Form 10-Q for the fiscal quarter ended September 30, 2022, as filed with the Securities and Exchange Commission on November 14, 2022, and is being filed solely to amend Item 1 of Part I, in order to correct a typographical error in the “Sales and marketing” operating expense line appearing in the Condensed Consolidated Statement of Operations for the Three Months Ended September 30, 2022. The Sales and marketing expenses for the three months ended September 30, 2022 were $492,540. All other numbers in the Condensed Consolidated Statement of Operations, and in the remainder of the report, for all periods were accurately reported, including total operating expenses, and net income(loss). This Amendment contains the complete text of the original report with the corrected information appearing in Item I of Part I.

This Quarterly Report on Form 10-Q and the documents incorporated into this report by reference contain forward-looking statements. In addition, from time to time we may make additional forward-looking statements in presentations, at conferences, in press releases, in other reports and filings and otherwise. Forward-looking statements are all statements other than statements of historical facts, including statements that refer to plans, intentions, objectives, goals, targets, strategies, hopes, beliefs, projections, prospects, expectations or other characterizations of future events or performance, and assumptions underlying the foregoing. The words “may,” “could,” “should,” “would,” “will,” “project,” “intend,” “continue,” “believe,” “anticipate,” “estimate,” “forecast,” “expect,” “plan,” “potential,” “opportunity,” “scheduled,” “goal,” “target,” and “future,” variations of such words, and other comparable terminology and similar expressions and references to future periods are often, but not always, used to identify forward-looking statements. Examples of forward-looking statements include, among other things, statements about the following:

Any forward-looking statements we make are based on our current plans, intentions, objectives, strategies, projections and expectations, as well as assumptions made by and information currently available to management. Forward-looking statements are not guarantees of future performance or events, but are subject to and qualified by substantial risks, uncertainties and other factors, which are difficult to predict and are often beyond our control. Forward-looking statements will be affected by assumptions and expectations we might make that do not materialize or that prove to be incorrect and by known and unknown risks, uncertainties and other factors that could cause actual results to differ materially from those expressed, anticipated or implied by such forward-looking statements. These risks, uncertainties and other factors include, but are not limited to, those described in Part I, Item 1A, “Risk Factors,” of our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2021,~~2022, filed on March ~~24, 2022,~~27, 2023, as well as other risks, uncertainties and factors discussed elsewhere in this Quarterly Report, in documents that we include as exhibits to or incorporate by reference in this report, and in other reports and documents we from time to time file with or furnish to the Securities and Exchange Commission (the “SEC”). In light of these risks and uncertainties, you are cautioned not to place undue reliance on any forward-looking statements that we make.

Any forward-looking statements contained in this report speak only as of the date of this report, and any other forward-looking statements we make from time to time in the future speak only as of the date they are made. We undertake no duty or obligation to update or revise any forward-looking statement or to publicly disclose any update or revision for any reason, whether as a result of changes in our expectations or the underlying assumptions, the receipt of new information, the occurrence of future or unanticipated events, circumstances or conditions or otherwise.

Intellinetics, Inc., formerly known as GlobalWise Investments, Inc., is a Nevada corporation incorporated in 1997, with two wholly-owned subsidiaries: Intellinetics, Inc., an Ohio corporation (“Intellinetics Ohio”), and Graphic Sciences, Inc., a Michigan corporation (“Graphic Sciences”). Intellinetics Ohio was incorporated in 1996, and on February 10, 2012, Intellinetics Ohio became our sole operating subsidiary as a result of a reverse merger and recapitalization. On March 2, 2020, we purchased all the outstanding capital stock of Graphic Sciences.

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 and the CEO Imaging Systems, Inc. (“CEO Image”) asset acquisition in April 2020, 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, which includes and primarily consists of the Graphic Sciences acquisition, 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.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles (“GAAP”).

The financial statements presented in this Quarterly Report on Form 10-Q are unaudited. However, in the opinion of management, these unaudited condensed consolidated financial statements include all adjustments, consisting solely of normal recurring adjustments, necessary to present fairly the financial position, results of operations and cash flows for the periods presented in conformity with GAAP applicable to interim periods. The financial data and other financial information disclosed in these notes to the accompanying condensed consolidated financial statements are also unaudited. As such, certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to applicable rules and regulations thereunder.

Operating results for the interim periods presented are not necessarily indicative of the results that may be expected for the full fiscal year ending December 31, ~~2022~~2023 or any other future period.

These unaudited interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the related notes included in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2021~~2022 filed with the SEC filed on March ~~24, 2022.~~27, 2023.

The condensed consolidated financial statements accompanying these notes include the accounts of Intellinetics and the accounts of all its subsidiaries in which it holds a controlling interest. Under GAAP, consolidation is generally required for investments of more than 5050%% of the outstanding voting stock of an investee, except when control is not held by the majority owner. We have two subsidiaries: Intellinetics Ohio and Graphic Sciences. We consider the criteria established under Financial Accounting Standards Board (“FASB”) Accounting Standard Codification (“ASC”) 810, “Consolidations” in the consolidation process. All significant intercompany balances and transactions have been eliminated in consolidation.

~~The preparation~~We maintain our cash with high credit quality financial institutions. At times, our cash and cash equivalents may be uninsured or in deposit accounts that exceed the Federal Deposit Insurance Corporation insurance limit.

We do not generally require collateral or other security to support customer receivables; however, we may require customers to provide retainers, up-front deposits or irrevocable letters-of-credit when considered necessary to mitigate credit risks. We have established an allowance for credit losses based upon facts surrounding the credit risk of ~~condensed consolidated financial statements in conformity with GAAP requires management to make estimates~~specific customers and ~~assumptions. Such estimates~~expected future collections. Credit losses have been within management’s expectations. At March 31, 2023 and ~~assumptions affect the reported amounts of assets~~December 31, 2022, our allowance for credit losses was $107,341 and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses. By their nature, these estimates and assumptions are subject to an inherent degree of uncertainty. The impact of inflation and COVID-19 has significantly increased economic and demand uncertainty. Because future events and their effects cannot be determined with precision, actual results could differ significantly from estimated amounts.$88,331, respectively.

Significant estimates and assumptions include valuation allowances related to receivables, accounts receivable -unbilled, the recoverability of long-term assets, depreciable lives of property and equipment, purchase price allocations for acquisitions, fair value for goodwill and intangibles, the lease liabilities, estimates of the realizable value deferred taxes and related valuation allowances. Our management monitors these risks and assesses our business and financial risks on a quarterly basis.

In accordance with ASC 606, “Revenue From Contracts With Customers,” we follow a five-step model to assess each contract of a sale or service to a customer: identify the legally binding contract, identify the performance obligations, determine the transaction price, allocate the transaction price, and determine whether revenue will be recognized at a point in time or over time. Revenue is recognized when a performance obligation is satisfied and the customer obtains control of promised goods and services. The amount of revenue recognized reflects the consideration to which we expect to be entitled to receive in exchange for these goods and services. In addition, ASC 606 requires disclosures of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers.

We categorize revenue as software, software as a service, software maintenance services, professional services, and storage and retrieval services. We earn the majority of our revenue from the sale of professional services, followed by the sale of software maintenance services and software as a service. We apply our revenue recognition policies as required in accordance with ASC 606 based on the facts and circumstances of each category of ~~revenue, including applying these policies to our revenues from Yellow Folder.~~revenue. More detail regarding each category of revenue is contained in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2021~~2022 filed with the SEC filed on March ~~24, 2022.~~27, 2023.

When the timing of our delivery of goods or services is different from the timing of payments made by customers, we recognize either a contract asset (performance precedes contractual due date) or a contract liability (customer payment precedes performance). Customers that prepay are represented by deferred revenue until the performance obligation is satisfied. Contract assets represent arrangements in which the good or service has been delivered but payment is not yet due. Our contract assets consisted of accounts receivable, unbilled, which are disclosed on the condensed consolidated balance sheets, as well as other contract assets which are comprised of employee sales commissions paid in advance of contract periods ending. Our contract liabilities consisted of deferred (unearned) revenue, which is generally related to software as a service or software maintenance contracts. We classify deferred revenue as current based on the timing of when we expect to recognize revenue, which are disclosed on the condensed consolidated balance sheets.

The following ~~table~~tables present changes in our contract assets during the ~~nine~~three months ended ~~September 30, 2022~~March 31, 2023 and ~~2021:~~2022:

Amounts that have been invoiced are recognized in accounts receivable, deferred revenue or revenue, depending on whether the revenue recognition criteria have been met. Deferred revenue represents amounts billed for which revenue has not yet been recognized. Deferred revenues typically relate to maintenance and software-as-a-service agreements which have been paid for by customers prior to the performance of those services, and payments received for professional services and license arrangements and software-as-a-service performance obligations that have been deferred until fulfilled under our revenue recognition policy.

Remaining performance obligations represent the transaction price from contracts for which work has not been performed or goods and services have not been delivered. We expect to recognize revenue on approximately 9997% of the remaining performance obligations over the next 12 months, with the remainder recognized thereafter. As of ~~September 30,~~March 31, 2023, the aggregate amount of the transaction price allocated to remaining performance obligations for software as a service and software maintenance contracts with a duration greater than one year was $54,899. As of December 31, 2022, the aggregate amount of the transaction price allocated to remaining performance obligations for software as a service and software maintenance contracts with a duration greater than one year was $~~26,765~~. As of December 31, 2021, the aggregate amount of the transaction price allocated to remaining performance obligations for software as a service and software maintenance contracts with a duration greater than one year was $~~16,835~~74,448. This does not include revenue related to performance obligations that are part of a contract whose original expected duration is one year or less.

The following table presents changes in our contract liabilities during the ~~nine~~three months ended ~~September 30, 2022~~March 31, 2023 and ~~2021:~~2022:

Balance at
Beginning
of Period Addition
from
acquisition
(Note 4) Billings Recognized
Revenue Balance at
End of
Period
Nine months ended September 30, 2022
Contract liabilities: Deferred revenue $ 1,194,649 $ 860,456 $ 5,560,018 $ (4,616,476 ) $ 2,998,647

Nine months ended September 30, 2021
Contract liabilities: Deferred revenue $ 996,131 $ - $ 2,954,212 $ (2,613,480 ) $ 1,336,863

	Balance at Beginning of Period		Billings		Recognized Revenue			Balance at End of Period
Three months ended March 31, 2023
Contract liabilities: deferred revenue	$	2,754,064	$	1,146,380	$	(1,718,168	)	$	2,182,276

Three months ended March 31, 2022
Contract liabilities: deferred revenue	$	1,194,649	$	984,117	$	(1,042,700	)	$	1,136,066

~~Parts and Supplies~~

Parts and supplies are valued at the lower of cost or net realizable value. Costs are determined using the first-in, first-out method. Parts and supplies are used for scanning and document conversion services. A provision for potentially obsolete or slow-moving parts and supplies inventory is made based on parts and supplies levels, future sales forecasted and management’s judgment of potentially obsolete parts and supplies. We recorded an allowance of $~~24,000~~ ~~at September 30, 2022 and December 31, 2021.~~

~~Property and Equipment~~

Property, equipment and leasehold improvements are stated at cost less accumulated depreciation and amortization. Depreciation and amortization is computed over the estimated useful lives of the related assets on a straight-line basis. Furniture and fixtures, computer hardware and purchased software are depreciated over ~~three~~ to ~~seven years. Leasehold improvements are amortized over the life of the lease or the asset, whichever is shorter, generally~~ ~~seven~~ to ~~ten years~~. Upon retirement or other disposition of these assets, the cost and related accumulated depreciation and amortization of these assets are removed from the accounts and the resulting gains and losses are reflected in the results of operations.

~~Intangible Assets~~

~~All intangible assets have finite lives and are stated at cost, net of amortization. Amortization is computed over the useful life of the related assets on a straight-line method.~~

~~Goodwill~~

The carrying value of goodwill is not amortized, but is tested for impairment annually as of December 31, as well as on an interim basis whenever events or changes in circumstances indicate that the carrying amount of a reporting unity may not be recoverable. An impairment charge is recognized for the amount by which the carrying amount exceeds the recorded fair value.

~~Impairment of Long-Lived Assets~~

We account for the impairment and disposition of long-lived assets in accordance with ASC 360, “Property, Plant, and Equipment.” We test long-lived assets or asset groups, such as property and equipment, for recoverability when events or changes in circumstances indicate that their carrying amount may not be recoverable.

Circumstances which could trigger a review include, but are not limited to: significant adverse changes in the business climate or legal factors; current period cash flow or operating losses combined with a history of losses or a forecast of continuing losses associated with the use of the asset; and a current expectation that the asset will more likely than not be sold or disposed of before the end of its estimated useful life.

Recoverability is assessed based on comparing the carrying amount of the asset to the aggregate pre-tax undiscounted cash flows expected to result from the use and eventual disposal of the asset or asset group. Impairment is recognized when the carrying amount is not recoverable and exceeds the fair value of the asset or asset group. The impairment loss, if any, is measured as the amount by which the carrying amount exceeds fair value, which for this purpose is based upon the discounted projected future cash flows of the asset or asset group. There was no ~~impairment of long-lived assets in the three or nine month periods ended 2022 or 2021.~~

~~Purchase Accounting Related Fair Value Measurements~~

We allocate the purchase price, including contingent consideration, of our acquisitions to the assets and liabilities acquired, including identifiable intangible assets, based on their respective fair values at the date of acquisition, with the exception of acquired contract assets and contract liabilities, which are measured under ASC 606. Such fair market value assessments are primarily based on third-party valuations using assumptions developed by management that require significant judgments and estimates that can change materially as additional information becomes available. The purchase price allocated to intangibles is based on unobservable factors, including but not limited to, projected revenues, expenses, customer attrition rates, a weighted average cost of capital, among others. The weighted average cost of capital uses a market participant’s cost of equity and after-tax cost of debt and reflects the risks inherent in the cash flows. The approach to valuing the initial contingent consideration associated with the purchase price also uses similar unobservable factors such as projected revenues and expenses over the term of the contingent earn-out period, discounted for the period over which the initial contingent consideration is measured, and volatility rates. We finalize the purchase price allocation once certain initial accounting valuation estimates are finalized, and no later than 12 months following the acquisition date.

~~Leases~~

We determine if an arrangement is a lease at inception. Operating leases in which we are the lessee are included in operating lease right-of-use (“ROU”) assets and operating lease liabilities in the condensed consolidated balance sheets. We do not have any finance leases, as a lessee, and no long-term leases for which we are the lessor.

ROU assets represent the right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the reasonably certain lease term. As our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. We use the implicit rate when readily determinable. The operating lease ROU asset also includes any lease payments made and reduced by lease incentives, such as tenant improvement allowances. Our lease terms include options to extend or terminate the lease only when it is reasonably certain that we will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term.

~~Stock-Based Compensation~~

We account for stock-based payments in accordance with ASC 718, “Compensation - Stock Compensation,” which requires that such equity instruments be measured at their fair values on the grant date. Stock-based payments to employees include grants of stock that are recognized in the condensed consolidated statement of operations based on their fair values at the date of grant.

The grant date fair value of stock option awards is recognized in earnings as stock-based compensation cost over the requisite service period of the award using the straight-line attribution method. We estimate the fair value of the stock option awards using the Black-Scholes-Merton option pricing model. The exercise price of options is specified in the stock option agreements. The expected volatility is based on the historical volatility of our stock for the previous period equal to the expected term of the options. The expected term of options granted is based on the midpoint between the vesting date and the end of the contractual term. The risk-free interest rate is based upon a U.S. Treasury instrument with a life that is similar to the expected term of the options. The expected dividend yield is based upon the yield expected on date of grant to occur over the term of the option.

Software Development Costs

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. ~~Such costs in the amount of $~~0 ~~and $43,771~~ ~~were capitalized during the third quarter and nine-month period 2022, respectively.~~ No such costs were capitalized during the ~~nine-month period 2021.~~periods presented in this report.

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 $~~143,943~~112,208 and $~~271,377~~29,397 were capitalized during the ~~three~~first quarter 2023 and ~~nine months ended September 30,~~ 2022, respectively.No ~~such costs were capitalized during the nine-month period 2021.~~

Capitalized costs are stated at cost less accumulated amortization. Amortization is computed over the estimated useful lives of the related assets on a straight-line basis, which is three years. At ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, our condensed consolidated balance sheets included $~~327,159~~476,680 and $~~38,305~~402,673, respectively, in other long-term assets.

For the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ our expensed software development costs were $~~42,852~~131,743 and $~~157,811, respectively, and $97,157~~ ~~and $294,726~~62,751, respectively.

Recently Issued Accounting Pronouncements ~~Not Yet Effective~~

~~Financial Instruments – Credit Losses~~

In June 2016, the FASB issued ASU No. 2016-13 ~~Financial Instruments –~~“Credit Losses - Measurement of Credit Losses ~~(Topic 326)~~~~, which requires~~on Financial Instruments.” ASU No. 2016-13 significantly changes how entities to measure ~~all expected~~ credit losses for most financial assets, ~~held at the reporting date~~including accounts receivable and held-to-maturity marketable securities, by replacing today’s “incurred loss” approach with an “expected loss” model under which allowances will be recognized based on ~~historical experience, current conditions, and reasonable and supportable forecasts. This replaces~~expected rather than incurred losses. ASU No. 2016-13 became effective for us in the ~~existing incurred loss model~~first quarter of 2023. The adoption of ASU No. 2016-13 resulted in a reduction in the allowance for doubtful accounts of $11,662 and is ~~applicable to~~reflected in the measurement of credit losses on financial assets measured at amortized cost. ASC 2016-16 is effective for annual reporting periods beginning after December 15, 2022, including interim reporting periods within those annual reporting periods. Early adoption is permitted. We are currently evaluating the impact of the new guidance on our condensed consolidated financial statements and related disclosures.

In October 2021, the FASB issued ASU No. 2021-08, Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (Topic 805). This ASU requires an acquirer in a business combination to recognize and measure contract assets and contract liabilities (deferred revenue) from acquired contracts using the revenue recognition guidance in Topic 606. At the acquisition date, the acquirer applies the revenue model as if it had originated the acquired contracts. The ASU is effective for annual periods beginning after December 15, 2022, including interim periods within those fiscal years, with early adoption permitted. Adoption of the ASU should be applied prospectively. The Company elected to early adopt ASU 2021-08 on a prospective basis during the second quarter of 2022 in connection with the purchase price allocation for the Yellow Folder acquisition (see Note 4).

~~No other Accounting Standards Updates that have been issued but are not yet effective are expected to have a material effect on our future~~accompanying condensed consolidated financial statements.

Advertising

We expense the cost of advertising as incurred. Advertising expense for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~ amounted to $~~10,371~~6,120 and $~~19,871, respectively, and $3,022~~ ~~and $4,063~~448, respectively.

Earnings (Loss) ~~Earnings~~ Per Share

Basic income or loss per share is computed by dividing net income or loss by the weighted average number of shares of common stock outstanding during the period. Diluted income or loss per share is computed by dividing net income or loss by the diluted weighted average number of shares of common stock outstanding during the period. The diluted weighted average number of shares gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method. Diluted earnings per share exclude all diluted potential shares if their effect is anti-dilutive, including warrants or options which are out-of-the-money and for those periods with a net loss. ~~The three and nine months ended September 30, 2022 reported net losses, while the three and nine months ended September 30, 2021 reported net income.~~

We have outstanding warrants and stock options which have not been included in the calculation of diluted net loss per share for the ~~nine~~three months ended ~~September 30,~~March 31, 2023 and 2022 because to do so would be anti-dilutive. ~~As such,~~For the first quarter 2023, certain options and warrants were in-the-money and others were not. The three months ended March 31, 2023 reported net income, while the three months ended March 31, 2022 reported a net loss. For the first quarter 2022, the numerator and the denominator used in computing both basic and diluted net loss per share ~~for each period~~ are the same.

Income Taxes

We file a consolidated federal income tax return with our subsidiaries. The provision for income taxes is computed by applying statutory rates to income before taxes.

Deferred income taxes are recognized for the tax consequences in future years of temporary differences between the financial reporting and tax bases of assets and liabilities as of each period-end based on enacted tax laws and statutory rates. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. A 100% valuation allowance has been established on deferred tax assets ~~At September 30, 2022~~at March 31, 2023 and December 31, ~~2021,~~2022, due to the uncertainty of our ability to realize future taxable income.

We account for uncertainty in income taxes in our financial statements as required under ASC 740, “Income Taxes.” The standard prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The standard also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition accounting. Management determined there were no material uncertain positions taken by us in our tax returns.

Segment Information

Operating segments are defined in the criteria established under ~~the FASB ASC Topic 280 as components of public Operating segments are defined in the criteria established under the~~ ASC 280, “Segment Reporting,” as components of public entities that engage in business activities from which they may earn revenues and incur expenses for which separate financial information is available and which is evaluated regularly by our chief operating decision maker (“CODM”) in deciding how to assess performance and allocate resources. Our CODM assesses performance and allocates resources based on two operating segments: Document Management and Document Conversion. These segments contain individual business components that have been combined on the basis of common management, customers, solutions offered, service processes and other economic characteristics. We currently have immaterial intersegment sales. We evaluate the performance of our segments based on gross profits.

The Document Management Segment provides cloud-based and premise-based content services software. Its modular suite of solutions complements existing operating and accounting systems to serve a mission-critical role for organizations to make content secure, compliant, and process-ready. This segment conducts its primary operations in the United States. Markets served include highly regulated, risk and compliance-intensive markets in healthcare, K-12 education, public safety, other public sector, risk management, financial services, and others. Solutions are sold both directly to end-users and through resellers.

The Document Conversion Segment provides services for scanning and indexing, converting images from paper to digital, paper to microfilm, and microfiche to microfilm, as well as long-term physical document storage and retrieval. This segment conducts its primary operations in the United States. Markets served include ~~business~~businesses and federal, county, and municipal governments. Solutions are sold both directly to end-users and through a reseller distributor.

Information by operating segment is as follows:

Schedule of Segment Information


	For the three months ended September 30,				For the nine months ended September 30,
	2022		2021		2022		2021		Three months ended March 31, 2023		Three months ended March 31, 2022
Revenues
Document Management	$	1,693,128	$	792,548	$	4,180,931	$	2,319,370	$	1,769,483	$	914,950
Document Conversion		2,166,499		2,378,814		5,797,851		6,396,857		2,417,350		1,788,562
Total revenues	$	3,859,627	$	3,171,362	$	9,978,782	$	8,716,227	$	4,186,833	$	2,703,512

Gross profit
Document Management	$	1,427,696	$	673,237	$	3,488,947	$	1,898,799	$	1,483,108	$	734,906
Document Conversion		1,078,489		1,242,484		2,838,093		3,435,893		1,162,731		896,931
Total gross profit	$	2,506,185	$	1,915,721	$	6,327,040	$	5,334,692	$	2,645,839	$	1,631,837

Capital additions, net
Document Management	$	145,581	$	5,935	$	321,382	$	44,051	$	116,041	$	31,084
Document Conversion		43,069		126,578		136,669		488,100		18,528		54,356
Total capital additions, net	$	188,650	$	132,513	$	458,051	$	532,151	$	134,569	$	85,440

	September 30, 2022		December 31, 2021		March 31, 2023		December 31, 2022
Goodwill
Document Management	$	3,989,645	$	522,711	$	3,989,645	$	3,989,645
Document Conversion		1,800,176		1,800,176		1,800,176		1,800,176
Total goodwill	$	5,789,821	$	2,322,887	$	5,789,821	$	5,789,821

	September 30, 2022		December 31, 2021		March 31, 2023		December 31, 2022
Total assets
Document Management	$	11,210,697	$	2,233,419	$	9,707,317	$	10,284,143
Document Conversion		9,548,940		9,728,713		9,092,153		9,658,959
Total assets	$	20,759,637	$	11,962,132	$	18,799,470	$	19,943,142

Statement of Cash Flows

For purposes of reporting cash flows, cash includes cash on hand and demand deposits held by banks.

Reclassifications

Certain amounts reported in prior filings of the condensed consolidated financial statements have been reclassified to conform to current presentation.

4. Business ~~Combinations~~Acquisitions

On April 1, 2022, we entered into an asset purchase agreement to acquire substantially all of the assets of Yellow Folder. The acquisition was accounted for in accordance with GAAP and was made to expand our market share in the digital transformation industry and due to synergies of product lines and services between the Companies.

The purchase price has been preliminarily allocated to assets acquired and liabilities assumed based on the estimated fair value of such assets and liabilities at the date of acquisitions as follows:

Schedule of Fair Value of Assets Acquired and Liabilities Assumed

Assets acquired:
Accounts receivable	$	68,380
Prepaid expenses		38,913
Property and equipment		30,018
Intangible assets (see Note 5)		3,888,000
Assets		4,025,311
Liabilities assumed:
Accounts payable		36,446
Deferred revenue		1,072,530
Liabilities		1,108,976

Total identifiable net assets		2,916,335

Purchase price		6,383,269

Goodwill - Excess of purchase price over fair value of net assets acquired	$	3,466,934

The purchase price of $6,383,269 was paid in cash. Goodwill in the amount of $3,466,934 was recognized in the acquisition of Yellow Folder and is attributable to the cash flows of the business derived from our potential to outperform the market due to its existing relationship and other synergies created within the Company.

~~Acquisition costs which include legal and other professional fees of $~~0 ~~and $355,281~~ for the three and nine months ended September 30, 2022, respectively, were expensed as nonrecurring transaction costs and are included in transaction costs in the accompanying condensed consolidated statements of operations.

As the Company finalizes the fair value of assets acquired and liabilities assumed, additional purchase price adjustments may be recorded. The finalization of the purchase accounting assessment may result in changes in the valuation of assets acquired and liabilities assumed and may have an impact on the Company’s results of operations and financial position.

The following unaudited pro forma information presents a summary of the condensed consolidated results of operations for the Company as if the acquisition of Yellow Folder had occurred on January 1, ~~2021.~~2022.

Schedule of Pro Forma Information

For the Three months ended
(unaudited) (unaudited)
September 30, 2022 September 30, 2021
Total revenues $ 3,859,627 $ 3,880,298

Net income $ 217,536 $ 289,676

Basic net income per share $ 0.05 $ 0.07
Diluted net income per share $ 0.05 $ 0.06

For the Nine months ended
(unaudited) (unaudited)
September 30, 2022 September 30, 2021
Total revenues $ 10,756,634 $ 10,762,099

Net (loss) income $ (142,241 ) $ 963,866

Basic net (loss) income per share $ (0.03 ) $ 0.24
Diluted net (loss) income per share $ (0.03 ) $ 0.22

	March 31, 2023		March 31, 2022
	For the three months ended
	(unaudited)		(unaudited)
	March 31, 2023		March 31, 2022
Total revenues	$	4,186,833	$	3,481,413

Net income	$	112,563	$	14,440

Basic net income per share	$	0.03	$	0.00
Diluted net income per share	$	0.03	$	0.00

The unaudited pro forma condensed consolidated results are based on our historical financial statements and those of Yellow Folder and do not necessarily indicate the results of operations that would have resulted had the acquisition actually been completed at the beginning of the applicable period presented. The pro forma financial information assumes that the companies were combined as of January 1, ~~2021.~~2022.

The following tables present the amounts of revenue and earnings of Yellow Folder since the acquisition date included in the condensed consolidated income statement for the reporting period.

	For the three months ended September 30,		For the nine months ended September 30,		For the three months ended
	2022		2022		March 31, 2023
Yellow Folder:
Total revenues	$	829,856	$	1,620,224	$	874,562
Net income	$	178,973	$	375,531	$	185,702

5. Intangible Assets, Net

At ~~September 30,~~March 31, 2023, intangible assets consisted of the following:

Schedule of Intangible Assets

	Estimated			Accumulated
	Useful Life	Costs		Amortization			Net
Trade names	10 years	$	297,000	$	(54,492	)	$	242,508
Proprietary technology	10 years		861,000		(86,100	)		774,900
Customer relationships	5-15 years		4,091,000		(816,339	)		3,274,661
		$	5,249,000	$	(956,931	)	$	4,292,069

At December 31, 2022, intangible assets consisted of the following:

~~Schedule of Intangible Assets~~

	Estimated			Accumulated					Estimated			Accumulated
	Useful Life	Costs		Amortization			Net		Useful Life	Costs		Amortization			Net
Trade names	10 years	$	297,000	$	(39,642	)	$	257,358	10 years	$	297,000	$	(47,067	)	$	249,933
Proprietary technology	10 years		861,000		(43,050	)		817,950	10 years		861,000		(64,575	)		796,425
Customer relationships	5-15 years		4,091,000		(619,085	)		3,471,915	5-15 years		4,091,000		(717,712	)		3,373,288
		$	5,249,000	$	(701,777	)	$	4,547,223		$	5,249,000	$	(829,354	)	$	4,419,646

~~At December 31, 2021, intangible assets consisted of the following:~~

Estimated Accumulated
Useful Life Costs Amortization Net
Trade names 10 years $ 119,000 $ (21,817 ) $ 97,183
Customer relationships 5-8 years 1,242,000 (370,687 ) 871,313
$ 1,361,000 $ (392,504 ) $ 968,496

Amortization expense for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021,~~ amounted to $127,577 and $~~309,273, respectively, and $~~54,119 ~~and $162,356~~, respectively. The following table represents future amortization expense for intangible assets subject to amortization.

Schedule of Amortization Expense for Intangible Assets

For the Twelve Months Ending September 30,	Amount
2023	$	510,308
For the Twelve Months Ending March 31,			Amount
2024		510,308	$	510,308
2025		499,391		510,308
2026		391,941		473,125
2027		326,108		326,108
2028				324,410
Thereafter		2,309,167		2,147,810
Intangible assets	$	4,547,223	$	4,292,069

6. Fair Value Measurements

~~Under GAAP, fair value is defined as the price that would be received to sell an asset or~~We paid ~~to transfer a~~our final earnout liability in ~~an orderly transaction between market participants at the measurement date. The fair value hierarchy consists~~January 2023 and as of ~~the following three levels. Level 1 inputs are quoted prices in active markets for identical assets or liabilities. Level 2 inputs consist~~March 31, 2023, we have no earnout liabilities remaining. As of quoted prices for similar assets or liabilities in an active market, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable and market-corroborated inputs which are derived principally from or corroborated by observable market data. Level 3 inputs are derived from valuation techniques in which one or more significant inputs or value drivers are unobservable.

The carrying values of cash and equivalents, accounts receivable, accounts payable, and accrued expenses approximate fair value because of its short maturity. Management believes that the carrying value of the 2020 Notes andDecember 31, 2022 ~~Notes approximate fair value given that, while there has been change in the overall economic environment, there has not been significant net availability of credit to Company.~~

~~We have~~we had earnout liabilities related to one of our two 2020 acquisitions which ~~are~~were measured on a recurring basis and recorded at fair value, measured using probability-weighted analysis and discounted using a rate that appropriately captures the risks associated with the obligation. The inputs used to calculate the fair value of the earnout liabilities ~~are~~were considered to be Level 3 inputs due to the lack of relevant market activity and significant management judgment. Key unobservable inputs ~~include~~included revenue growth rates, which ranged from 0% to 7%, and volatility rates, which were 20% for gross profits. An increase in future revenues and gross profits may result in a higher estimated fair value while a decrease in future revenues and gross profits may result in a lower estimated fair value of the earnout liabilities.

The following table provides a summary of the changes in fair value of the earnout liabilities for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022:

Summary of Changes in Fair Value of Earnout Liabilities

Three months ended
September 30, 2022
Fair value at July 31, 2022 $ 728,853
Payment -
Change in fair value 28,494
Fair value at September 30, 2022 $ 757,347

	March 31, 2023
Fair value at December 31, 2022	$	700,000
Fair value, beginning balance	$	700,000
Payments		(700,000	)
Change in fair value		-
Fair value at March 31, 2023	$	-
Fair value, ending balance	$	-

Nine months ended
September 30, 2022
Fair value at December 31, 2021 $ 1,630,681
Payment (1,018,333 )
Change in fair value 144,999
Fair value at September 30, 2022 $ 757,347

Three months ended
September 30, 2021
Fair value at July 31, 2021 $ 1,566,478
Payment -
Change in fair value -
Fair value at September 30, 2021 $ 1,566,478

Nine months ended
September 30, 2021
Fair value at December 31, 2020 $ 2,444,000
Fair value, Beginning balance $ 2,444,000
Payment (954,733 )
Change in fair value 77,211
Fair value at September 30, 2021 $ 1,566,478
Fair value, Ending balance $ 1,566,478

	March 31, 2022
Fair value at December 31, 2021	$	1,630,681
Fair value, beginning balance	$	1,630,681
Change in fair value		64,204
Fair value at March 31, 2022	$	1,694,885
Fair value, ending balance	$	1,694,885

The fair values of earnout liabilities amounts owed ~~are~~were recorded in ~~the~~ current ~~and long-term portions of earnout~~ liabilities in our condensed consolidated balance ~~sheets.~~sheet as of December 31, 2022. Changes in fair value are recorded in change in fair value of earnout liabilities in our condensed consolidated statements of operations.

7. Property and Equipment

Property and equipment are comprised of the following:

Schedule of Property and Equipment

	September 30, 2022			December 31, 2021			March 31, 2023			December 31, 2022
Computer hardware and purchased software	$	1,593,208		$	1,494,918		$	1,601,116		$	1,578,756
Leasehold improvements		369,861			295,230			395,919			395,918
Furniture and fixtures		71,325			71,325			71,325			71,325
Property and equipment, gross		2,034,394			1,861,473			2,068,360			2,062,895
Less: accumulated depreciation		(963,670	)		(769,693	)		(1,039,233	)		(977,293	)
Property and equipment, net	$	1,070,724		$	1,091,780		$	1,029,127		$	1,068,706

Total depreciation expense on our property and equipment for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~ amounted to $~~66,286~~61,939 and $~~193,977, respectively, and $51,804~~ ~~and $139,883~~59,991, respectively.

1817

8. Notes Payable ~~– Unrelated Parties~~

Summary of Notes Payable to Unrelated Parties

The table below summarizes all notes payable ~~At September 30, 2022~~at March 31, 2023 and December 31, ~~2021,~~2022, respectively with the exception of related party notes disclosed in Note 9 “Notes Payable - Related Parties.”

Schedule of Notes Payable ~~to Unrelated Parties~~

	September 30, 2022			December 31, 2021			March 31, 2023			December 31, 2022
2022 Unrelated Notes	$	2,364,500		$	-		$	2,364,500		$	2,364,500
2020 Notes		2,000,000			2,000,000			717,500			980,450
Total notes payable	$	4,364,500		$	2,000,000		$	3,082,000		$	3,344,950
Less unamortized debt issuance costs		(353,741	)		(121,029	)		(258,787	)		(300,904	)
Less unamortized debt discount		(44,444	)		(124,444	)		(10,667	)		(22,045	)
Less current portion, net		(1,912,331	)		-			(696,459	)		(936,966	)
Long-term portion of notes payable	$	2,053,984		$	1,754,527		$	2,116,087		$	2,085,035

Future minimum principal payments of the Notes Payable to Unrelated Parties are as follows:

Schedule of Future Minimum Principal Payments of Notes Payable

As of September 30,	Amount
2023	$	2,000,000
As of March 31,			Amount
2024			$	717,500
2025		2,364,500		2,364,500
Total	$	4,364,500	$	3,082,000

As of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, accrued interest for these notes payable with the exception of the related party notes in Note 9, “Notes Payable - Related Parties,” was $0. As of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, unamortized ~~deferred financing~~debt issuance costs and unamortized debt discount were reflected within short and long term liabilities on the condensed consolidated balance sheets, netted with the corresponding notes payable balance.

With respect to all notes outstanding (other than the notes to related parties), interest expense, including the amortization of debt issuance costs and debt discount for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~ was $~~214,587~~151,605 and $~~541,777, respectively, and $113,030~~ ~~and $339,345~~112,601, respectively.

2022 Unrelated Notes

On April 1, 2022, we sold $2,364,500 in 12%12% Subordinated Notes (“2022 Unrelated Notes”) to unrelated accredited investors. The entire outstanding principal and unpaid interest of the 2022 Notes are due and payable on March 30, 2025. Interest on the 2022 Unrelated Notes accrues at the rate of 12% per annum, payable quarterly in cash, beginning on September 30, 2022. Any accrued but unpaid quarterly installment of interest will accrue interest at the rate of 14.0% per annum. Any overdue principal and accrued and unpaid interest at the maturity date will accrue a mandatory default penalty of 20% of the outstanding principal balance and an interest rate of 14% per annum from the maturity date until paid in full. We used a portion of the net proceeds from the private placement offering to finance the acquisition of Yellow Folder and the remaining net proceeds for working capital and general corporate purposes.

2020 Notes

On March 2, 2020, we sold 2,000 units, at an offering price of $1,000 per unit, to accredited investors in a private placement offering, with each unit consisting of $1,000 in 12% Subordinated Notes (“2020 Notes”) and 40 shares of our common stock, for aggregate gross proceeds of $2,000,000. The entire outstanding principal and unpaid interest of the 2020 Notes ~~are~~were initially due and payable on February 28, 2023. On December 1, 2022, we paid the note holders an amount totaling $1,019,550 as a prepayment of principal. On February 28, 2023, we paid the note holders an amount totaling $262,950 as a payment of principal. In December 2022, a majority of the note holders signed an amendment to extend the maturity date for $717,500 of the remaining 2020 Notes to August 31, 2023. Interest on the 2020 Notes accrues at the rate of 12% per annum, payable quarterly in cash, beginning on June 30, 2021. Any accrued but unpaid quarterly installment of interest will accrue interest at the rate of 14.0% per annum. Any overdue principal and accrued and unpaid interest at the maturity date will accrue a mandatory default penalty of 20% of the outstanding principal balance and an interest rate of 14% per annum from the maturity date until paid in full. We used a portion of the net proceeds from the private placement offering to finance the acquisitions of Graphic Sciences and CEO Image and the remaining net proceeds for working capital and general corporate purposes. We recognized a debt discount of $320,000 for the 80,000 shares issued in conjunction with the units. The amortization of the debt discount, which will be recognized over the life of the 2020 Notes as interest expense, was $11,378 and $26,666, respectively, for the three ~~and nine~~ months ended ~~September 30, 2022~~March 31, 2023 and ~~2021 was $26,667~~ ~~and $79,999, respectively.~~2022.

~~PPP Note~~

~~On April 15, 2020, we were issued an unsecured promissory note (“PPP Note”) under the Paycheck Protection Program through PNC Bank with a principal amount of $838,700. The term of the PPP Note Payable was two years, with an interest rate of~~ ~~1.0~~% per annum deferred for the first six months. We received notice on January 20, 2021 that the Small Business Administration had forgiven the full amount of principal and interest of the PPP Note, and we have recognized a gain on extinguishment of debt of $0 ~~and $845,083~~ ~~for the three and nine months ended September 30, 2021.~~

9. Notes Payable - Related Parties

Summary of Notes Payable to Related Parties

The table below summarizes all notes payable to related parties at ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021:~~2022:

Schedule of Notes Payable ~~to Unrelated Parties~~

	September 30, 2022			December 31, 2021		March 31, 2023			December 31, 2022
Notes payable – “2022 Related Notes”	$	600,000		$	-
Notes payable – “2022 Related Note”						$	600,000		$	600,000
Notes payable						$	600,000		$	600,000
Less unamortized debt issuance costs		(78,795	)		-		(63,036	)		(70,916	)
Less current portion		-			-
Long-term portion of notes payable	$	521,205		$	-	$	536,964		$	529,084

Future minimum principal payments of the 2022 Notes to related parties are as follows:

Schedule of Future Minimum Principal Payments of Notes Payable

As of September 30,	Amount
As of March 31,			Amount
2025	$	600,000	$	600,000
Total	$	600,000	$	600,000

As of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, accrued interest for these notes payable – related parties ~~was~~were $0. As of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, unamortized deferred financing costs ~~and unamortized debt discount~~ were reflected within long term liabilities on the ~~condensed~~ consolidated balance ~~sheets.~~sheets, netted with the corresponding notes payable balance.

With respect to all notes payable – related parties outstanding, interest expense, including the amortization of debt issuance costs, for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022 and was $~~25,880~~25,879 and $~~51,759~~0, respectively. ~~For the three and nine months ended June 30, 2021, there was~~ no ~~interest expense in connection with notes payable – related parties.~~

2022 Related ~~Notes~~Note

On April 1, 2022, we issued a 12% Subordinated ~~Notes in an aggregate~~Note with a principal amount of $600,000 (the “2022 Related ~~Notes”~~Note”) to Robert Taglich (holding more than 5% beneficial interest in the Company’s Shares). The entire outstanding principal and unpaid interest of the 2022 Related ~~Notes are~~Note is due and payable on March 30, 2025. Interest on the 2022 Related ~~Notes~~Note accrues at the rate of 12% per annum, payable quarterly in cash, beginning on September 30, 2022. Any accrued but unpaid quarterly installment of interest will accrue interest at the rate of 14.0% per annum. Any overdue principal and accrued and unpaid interest at the maturity date will accrue a mandatory default penalty of 20% of the outstanding principal balance and an interest rate of 14% per annum from the maturity date until paid in full. We used a portion of the net proceeds from the private placement offering to finance the acquisition of Yellow Folder and the remaining net proceeds for working capital and general corporate purposes.

10. Deferred Compensation

Pursuant to an employment agreement, we ~~have~~had accrued incentive cash compensation for one of our founders ~~totaling $20,166~~ ~~as of September 30, 2022 and $100,828~~which was fully paid as of December 31, ~~2021.~~2022. During the three ~~and nine~~ months ended ~~September 30,~~March 31, 2022, we paid $~~30,248~~20,166 ~~and $80,662, respectively,~~ in deferred incentive compensation, which amount was reflected as a reduction in our deferred compensation liability. ~~We made no deferred incentive compensation payments during the nine months ended September 30, 2021.~~

11. Commitments and Contingencies

From time to time we are involved in legal proceedings, claims and litigation related to employee claims, contractual disputes and taxes in the ordinary course of business. Although we cannot predict the outcome of such matters, currently we have no reason to believe the disposition of any current matter could reasonably be expected to have a material adverse impact on our financial position, results of operations or the ability to carry on any of our business activities.

~~Employment Agreements~~

We have entered into employment agreements with three of our key executives, including one of our founders. Under their respective employment agreements, the executives are employed on an “at-will” basis and are bound by typical confidentiality, non-solicitation and non-competition provisions. Deferred compensation for one founder remains outstanding as of September 30, 2022.

2119

Operating Leases

On January 1, 2010, we entered into an agreement to lease 6,000 rentable square feet of office space in Columbus, ~~Ohio.~~Ohio, used for our corporate headquarters, Document Conversion operations, and a small portion of our Document Management operations. The lease commenced on January 1, 2010 and, pursuant to a lease extension dated September 18, 2021, the lease expires on December 31, 2028. The monthly rental payment is $~~4,950~~5,100, with gradually higher annual increases each January up to $5,850 for the final year.

~~Our subsidiary, Graphic Sciences, uses~~We lease 36,000 square feet of ~~leased~~ space in Madison Heights, Michigan as ~~its~~the main ~~facility. Graphic Sciences uses about~~ facility for our Document Conversion operations. 20,000 square feet is used for ~~its~~ records storage services, with the remainder of the space used for production, sales, and ~~administration~~.administration. The monthly rental payment is $~~41,508~~43,185, with gradually higher annual increases each September up to $45,828 for the final year, and with a lease term continuing until August 31, 2026.

~~Graphic Sciences~~

We also ~~leases and uses~~lease a separate 37,000 square foot building in Sterling Heights, Michigan for our Document Conversion operations, with most of the space used for document storage, except approximately 5,000 square feet, which is used for ~~production, and a satellite office in Traverse City, Michigan for production~~.production. The monthly ~~Sterling Heights~~ rental payment is $~~20,452~~21,072, with gradually higher annual increases each May up to $24,171 for the final year, and with a lease term continuing to April 30, 2028.

We lease office space in Traverse City, Michigan for Document Conversion production. The monthly ~~Traverse City~~ rental payment is $4,500, with a lease term continuing until January 31, 2024. ~~Graphic Sciences~~

We also ~~leases~~lease and ~~uses four leased~~use vehicles for ~~logistics.~~logistics pertaining to our Document Conversion segment, primarily pickup and delivery of client materials, including storage and retrieval operations. The monthly rental payments for these vehicles total $~~2,618~~5,429, with lease terms continuing until ~~October 31, 2024~~September 30, 2028.

~~Graphic Sciences~~We also ~~leases~~lease and ~~uses~~use an additional temporary ~~storage~~office space in Madison Heights for our Document Conversion operations, with a monthly rental payment of $1,605 and a lease term on a month-to-month basis. We have made an accounting policy election to not record a right-of-use asset and lease liability for short-term leases, which are defined as leases with a lease term of 12 months or less. Instead, the lease payments are recognized as rent expense in the general and administrative expenses on the statement of operations.

For each of the above listed leases, management has determined it will utilize the base rental period and have not considered any renewal periods.

The following table sets forth the future minimum lease payments under ~~these operating~~our leases:

Schedule of Future Rental Payments for Operating Leases

For the nine months ending September 30,	Amount
2023	$	937,809
For the twelve months ending March 31,			Finance Lease		Operating Leases
2024		896,168	$	33,195	$	944,783
2025		876,675		33,195		890,685
2026		848,540		33,195		899,991
2027		353,662		33,195		578,184
2028				33,195		358,282
Thereafter		256,496		16,598		76,821
Total	$	4,169,350
			$	182,573	$	3,748,746

~~Lease costs charged to operations for the three months ended September 30, 2022 and 2021 amounted to $243,301~~ ~~and $293,953, respectively, and for the nine months ended September 30, 2022 and 2021 amounted to $729,902~~ ~~and $794,317, respectively. Included in the lease costs for the three and nine months ended September 30, 2022 were short-term lease costs of $4,814~~ ~~and $14,441, respectively.~~ The following table ~~sets~~summarizes the components of lease expense:

Summary of Components of Lease Expense

For the three months ending March 31,	2023		2022
Finance lease expense:
Amortization of ROU asset	$	6,709	$	-
Interest on lease liabilities		2,832		-
Operating lease expense		237,449		238,487
Short-term lease expense		4,814		4,814

The following tables set forth additional information pertaining to our leases:

Schedule of Additional Information Pertaining to Leases

For the three months ending March 31,	2023			2022
Cash paid for amounts included in the measurement of lease liabilities:
Financing cash flows from finance lease (interest)	$	2,832		$	-
Financing cash flows from finance lease (principal)		5,467			-
Operating cash flows from operating leases		170,759			151,032
Weighted average remaining lease term – finance lease		5.5 years			-
Weighted average remaining lease term – operating leases		4.2 years			5.1 years
Discount rate – finance lease		7.50	%		-
Weighted average discount rate – operating leases		6.97	%		7.01	%

Schedule of Operating ~~Lease Costs~~and Finance Leases

For the nine months ending September 30, 2022:
Operating cash flows from operating leases $ 318,030
Weighted average remaining lease term – operating leases 4.7 years
Weighted average discount rate – operating leases 6.99 %

Because these leases do not provide an implicit rate, we use an incremental borrowing rate based on the information available at the lease commencement date in determining the present value of lease payments.

	March 31, 2023			December 31, 2022
Operating leases:
Right-of-use assets, operating	$	3,070,782		$	3,200,191
Lease liabilities, operating – current		708,573			692,074
Lease liabilities, operating – net of current		2,482,692			2,624,608
Total operating lease liabilities	$	3,191,265		$	3,316,682

Finance leases:
Right-of-use asset, finance	$	160,990		$	160,990
Accumulated amortization		(13,416	)		(6,708	)
Right-of-use asset, finance, net	$	147,574		$	154,282

Lease liability, finance – current	$	22,918		$	22,493
Lease liability, finance – net of current		127,240			133,131
Total finance lease liability	$	150,158		$	155,624

2220

12. Stockholders’ Equity

Common Stock

As of ~~September 30, 2022,~~March 31, 2023, 4,073,757 shares of common stock were issued and outstanding, 255,958 shares of common stock were reserved for issuance upon the exercise of outstanding warrants, and 497,330 shares of common stock were reserved for issuance under our 2015 Equity Incentive Plan, as amended (the “2015 Plan”).

Private Placement 2022

On April 1, 2022, we entered into a Securities Purchase Agreement with certain accredited investors, pursuant to which we issued and sold (i) 1,242,588 shares of the Company’s Common Stock, at a price of $4.62 per share, for aggregate gross proceeds of $5,740,756 and (ii) $2,964,500 in 12% Subordinated Notes, for aggregate gross proceeds of $8,705,256 for the combined private placement. We used a portion of the net proceeds of the offering to finance the acquisition of Yellow Folder, and ~~intend to use~~used the remaining net proceeds for working capital and general corporate purposes, including ~~potentially~~ debt ~~reduction and other future acquisitions.~~reduction.

We retained Taglich Brothers, Inc. as the exclusive placement agent for the private placement. In compensation, we paid the placement agent a cash payment of 8% of the gross proceeds of the offering, along with warrants to purchase shares of Company common stock, an extension of its existing warrants, and reimbursement for the placement agent’s reasonable out of pocket expenses, FINRA filing fees and related legal fees. On April 1, 2022, the Company paid the placement agent cash in the amount of $696,420 and issued the placement agent warrants to purchase 124,258 shares at an exercise price at $4.62 per share, which are exercisable for a period of five years after issuance, contain customary cashless exercise provisions and anti-dilution protection and are entitled to limited piggyback registration rights. In addition, we agreed to extend the expiration date of all currently outstanding warrants previously issued to the placement agent and/or its assignees to March 30, 2027. Debt issuance costs of $165,406 were recorded for the issuance of the April 1, 2022 warrants, utilizing the Black-Scholes valuation model. The fair value of warrants issued was determined to be $3.91. Debt issuance costs of $47,607 were recorded for the extension of the exercise period for existing unexpired warrants to March 30, 2027, utilizing the Black-Scholes valuation model. The fair value of warrants affected was determined to be from $3.30 to $3.97. Underwriting paid-in-capital charges of $492,181 and debt issuance costs of $254,160 was recorded for the placement agent cash fee and other related legal fees. Amortization of the debt issuance costs for this private placement offering was recorded at $38,931 ~~and $77,862~~, for the three ~~and nine~~ months ended ~~September 30, 2022.~~March 31, 2023.

Private Placement 2020

On March 2, 2020, we sold 955,000 shares of our common stock and certain subordinated notes in a private placement to accredited investors as follows:

	●	875,000 shares of our common stock at a purchase price of $4.00 per share, for aggregate gross proceeds of $3,500,000, and

	●	2,000 units at a purchase price of $1,000 per unit, with each unit consisting of $1,000 in 12% Subordinated Notes and 40 shares of our common stock, for aggregate gross proceeds of $2,000,000.

In connection with the private placement offering, we paid the placement agent $440,000 in cash, equal to 8% of the gross proceeds of the offering, along with 95,500 warrants to purchase shares of our common stock and reimbursement for the placement agent’s reasonable out of pocket expenses, FINRA filing fees and related legal fees. The warrants are exercisable at an exercise price at $4.00 per share for a period of five years after issuance, contain customary cashless exercise provisions and anti-dilution protection and are entitled to limited piggyback registration rights. Underwriting expense of $236,761 and debt issuance costs of $135,291 were recorded for the issuance of the March 2, 2020 warrants, utilizing the Black-Scholes valuation model. The fair value of warrants issued was determined to be $3.90. Underwriting expense of $307,867 and debt issuance costs of $175,924 was recorded for the placement agent cash fee and other related legal fees. Amortization of the debt issuance costs for this private placement offering was recorded at $11,065 and $25,935 for the three months ended ~~September 30, 2022~~March 31, 2023 and ~~2021, and at $77,804~~ ~~for the nine months ended September 30, 2022 and 2021.~~2022.

Warrants

The following sets forth the warrants to purchase our common stock that were outstanding as of ~~September 30, 2022:~~March 31, 2023:

	●	Warrants to purchase 3,000 shares of common stock at an exercise price of $15.00 per share exercisable until March 30, 2027, issued to certain 5% stockholders.

	●	Warrants to purchase 17,200 shares of common stock at an exercise price of $12.50 per share exercisable until March 30, 2027, issued to the placement agent in connection with private placements of our convertible promissory notes.

	●	Warrants to purchase 16,000 shares of common stock at an exercise price of $9.00 per share exercisable until March 30, 2027, issued to the placement agent in connection with private placements of our convertible promissory notes.

	●	Warrants to purchase 95,500 shares of common stock at an exercise price of $4.00 per share exercisable until March 30, 2027, issued to the placement agent in connection with private placements of our promissory notes.

	●	Warrants to purchase 124,258 shares of common stock at an exercise price of $4.62 per share exercisable until March 30, 2027, issued to the placement agent in connection with private placements of our promissory notes.

~~Warrants to purchase~~ ~~124,258~~ ~~shares of common stock were issued during the nine months ended September 30, 2022 at a fair value determined to be $3.91~~ per warrant utilizing the Black-Scholes valuation model. The estimated value of the warrants issued during the nine months ended September 30, 2022, as well as the assumptions that were used in calculating such values, were based on estimates at the issuance date in the table below. No warrants were issued during the ~~nine~~three months ended ~~September 30, 2021.~~March 31, 2023 or 2022.

~~Schedule of Estimated Values of Warrants Valuation Assumptions~~

	Warrants Issued April 1, 2022
~~Risk-free interest rate~~		~~2.55~~	%
~~Weighted average expected term~~		5 ~~years~~
~~Expected volatility~~		~~116.32~~	%
~~Expected dividend yield~~		~~0.00~~	%21

13. Stock-Based Compensation

From time to time, we issue stock options and restricted stock as compensation for services rendered by our directors and employees.

Restricted Stock

On January 6, 2022, ~~and February 15, 2021,~~ we issued 8,097 shares ~~and~~ ~~12,207~~ ~~shares, respectively,~~ of restricted common stock to our directors as part of their annual compensation plan. The grants of restricted common stock were made outside the 2015 Plan and were not subject to vesting. Stock compensation of $57,500 was recorded on ~~this~~the issuance of ~~restricted~~the common stock for the ~~nine~~three months ended ~~September 30, 2022 and 2021.~~March 31, 2022.

Stock Options

~~On April 14, 2022, we granted employees stock options to purchase~~ ~~220,587~~ ~~shares at an exercise price of $6.08~~ ~~per share in accordance with the 2015 Plan, with vesting continuing until 2025. The total fair value of $1,152,470~~ ~~for these stock options is being recognized over the requisite service period.~~ We did not make any stock option grants during the ~~nine~~three months ended ~~September 30, 2021.~~March 31, 2023 or 2022.

~~The weighted-average grant date fair value of options granted during the nine months ended September 30, 2022 was $5.22~~. The weighted average assumptions that were used in calculating such values during the nine months ended September 30, 2022, as well as the assumptions that were used in calculating such values, were based on estimates at the grant date in the table as follows:

~~Schedule of Estimated Values of Stock Option Grants Valuation Assumptions~~

	Grant Date April 1, 2022
~~Risk-free interest rate~~		~~2.82~~	%
~~Weighted average expected term~~		6 ~~years~~
~~Expected volatility~~		~~116.60~~	%
~~Expected dividend yield~~		~~0.00~~	%

A summary of stock option activity during the ~~nine~~three months ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~ is as follows:

Schedule of Stock Option Activity

Weighted-
Weighted- Average
Shares Average Remaining Aggregate
Under Exercise Contractual Intrinsic
Option Price Life Value
Outstanding at January 1, 2022 144,860 $ 5.61 8 years $ 19,200
Granted 220,587 6.08
Outstanding at September 30, 2022 365,447 $ 5.89 9 years $ 19,200

Exercisable at September 30, 2022 93,085 $ 6.44 7 years $ 19,200

						Weighted-
				Weighted-		Average
	Shares			Average		Remaining		Aggregate
	Under			Exercise		Contractual		Intrinsic
	Option			Price		Life		Value
Outstanding at January 1, 2023		365,447		$	5.89		8 years	$	19,200
Forfeited		(5,000	)		4.00
Outstanding at March 31, 2023		360,447		$	5.92		8 years	$	19,200

Exercisable at March 31, 2023		92,860		$	6.50		7 years	$	19,200

Weighted-
Weighted- Average
Shares Average Remaining Aggregate
Under Exercise Contractual Intrinsic
Option Price Life Value
Outstanding at January 1, 2021 145,360 $ 5.61 9 years $ 19,200

Outstanding at September 30, 2021 145,360 $ 5.61 8 years $ 19,200

Exercisable at September 30, 2021 81,685 $ 6.71 8 years $ 19,200

2522

					Weighted-
			Weighted-		Average
	Shares		Average		Remaining		Aggregate
	Under		Exercise		Contractual		Intrinsic
	Option		Price		Life		Value
Outstanding at January 1, 2022		144,860	$	5.61		8 years	$	19,200

Outstanding at March 31, 2022		144,860	$	5.61		8 years	$	19,200

Exercisable at March 31, 2022		68,335	$	7.32		7 years	$	19,200

During the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ stock-based compensation for options was $~~118,999~~118,162 and $~~244,951, respectively, and $23,098~~ ~~and $69,293~~22,960, respectively.

As of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, there was $~~1,138,139~~897,697 and $~~230,620~~1,019,140, respectively, of total unrecognized compensation costs related to stock options granted under our stock option agreements. The unrecognized compensation cost is expected to be recognized over a weighted-average period of two years. The total fair value of stock options that vested during the ~~nine~~three months ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~ was $~~91,913~~10,238 ~~and $92,475, respectively.~~.

14. Concentrations

Revenues from a limited number of customers have accounted for a substantial percentage of our total revenues. During the three months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ our largest customer, the State of Michigan, accounted for ~~37%~~34% and ~~38%~~40%, respectively, of our total revenues for each period, and our second largest customer, Rocket Mortgage, accounted for 5%10 ~~and~~ 7%~~, respectively, of our total revenues. During the nine months ended September 30, 2022 and 2021, our largest customer, the State of Michigan, accounted for~~ ~~37%~~ ~~and~~ ~~44%, respectively,~~% of our total revenues ~~and our second largest customer, Rocket Mortgage, accounted~~ for 7% ~~and~~ 9%~~, respectively, of our total revenues.~~each period.

For the three months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ government contracts, including K-12 education, represented approximately ~~49%~~72% and ~~52%~~66~~, respectively,~~% of our net ~~revenues. For the nine months ended September 30, 2022 and 2021, government contracts represented approximately~~ ~~52%~~ ~~and~~ ~~60%, respectively, of our net revenues.~~revenues, respectively. A significant portion of our sales to resellers represent ultimate sales to government agencies.

As of ~~September 30,~~March 31, 2023, accounts receivable concentrations from our two largest customers were 43% and 6% of gross accounts receivable, respectively by customer. As of December 31, 2022, accounts receivable concentrations from our two largest customers were ~~30%~~44% and ~~10%~~7% of ~~our~~ gross accounts receivable, respectively by customer. ~~As of December 31, 2021, accounts~~Accounts receivable ~~concentrations~~balances from our two largest customers ~~were~~ ~~65%~~ ~~and~~ 7% ~~of gross accounts receivable, respectively by customer.~~at March 31, 2023 have been partially collected.

~~15.~~ ~~Certain Relationships and Related Transactions~~

We retained Taglich Brothers, Inc. as the exclusive placement agent for the private placement offering discussed in Note 8 and Note 12. In compensation, the Company paid the placement agent a cash payment of 8% of the gross proceeds of the offering, along with warrants to purchase shares of Company common stock, an extension of its existing warrants, and reimbursement for the placement agent’s reasonable out of pocket expenses, FINRA filing fees and related legal fees. On April 1, 2022, the Company paid the placement agent cash in the amount of $~~696,420~~ ~~and issued the placement agent warrants to purchase~~ ~~124,258~~ ~~shares at an exercise price at $4.62~~ per share, which are exercisable for a period of five years after issuance, contain customary cashless exercise provisions and anti-dilution protection and are entitled to limited piggyback registration rights. In addition, we agreed to extend the expiration date of all currently outstanding warrants previously issued to the placement agent and/or its assignees to March 30, 2027.

We retained Taglich Brothers, Inc. on an exclusive basis to render financial advisory and investment banking services to us in connection with our acquisition of Yellow Folder. Pursuant to an Engagement Agreement, dated May 1, 2020, we paid Taglich Brothers, Inc. a success fee of $~~200,000~~ ~~as a result of the successful completion of the acquisition of Yellow Folder, LLC assets.~~

~~We did not participate in any related person transactions during the three and nine months ended September 30, 2021.~~

ITEM 2

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial conditions 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, ~~2021.~~2022. 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 “Note Regarding Forward-Looking Statements” elsewhere herein. In this Quarterly Report, we sometimes refer to the three ~~and nine-month periods~~month period ended ~~September 30, 2022~~March 31, 2023 as the ~~third~~first quarter ~~2022 and the nine-month period 2022 respectively,~~2023, and to the three ~~and nine-month periods~~month period ended ~~September 30, 2021~~March 31, 2022 as the ~~third~~first quarter ~~2021 and the nine-month period 2021.~~2022.

Company Overview

We are a document services and software solutions ~~software~~ company serving both the small-to-medium business and governmental ~~sectors.~~sectors with their digital transformation and process automation initiatives. On April 1, 2022, we made a significant business acquisition ~~of Yellow Folder~~ that has significantly impacted our financial operations and grown our business operations. For further information about this acquisition, please see Note 4 to our condensed consolidated financial statements included in Item 1, Part I ~~Item 1~~ of this Quarterly 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 ~~and processes~~ who need them by making those documents easy to find and ~~act upon,~~access, while also being secure and compliant ~~and audit-ready.~~with the customers’ audit requirements. Solutions are sold both directly to end-users and through resellers.

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 the increased deployment of remote workforce policies, and is a key ingredient in our revenue growth strategy. Our SaaS products are hosted with Amazon Web Services, Expedient, and ~~Expedient,~~Evocative, providing our customers with reliable hosting services that we believe are 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 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.

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 ~~nine-month period 2022~~first quarter 2023 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, ~~2021.~~

2022.

~~Recent Developments~~Executive Overview of Results

The biggest factor in the changes in our results of operations during the first quarter 2023 compared to 2022 was our acquisition of Yellow Folder on April 1, 2022. Our results for the first quarter 2023 include the results of Yellow Folder operations for the three quarters. Our first quarter 2022 results do not include Yellow Folder operations. Without Yellow Folder, revenues were up $608,759, or 23%, primarily driven by renewed professional services as well as strength in software as a service, which, excluding Yellow Folder, grew 18% year over year for the first quarter 2023. Our strong professional services and software as a service performance was partially offset by weaknesses in sales of software, which is increasingly inconsistent with reduced sales of on-premise software and lingering softer demand for the transactional portion of our storage and retrieval services from a significant customer in the home mortgage lending industry.

~~On September 9, 2022,~~

Below are our key financial results for the Company’s common stock was listed on the NYSE American stock exchange under the symbol “INLX.” Previously, the Company’s common stock was available for quotation on the OTCQB under the same symbol.first quarter 2023 (consolidated unless otherwise noted):

	●	Revenues were $4,186,833, representing revenue growth of 55% year over year.

	●	Cost of revenues was $1,540,994, an increase of 44% year over year.

	●	Operating expenses (excluding cost of revenues) were $2,361,840, an increase of 53% year over year.

	●	Income from operations was $283,999, an increase of 207% year over year.

	●	Net income was $112,563 with basic and diluted net income per share of $0.03, compared to a net loss of $20,126 with basic and diluted net income per share of ($0.01) in the first quarter 2022.

●

Q1 2022 included $64,204 of change in fair value of earnout liabilities costs and $70,051 of transaction costs.

	●	Net cash used in operating activities was $174,357, driven primarily by a $571,788 reduction in deferred revenues, compared to $505,568 provided by operations in the first quarter 2022.

	●	Capital expenditures were $134,569, compared to $85,440 in the first quarter 2022.

	●	As of March 31, 2023, we had 167 employees, including 28 part-time employees, compared to 107 employees as of March 31, 2022.

Financial Impact of ~~Inflation and Lingering Effects of COVID-19~~Current Economic Conditions

Our overall performance depends on economic conditions, including the current inflationary environment and the widespread expectation of near-term global recession.

~~We are primarily a service business,~~

Employee wages, our largest expense, have recently increased due to wage inflation. These increased labor costs have slightly decreased our profit margin over 2022 and into 2023, but we continue to mitigate this by appropriately increasing customer renewal rates whenever we have ~~been affected by~~the contractual ability to do so. More significantly, general wage inflation in the markets where our employees reside. To the extent possible, we appropriately price our services to reflect these rising costs, along with rigorous general expense management. For some long-term government contracts, however, we are contractually bound to specific pricing over multi-year periods, which inhibits our ability to completely recover our rising labor costs in the short term, particularly in our Document Conversion segment. In addition, wage inflationmarket has also led to a slow-down in our ability to recruit and hire new employees. In 2022, we have experienced more staffing positions remaining open for longer periods, which directly affects our ability to generate revenue, again, especially in our Document Conversion segment. Inflation with respect to the costs of goods and raw materials has had a much smaller effect on our business, although our Document Conversion segment has seen an increase in the costs of its transportation services.

While the general effects of COVID-19 in the United States appear to be abating, we are still experiencing some lingering effects. We continue to experience staffing absences due to new COVID-19 infections, which directly affects our revenue production in our Document Conversion segment. The State of Michigan, our largest customer, has yet to return a majority of its agencies and departments to on-site work, resultingresulted in a ~~continuing decreased volume of work orders~~slower hiring process as we grew our staff during 2022 and 2023, particularly for our Document Conversion segment. ~~In particular,~~These hiring and staffing challenges slow our ability to complete project-based work backlog and reduce our revenue. However, we ~~experienced slow-downs in workflow and corresponding revenues during~~ended the ~~fourth quarter of 2021 and~~ first quarter 2023 with more staff than 2022, ~~due~~and have continued to hire more staff as of the ~~Omicron variant outbreak. Looking ahead,~~date of this report. We anticipate that the ~~ongoing impact of COVID-19~~inflationary effect on our business continues to evolve and be unpredictable. Our business, financial condition and results of operations could be affected by future outbreaks of COVID-19 generally or in our facilities or among our customers. To address the potential impact to our business, we have engaged, and continue to assess and engage, in aggressive efforts to reduce expenses and preserve cash flow in order to address the effects of COVID-19 on our business, operations and results. At the same time, we believe COVID-19wages has ~~accelerated digital transformation,~~stabilized.

Other volatility, particularly among governmental customers, and we remain focused on innovating and investing in the services we offer to our customers. Accordingly, the ongoing impact of COVID-19 and the extent of these measures we may implement havefrom global supply chain disruptions, has had and are ~~likely~~expected to continue to have a ~~material~~minimal impact on us as we consume relatively little in raw materials. A global recession may affect our ~~financial results.~~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.

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 ~~inflation and COVID-19,~~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, ~~2021.~~2022. Due to all these factors and the other risks discussed in Part II, Item 1 of this Quarterly Report, and Part I, Item IA, “Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2021,~~2022, 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 is not necessarily meaningful or indicative of future performance.

~~Executive Overview of Results~~

The biggest factors in the changes in our results of operations during the third quarter 2022 compared to the third quarter 2021, and the nine-month period 2022 compared to the nine-month period 2021 was our acquisition of Yellow Folder on April 1, 2022. Our results for the third quarter 2022 include the results of Yellow Folder operations for the full period, while our nine-month period 2022 results exclude the first quarter results of Yellow Folder operations. Our 2021 results do not include Yellow Folder operations. Without Yellow Folder, revenues were down $141,591, or 21%, primarily in professional services in our Document Conversion segment, due to lingering challenges in hiring. This shortfall in professional services was partially offset by continued strength in software as a service, which, excluding Yellow Folder, grew 42% year over year for the nine-month period 2022.

2825

~~Below are our key financial results for the third quarter 2022 (consolidated unless otherwise noted):~~

	●	~~Revenues were $3,859,627, representing revenue growth of 22% year over year.~~

	●	~~Cost of revenues was $1,353,442, an increase of 8% year over year.~~

	●	~~Operating expenses (excluding cost of revenues) were $2,048,182, an increase of 36% year over year.~~

	●	~~Income from operations was $458,003, compared to $409,467 in third quarter 2021.~~

	●	~~Net income was $217,536 with basic and fully diluted net income per share of $0.05, compared to net income was $296,437 in third quarter 2021.~~

●

~~Third quarter 2022 included $28,494 of earnout fair value adjustments, compared to $0 for 2021.~~

	●	~~Cash provide by operations was $1,852,085, compared to cash provided by operations of $821,129 in third quarter 2021.~~

	●	~~Capital expenditures were $188,687, compared to $132,513 in third quarter 2021.~~

~~Below are our key financial results for the nine-month period 2022 (consolidated unless otherwise noted):~~

	●	~~Revenues were $9,978,782, representing revenue growth of 14% year over year.~~

	●	~~Cost of revenues was $3,651,742, an increase of 8% year over year.~~

	●	~~Operating expenses (excluding cost of revenues) were $5,910,261, an increase of 31% year over year.~~

	●	~~Income from operations was $416,779, compared to $825,918 for the nine-month period 2021.~~

	●	~~Net loss was $176,757 with basic and diluted net loss per share of $0.05, compared to net income of $1,331,656 for the nine-month period 2021.~~

	●	~~2021 included other income of $845,083 for forgiveness of the PPP loan and interest.~~
	●	~~Nine-month period 2022 included $355,281 of transaction costs.~~
	●	~~Nine-month period 2022 included $144,999 of earnout fair value adjustments, compared to $77,211 for 2021.~~

	●	~~Net cash provided by operating activities was $1,924,734, compared to $1,408,249 for the nine-month period 2021.~~

	●	~~Capital expenditures were $458,051, compared to $532,151 for the nine-month period 2021.~~

	●	~~As of September 30, 2022, we had 132 employees, including 14 part-time employees, compared to 135 employees, including 9 part-time employees, as of September 30, 2021.~~

Reportable Segments

We have two reportable segments: Document Management and Document Conversion. 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:

	For the three months ended September 30,				For the nine months ended September 30,				Three months ended March 31, 2023		Three months ended March 31, 2022
	2022		2021		2022		2021
Revenues by segment
Revenues
Document Management	$	1,693,128	$	792,548	$	4,180,931	$	2,319,370	$	1,769,483	$	914,950
Document Conversion		2,166,499		2,378,814		5,797,851		6,396,857		2,417,350		1,788,562
Total revenues	$	3,859,627	$	3,171,362	$	9,978,782	$	8,716,227	$	4,186,833	$	2,703,512

Gross profit by segment
Gross profit
Document Management	$	1,294,263	$	673,237	$	3,488,947	$	1,898,799	$	1,483,108	$	734,906
Document Conversion		894,755		1,242,484		2,838,093		3,435,893		1,162,731		896,931
Total gross profit	$	2,189,018	$	1,915,721	$	6,327,040	$	5,334,692	$	2,645,839	$	1,631,837

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

	For the three months ended September 30,				For the nine months ended September 30,				Three months ended March 31, 2023		Three months ended March 31, 2022
	2022		2021		2022		2021

Revenues:
Revenues by revenue source
Sale of software	$	18,390	$	58,779	$	93,986	$	73,971	$	15,293	$	64,491
Software as a service		1,211,407		352,192		2,801,084		1,052,072		1,238,432		431,221
Software maintenance services		352,892		336,732		1,033,375		1,012,251		349,542		336,602
Professional services		2,007,613		2,165,030		5,221,326		5,715,273		2,299,289		1,587,948
Storage and retrieval services		269,325		258,629		829,011		862,660		284,277		283,250
Total revenues	$	3,859,627	$	3,171,362	$	9,978,782	$	8,716,227	$	4,186,833	$	2,703,512

Our total revenues in the ~~third~~first quarter ~~2022~~2023 increased by ~~688,265,~~$1,483,321, or ~~22%~~55%, over our ~~third~~first quarter ~~2021~~2022 revenues, driven primarily by the acquisition of Yellow Folder. Yellow Folder added ~~$829,856~~$874,562 revenue for the ~~third~~first quarter ~~2022.~~2023. The remaining net ~~decrease in total revenues for the third quarter is attributable to weakness in~~increase of 23% was primarily driven by renewed professional services ~~and storage and retrieval, partially offset by strong growth~~as well as strength in software as a service, ~~as further described below. The increase in total revenues~~which, excluding Yellow Folder, grew 18% year over year for the ~~nine-month period September 30, 2022 is driven~~first quarter 2023. Our strong professional services and software as a service performance was partially offset by ~~the same factors, plus a further partial offset from growth~~weaknesses in sales of ~~software.~~software, which is increasingly inconsistent with reduced sales of on-premise software and lingering softer demand for the transactional portion of our storage and retrieval services from a significant customer in the home mortgage lending industry.

Sale of Software Revenues

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 ~~$40,389,~~$49,198, or ~~69%,~~76% during the ~~third~~first quarter ~~2022~~2023 compared to ~~the third quarter 2021, and increased by $20,015, or 27% during the nine-month period 2022 compared to the nine-month period 2021.~~2022.

These period over period changes are due to the timing of direct sales projects compared to the same periods in ~~2021.~~2022. We expect the volatility of this revenue line item to continue as the frequency of on-premise software solution sales decreases over time and project timing is unpredictable.

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 Document Management segment increased by ~~$859,215,~~$807,211, or ~~244%,~~187% in the ~~third~~first quarter ~~2022~~2023 compared to ~~the third quarter 2021 and increased by $1,749,012, or 166% in the nine-month period 2022 compared to the nine-month period 2021.~~2022. This increase was primarily the result of the Yellow Folder acquisition, which contributed ~~$1,391,295,~~$730,345, or ~~80%~~90% of the increase, augmenting the underlying new cloud-based solution sales, as well as expanded data storage, user seats, and hosting fees for existing customers. Excluding Yellow Folder, software as a service ~~sales~~revenues grew ~~34%~~18% in the ~~nine-month period 2022~~first quarter 2023 compared to ~~the nine-month period 2021.~~2022.

3026

Software Maintenance Services Revenues

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 ~~$16,160,~~$12,940, or 5%4%, in the ~~third~~first quarter ~~2022~~2023 compared to ~~the third quarter 2021 and increased by $21,124, or 2%, in the nine-month period 2022 compared to the nine-month period 2021.~~2022. This small increase in these revenues in ~~2022~~the first quarter 2023 compared to ~~the 2021~~2022 was driven by the expansion of services with existing customers and price increases being partially offset by normal attrition and certain customers migrating their premise solution to our cloud solution, resulting software maintenance ~~and support agreements~~service revenues decreasing and software as a service revenues increasing. The combined growth of software as a service and software maintenance services revenues was 107%, which represents 16% without Yellow Folder.

Professional Services Revenues

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 the ~~third~~first quarter ~~2022 and nine-month period 2022, $1,954,034 and $5,079,802, respectively, were~~2023, $2,166,974 was derived from our Document Conversion operations and ~~$53,579 and $141,525, respectively, were~~$132,315 was derived from our Document Management operations. Our overall professional services revenues ~~decreased~~increased by ~~$157,417,~~$711,341, or 7%45%, in the ~~third~~first quarter ~~2022~~2023 compared to ~~the third quarter 2021 and decreased by $493,947, or 9%, in the nine-month period 2022 compared to the nine-month period 2021.~~2022. This ~~decrease~~increase is primarily the result ~~initial COVID impacts to customers and staff~~of the strong recovery in our Document Conversion segment in the first quarter ~~2022, and in~~2023 from the ~~nine-month period 2022 our challenges hiring staff to ramp up production and fulfill the large backlog~~softer demand of ~~project work.~~early 2022. The ~~decrease was exacerbated by an unfavorable mix of project work during 2022 to date, relative to 2021. The decrease was partially offset by~~increase includes the contribution of ~~$157,290~~$110,316 in revenue from Yellow Folder for the ~~nine-month period 2022.~~first quarter.

Storage and Retrieval Services Revenues

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, increased by ~~$10,696,~~$1,027, or ~~4%, in the third quarter 2022 compared to the third quarter 2021 and decreased by $33,649, or 4%~~0%, during the ~~nine-month period 2022~~first quarter 2023 compared to ~~the nine-month period 2021.~~2022. This ~~decrease~~net increase was the result of $33,901 revenue contributed from the Yellow Folder acquisition largely offset by a decrease of $32,874, primarily driven by a significant reduction in volume of transactional work from our largest storage and retrieval customer, Rocket Mortgage, due to the significant slowdown in the home mortgage and refinancing industry, as well as unusually high project work in 2021 including shredding of documents approved for destruction. Revenue contributed from the Yellow Folder acquisition partially offset the decrease by $71,639.industry.

Costs of Revenues and Gross Profits

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

	For the three months ended September 30,				For the nine months ended September 30,
	2022		2021		2022		2021		Three months ended March 31, 2023		Three months ended March 31, 2022
Cost of revenues by segment
Document Management	$	265,432	$	119,311	$	691,984	$	420,571	$	286,375	$	180,044
Document Conversion		1,088,010		1,136,330		2,959,758		2,960,964		1,254,619		891,631
Total cost of revenues	$	1,353,442	$	1,255,641	$	3,651,742	$	3,381,535	$	1,540,994	$	1,071,675

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

	For the three months ended September 30,				For the nine months ended September 30,
	2022		2021		2022		2021
									Three months ended March 31, 2023		Three months ended March 31, 2022
Cost of revenues:
Sale of software	$	10,647	$	3,691	$	44,232	$	10,050	$	8,181	$	26,193
Software as a service		207,502		73,596		489,939		241,717		220,640		91,249
Software maintenance services		19,024		18,270		56,509		64,930		16,716		18,300
Professional services		1,028,074		1,042,249		2,794,783		2,765,241		1,187,116		848,167
Storage and retrieval services		88,195		117,835		266,279		299,597		108,341		87,766
Total cost of revenues	$	1,353,442	$	1,255,641	$	3,651,742	$	3,381,535	$	1,540,994	$	1,071,675

Our total cost of revenues during the ~~third~~first quarter ~~2022~~2023 increased by ~~$97,801,~~$469,319 or 8%44%, over ~~third quarter 2021 and increased by $270,207, or 8%, during the nine-month period 2022 over the nine-month period 2021.~~2022. Our cost of revenues for our Document Management segment increased by ~~$146,121,~~$106,331, or ~~122%~~59%, ~~in the third quarter 2022 compared to the third quarter 2021 and increased $271,413, or 65%, in the nine-month period 2022 compared to the nine-month period 2021~~ primarily due to the impact of Yellow Folder in that segment. Our cost of revenues for our Document Conversion segment ~~decreased~~increased by ~~$48,320,~~$362,988, or 4%41%, in the ~~third~~first quarter ~~2022~~2023 compared to ~~the third quarter 2021 and decreased by $1,206, or 0%, during the nine-month period~~ 2022 ~~compared to the nine-month period 2021~~ primarily due to the ~~COVID impact~~increased demand, resulting in higher revenues and ~~staffing challenges at Graphic Sciences, including staffing up in the second and third quarter 2022, where costs did not decrease at the same rate~~more labor to complete projects, as ~~revenues.~~well as wage increases.

	For the three months ended March 31,
	2023			2022

Gross profit:
Sale of software	$	7,112		$	38,298
Software as a service		1,017,792			339,972
Software maintenance services		332,826			318,302
Professional services		1,112,173			739,781
Storage and retrieval services		175,936			195,484
Total gross profit	$	2,645,839		$	1,631,837

Gross profit percentage:
Sale of software		46.5	%		59.4	%
Software as a service		82.2	%		78.8	%
Software maintenance services		95.2	%		94.6	%
Professional services		48.4	%		46.6	%
Storage and retrieval services		61.9	%		69.0	%
Total gross profit percentage		63.2	%		60.4	%

Our overall gross profit increased to ~~65%~~63% in the ~~third~~first quarter ~~2022~~2023 from 60% in ~~the third quarter 2021, and increased to 63% for the nine-month period 2022 from 61% in the nine-month period 2021.~~2022. The increase in the mix of software as a service revenue was the principal driver of the increase, due to the addition of Yellow Folder and overall strong margins in the Document Management segment, partially offset by margin erosion in the Document Conversion segment, driven by ~~unfavorable lower-margin project work relative to 2021~~reduced margins in the storage and ~~inflationary pressures.~~retrieval services, as well as wage increases.

3227

Cost of Software Revenues

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. ~~Cost~~During the first quarter 2023, cost of software revenues ~~during the third quarter 2022 increased~~decreased by ~~$6,956,~~$18,012, or ~~188%~~69%, from ~~the third quarter 2021, and increased by $34,182, or 340%, from the nine-month period 2021, due to the increase in revenues and implementations.~~2022, decreasing along with revenues. Our gross margin for software revenues decreased to ~~42%~~47% from ~~94%~~59% in the ~~third~~first quarter ~~2021 and decreased~~2022. The 2023 margins were impacted by solutions that required more costs to 53% from 86% the nine-month period 2021. The decrease in margin percent in the third quarter 2022 was driven by unfavorable comparison to a significant margin project in the third quarter 2021, and it was exacerbated by larger percentage swings on small dollar values.deliver. Yellow Folder had no impact to this category.

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 ~~third~~first quarter ~~2022~~2023 increased by ~~$133,906,~~$129,391, or ~~182%~~142%, over the ~~third~~first quarter ~~2021 and increased by $248,222, or 103%, during the nine-month period 2022 over the nine-month period 2021.~~2022. This increase in the cost of SaaS was less than the increase in associated SaaS revenues, so our gross margin in the ~~third~~first quarter ~~2022~~ increased to ~~83%~~82% compared to 79% in ~~the third quarter 2021 and to 83% in the nine-month period~~ 2022, ~~compared to 77% during the nine-month period 2021,~~ as a result of strong margins with and without Yellow Folder, which contributed ~~86%~~84% gross margin.

Cost of Software Maintenance Services

Cost of software maintenance services consists primarily of technical support personnel and related costs. Cost of software maintenance services ~~during the third quarter 2022~~ decreased by ~~$754,~~$1,584, or ~~4%, over the third quarter 2021 and decreased by $8,421, or 13%~~9%, in the ~~nine-month period~~first quarter 2023 from 2022, ~~over the nine-month period 2021,~~ due ~~primarily~~ to continued stable support ~~call~~ activity. As a result, our gross margin for software maintenance services ~~increased to 95% in both the third quarter 2022 and the nine-month period 2022 compared to~~remained at 95% in the ~~third~~first quarter ~~2021~~2023 and ~~94% in the nine-month period 2021, respectively.~~2022.

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 third quarter 2022 increased by $7,430, or 1%, over the third quarter 2021 and~~ increased in the ~~nine-month period 2022~~first quarter 2023 by ~~$51,147,~~$338,949, or 2%40%, over ~~the nine-month period 2021,~~2022, primarily due to ~~an unfavorable mix of lower-margin projects combined with the~~increased staffing ~~challenges~~levels in our Document Conversion segment, ~~driven by inflationary pressures. As~~to support our corresponding increased revenues, as well as wage increases, resulting in a ~~result,~~gross margin of 46% without Yellow Folder, compared to 47% in the first quarter 2022. Yellow Folder contributed only $9,915 costs in the first quarter 2023, yielding a strong 91% margin. Consolidated, our gross ~~margins~~margin for professional services ~~decreased~~increased to 48% induring the ~~third~~first quarter ~~2022~~2023 compared to ~~52%~~47% in ~~the third quarter 2021 and decreased to 46% during the nine-month period 2022 compared to 52% in the nine-month period 2021.~~2022. Gross margins related to consulting services in Document Management and digital transformation services in Document Conversion may vary widely, depending upon the nature of the ~~consulting~~ project and the amount of labor ~~it takes~~required to complete a project. ~~Yellow Folder partially offset the overall margin erosion with $61,176 costs in the nine-month period 2022 at 61% margin.~~

Cost of Storage and Retrieval Services

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 ~~decreased~~increased by ~~$29,640,~~$20,575, or ~~25%, in the third quarter 2022 compared to the third quarter 2021, and decreased by $33,318, or 11%~~23%, during the ~~nine-month period 2022~~first quarter 2023 compared to ~~the nine-month period 2021.~~2022. The ~~decrease~~increase was due to ~~additional labor costs in 2021 associated with our 2021 warehouse consolidation, partially offset by~~ general wage inflation ~~as well as costs decreasing in proportion to revenue project volume.~~and fuel cost increases. Gross margins for our storage and retrieval services, which exclude the cost of facilities rental, maintenance, and related overheads, ~~increased~~decreased to ~~67% in~~62% during the ~~third~~first quarter ~~2022~~2023 compared to ~~54%~~69% in ~~the third quarter 2021 and increased to 68% during nine-month period 2022 compared to 65% in the nine-month period 2021.~~2022. Yellow Folder did not have a material impact, contributing costs of ~~$18,287,~~$10,664, or 7%10% of the cost in the ~~third~~first quarter ~~2022.~~2023, at a gross margin of 69%.

Operating Expenses

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

	For the three months ended September 30,				For the nine months ended September 30,
	2022		2021		2022		2021
									Three months ended March 31, 2023		Three months ended March 31, 2022
Operating expenses:
General and administrative	$	1,333,285	$	1,027,932	$	3,532,672	$	3,125,019	$	1,554,611	$	935,691
Change in fair value of earnout liabilities		28,494		-		144,999		77,211		-		64,204
Transaction costs		-		-		355,281		-		-		70,051
Sales and marketing		492,540		372,399		1,374,059		1,004,305		579,511		352,114
Depreciation and amortization		193,863		105,923		503,250		302,239		227,718		117,302

Total operating expenses	$	2,048,182	$	1,506,254	$	5,910,261	$	4,508,774	$	2,361,840	$	1,539,362

3428

General and Administrative Expenses

General and administrative expenses ~~during the third quarter 2022 increased by $305,353, or 30%, over the third quarter 2021, and~~ increased in the ~~nine-month period 2022~~first quarter 2023 by ~~$407,653,~~$615,728, or ~~13%~~66%, over ~~the nine-month period 2021,~~2022, principally related to the addition of Yellow Folder expenses in ~~the second~~2023, as well as from direct and ~~third quarters 2022. This was primarily~~indirect cost increases stemming from our uplisting to NYSE American and infrastructure investments such as our internal ERP system upgrade from QuickBooks to NetSuite. These increases were reflected in both our Document Management segment, in which our general and administrative expenses increased to ~~$774,951 and $1,852,296~~$800,729 in ~~the third~~first quarter 2023 from $463,413 in 2022, and ~~the nine-month period 2022, respectively, from $387,042 and $1,243,773~~also in ~~the third quarter 2021 and the nine-month period 2021, respectively. In~~ our Document Conversion segment, in which our general and administrative expenses ~~decreased~~increased to ~~$558,334~~$753,882 in ~~the third~~first quarter ~~2022 compared to $640,890~~2023 from $545,521 in ~~the third quarter 2021, and decreased to $1,680,376 in the nine-month period 2022 compared to $1,881,246 in the nine-month period 2021.~~2022.

Change in Fair Value of Earnout Liabilities

~~Fair~~The final earnout liabilities were paid in January 2023 and there were no changes in fair value in the first quarter 2023. During the first quarter 2022, fair value adjustments ~~amounted to $28,494 in the third quarter 2022 and $144,999 for the nine-month period 2022. The fair value adjustments~~totaling $64,204 were driven by updated assumptions to reflect the improved performance of ~~both~~the affected acquisitions against their threshold targets ~~a reduction of pandemic-related uncertainty,~~ and the decreasing impact of ~~time~~present value of money. For the nine-month period 2021, a total adjustment of $77,211 was derived from improved gross margin performance at Graphic Science during the first quarter 2021, which resulted in an adjustment to fair value of earnout liabilities of $69,950, plus improved revenue performance at CEO Image during the nine-month period 2021, which resulted in an adjustment to fair value of earnout liabilities of $7,261.discounting.

Significant Transaction Expenses

There were no significant transaction expenses during the first quarter 2023. The significant transactions expenses during the ~~nine-month period~~first quarter 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. There were no transaction expenses during the nine-month period 2021.~~consummated on April 1, 2022.

Sales and Marketing Expenses

Sales and marketing expenses during the ~~third~~first quarter ~~2022~~2023 increased by ~~$120,141,~~$227,397, or ~~32%~~65%, over the ~~third~~first quarter ~~2021 and increased by $369,754, or 37%, during~~2022, principally related to the ~~nine-month period 2022 over the nine-month period 2021. This increase was primarily driven by the inclusion~~addition of ~~the sales and marketing expenses~~ Yellow Folder ~~during the second third quarter 2022, as well as adding two sales representatives.~~expenses in 2023.

Depreciation and Amortization

Depreciation and amortization during the ~~third~~first quarter ~~2022~~2023 increased by ~~$87,940,~~$110 416, or ~~83%~~94%, over the ~~third~~first quarter ~~2021 and increased by $201,011, or 67%, during the nine-month period~~ 2022 ~~over the nine-month period 2021~~primarily as a result of amortization of new intangible assets related to the Yellow Folder ~~acquisition. The incremental amortization~~acquisition, which amounted to ~~$73,458~~$75,458 in the ~~second~~first quarter ~~and $146,917 in the nine-month period 2022. Depreciation on the new Yellow Folder assets acquired was a much smaller impact, at $8,687 for the same periods relative to 2021.~~2023, as well as increased amortization of capitalized software costs.

Other Items of Income and Expense

~~Gain on Extinguishment of Debt~~

~~The $845,083 gain on extinguishment of debt during the nine-month period 2021 reflects the full forgiveness of the principal and interest on our PPP Note by the SBA in January 2021.~~

Interest Expense, Net

Interest expense ~~increased by $127,437, or 113%, in~~was $171,436 during the ~~third~~first quarter 2023 as compared with $112,601 during the first quarter 2022, ~~as compared to the third quarter 2021, and increased by $254,191,~~representing an increase of $58,835 or ~~75% during the nine-month period 2022 as compared to the nine-month period 2021.~~52%. The increase resulted from incremental interest expense on increased net debt following the April 1, 2022 private placement of ~~securities.~~securities, partially offset by reduced interest resulting from partial principal repayment of the 2020 Notes on December 1, 2022 and February 28, 2023.

3529

Liquidity and Capital Resources

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, and including our private offering in April 2022, ~~discussed in Recent Developments,~~ we have raised a total of approximately ~~$26.5~~$25.2 million in cash through issuances of debt and equity ~~securities.~~securities, net of $1.3 million in debt repayments. As of ~~September 30, 2022,~~March 31, 2023, we had approximately ~~$3.8~~$1.4 million in cash and cash equivalents, net working capital deficit of ~~$1.5~~$0.8 million, and an accumulated deficit of ~~$22~~$21.5 million. In ~~June~~January 2023, we paid $0.7 million in final earnout payments and in February 2023 and December 2022 we ~~paid $1,018,333~~prepaid approximately $1.3 million in ~~earnout liabilities.~~principal, which was due in February 2023.

In 2023 and 2022, we engaged in several actions that significantly improved our liquidity and cash flows, including, on April 1, 2022:

	●	acquiring the positive cash flow generated by Yellow Folder,

	●	receiving aggregate gross proceeds of approximately $5.7 million from the private placement of our common stock (all which was used to acquire Yellow Folder), and

	●	receiving approximately $3.0 million in proceeds from the issuance of 12% subordinated promissory notes due March 30, 2025, which we refer to as the 2022 ~~notes~~Notes (some of which was used to acquire Yellow ~~Folder)~~Folder, with the remainder used for general working capital).

Of our existing debt $2as of March 31, 2023, $0.7 million is due ~~February 29,~~August 31, 2023, and approximately $3 million is due March 30, 2025. ~~We also may have earnout payments of up to a maximum $833,333 in the second quarter of 2023.~~ Our operating cash flow alone may be insufficient to meet ~~these~~the debt obligations in full in ~~the first and second quarters of~~ 2023. We ~~have positive operating cash flow, and 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.

Our ability to meet our capital needs in the short term will depend on many factors, including maintaining and enhancing our operating cash flow, successfully managing the transition of our recent acquisition of Yellow Folder, successfully retaining and growing our client base in the midst of global inflation and general economic ~~uncertainty, and managing any continuing effects of the COVID-19 pandemic on our business.~~uncertainty.

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 ~~earnout obligations~~ and capital and debt service commitments.

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.

Indebtedness

As of ~~September 30, 2022,~~March 31, 2023, our outstanding long-term indebtedness consisted of:

	●	The 2020 Notes issued to accredited investors on March 2, 2020, with an aggregate outstanding principal balance of ~~$2,000,000~~$717,500 and accrued interest of $0.

	●	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.

See Note 8 and Note 9 to our condensed consolidated financial statements included in Part 1, Item 1 of this Quarterly Report for further information on the 2020 and 2022 ~~Notes and 2020 Notes.~~notes.

Capital Expenditures

There were no material commitments for capital expenditures at ~~September 30, 2022.~~March 31, 2023.

3630

Cash Used and Provided by Operating Activities

Net cash used in operating activities during the first quarter 2023 was $174,357, primarily attributable to the net income adjusted for non-cash expenses of $434,066, an increase in operating assets of $383,039 and a decrease in operating liabilities of $337,947, primarily deferred revenues of $571,788. Net cash provided by operating activities during the ~~nine-month period~~first quarter 2022 was ~~$1,924,734,~~$505,568, primarily attributable to the net loss adjusted for non-cash expenses, of ~~$1,684,773,~~$312,470, a decrease in operating assets of ~~$175,131~~$197,948 and ~~an increase~~a decrease in operating liabilities of $241,587. Net cash provided by operating activities during the nine-month period 2021 was $1,408,249, primarily attributable to net income adjusted for non-cash expenses of $290,063, an increase in operating assets of $344,900 and an increase in operating liabilities of $131,430.$15,276.

Cash Used byin Investing Activities

Net cash used in investing activities in the ~~nine-month period 2022~~first quarter 2023 was ~~$6,841,320, primarily $6,383,269~~$134,569, including $112,208 related to ~~cash paid to acquire Yellow Folder, as well as $315,148 in~~ capitalized internal use software. Net cash used in investing activities in the ~~nine-month period 2021~~first quarter 2022 was ~~$532,151,~~$85,440, primarily related to purchases of ~~racking~~ property and equipment, ~~for the new Sterling Heights, MI warehouse.~~as well as $29,397 related to capitalized internal use software.

Cash ~~Provided by~~Used in Financing Activities

Net cash provided by financing activities during the nine-month period 2022 amounted to $6,940,583, 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.

Net cash used by financing activities during ~~the nine-month period 2021~~2023 amounted to ~~$954,733, due to payment~~$700,000 in earnout liability payments, $262,950 in repayment of ~~earnout liabilities.~~notes payable, and $5,467 in the principal portion of a finance lease liability. There were no financing activities during the first quarter 2022.

Critical Accounting Policies and Estimates

The preparation of our condensed consolidated financial statements in accordance 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, ~~2021.~~2022. There were no material changes to our critical accounting policies and estimates during the ~~third~~first quarter ~~2022.~~2023.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not applicable to smaller reporting companies.

ITEM 4. CONTROLS AND PROCEDURES.

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 this Quarterly Report.

Based on this evaluation, we concluded that, as of ~~September 30, 2022,~~March 31, 2023, 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.

PART II — OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

None.

ITEM 1A. RISK FACTORS.

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, ~~2021.~~2022.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

None.

ITEM 3. DEFAULT UPON SENIOR SECURITIES.

None.

ITEM 4. MINE SAFETY DISCLOSURES.

Not Applicable.

ITEM 5. OTHER INFORMATION.

None.

ITEM 6. EXHIBITS.

The following is a list of exhibits filed as part of this Quarterly Report on Form 10-Q.

		~~Incorporation by reference~~
Exhibit No.	Description of ~~Exhibit~~	~~Form~~	~~Date~~	Exhibit

10.1*	Intellinetics, Inc. 2023 Non-Employee Director Compensation Plan.

31.1*	Certification of Principal Executive Officer pursuant to Section 302 of The Sarbanes-Oxley Act of 2002.

31.2*	Certification of Principal Financial Officer pursuant to Section 302 of The Sarbanes-Oxley Act of 2002.

32.1*	Certification of Principal Executive Officer pursuant to Section 906 of The Sarbanes-Oxley Act of 2002.

32.2*	Certification of Principal Financial Officer pursuant to Section 906 of The Sarbanes-Oxley Act of 2002.

101.INS*	Inline XBRL Instance Document (The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.).

101.SCH*	XBRL Taxonomy Schema.

101.CAL*	Inline XBRL Taxonomy Extension Calculation Linkbase.

101.DEF*	Inline XBRL Taxonomy Extension Definition Linkbase.

101.LAB*	Inline XBRL Taxonomy Extension Label Linkbase.

101.PRE*	Inline XBRL Taxonomy Extension Presentation Linkbase.

104	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

* Filed herewith.

3832

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

INTELLINETICS, INC.

Dated:	~~November 17, 2022~~May 15, 2023

By:	/s/ James F. DeSocio
	James F. DeSocio
	President and Chief Executive Officer

Dated: May 15, 2023		~~November 17, 2022~~

By:	/s/ Joseph D. Spain
	Joseph D. Spain
	Chief Financial Officer

3933

2190 Dividend Drive
Columbus, Ohio		43228
(Address of Principal Executive Offices)		(Zip Code)

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Common Stock, $0.001 par value		INLX		NYSE American

Large accelerated filer	☐	(Do not check if a smaller reporting company)	Accelerated filer	☐
Non-accelerated filer	☐		Smaller reporting company	☒
Emerging growth company	☐


	(unaudited)
	September 30,			December 31,
	2022			2021

ASSETS
Current assets:
Cash	$	3,776,627		$	1,752,630
Accounts receivable, net		853,930			1,176,059
Accounts receivable, unbilled		491,946			444,782
Parts and supplies, net		74,540			76,691
Other contract assets		122,754			78,556
Prepaid expenses and other current assets		324,555			155,550
Total current assets		5,644,352			3,684,268

Property and equipment, net		1,070,724			1,091,780
Right of use assets		3,365,575			3,841,612
Intangible assets, net		4,547,223			968,496
Goodwill		5,789,821			2,322,887
Other assets		341,942			53,089
Total assets	$	20,759,637		$	11,962,132

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:
Accounts payable	$	263,427		$	181,521
Accrued compensation		389,150			343,576
Accrued expenses, other		116,231			161,862
Lease liabilities - current		672,159			616,070
Deferred revenues		2,998,647			1,194,649
Deferred compensation		20,166			100,828
Earnout liabilities - current		757,347			958,818
Notes payable - current		1,912,331			-
Total current liabilities		7,129,458			3,557,324

Long-term liabilities:
Notes payable - net of current portion		2,053,984			1,754,527
Notes payable - related party - net of current portion		521,205			-
Lease liabilities - net of current portion		2,805,971			3,316,682
Earnout liabilities - net of current portion		-			671,863
Total long-term liabilities		5,381,160			5,743,072
Total liabilities		12,510,618			9,300,396

Stockholders’ equity:
Common stock, $0.001 par value, 25,000,000 shares authorized; 4,073,757 and 2,823,072 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively		4,074			2,823
Additional paid-in capital		30,060,018			24,297,229
Accumulated deficit		(21,815,073	)		(21,638,316	)
Total stockholders’ equity		8,249,019			2,661,736
Total liabilities and stockholders’ equity	$	20,759,637		$	11,962,132

	(unaudited)
	March 31,			December 31,
	2023			2022

ASSETS
Current assets:
Cash	$	1,419,138		$	2,696,481
Accounts receivable, net		1,182,523			1,121,083
Accounts receivable, unbilled		887,742			596,410
Parts and supplies, net		81,455			73,221
Contract assets		80,577			80,378
Prepaid expenses and other current assets		327,198			325,466
Total current assets		3,978,633			4,893,039

Property and equipment, net		1,029,127			1,068,706
Right of use assets, operating		3,070,782			3,200,191
Right of use asset, finance		147,574			154,282
Intangible assets, net		4,292,069			4,419,646
Goodwill		5,789,821			5,789,821
Other assets		491,464			417,457
Total assets	$	18,799,470		$	19,943,142

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:
Accounts payable	$	368,797		$	370,300
Accrued compensation		604,260			411,683
Accrued expenses		153,677			114,902
Lease liabilities, operating - current		708,573			692,074
Lease liability, finance - current		22,918			22,493
Deferred revenues		2,182,276			2,754,064
Earnout liabilities - current		-			700,000
Notes payable - current		696,459			936,966
Total current liabilities		4,736,960			6,002,482

Long-term liabilities:
Notes payable - net of current portion		2,116,087			2,085,035
Notes payable - related party		536,964			529,084
Notes payable		536,964			529,084
Lease liabilities, operating - net of current portion		2,482,692			2,624,608
Lease liability, finance - net of current portion		127,240			133,131
Total long-term liabilities		5,262,983			5,371,858
Total liabilities		9,999,943			11,374,340

Stockholders’ equity:
Common stock, $0.001 par value, 25,000,000 shares authorized; 4,073,757 shares issued and outstanding at March 31, 2023 and December 31, 2022		4,074			4,074
Additional paid-in capital		30,297,179			30,179,017
Accumulated deficit		(21,501,726	)		(21,614,289	)
Total stockholders’ equity		8,799,527			8,568,802
Total liabilities and stockholders’ equity	$	18,799,470		$	19,943,142

		Page No.
PART I

FINANCIAL INFORMATION		5

ITEM 1.	Financial Statements.	5

	Condensed Consolidated Balance Sheets as of ~~September 30, 2022~~March 31, 2023 (Unaudited) and December 31, ~~2021~~2022	5

	Condensed Consolidated Statements of Operations for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~ (Unaudited)	6

	Condensed Consolidated Statement of Stockholders’ Equity for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~ (Unaudited)	7

	Condensed Consolidated Statements of Cash Flows for the ~~nine~~three months ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~ (Unaudited)	8

	Notes to Condensed Consolidated Financial Statements (Unaudited)	9

ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	2724

ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk.	3731

ITEM 4.	Controls and Procedures.	3731

PART II

OTHER INFORMATION		3238

ITEM 1.	Legal Proceedings.	3832

ITEM 1A.	Risk Factors.	3832

ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	3832

ITEM 3.	Defaults Upon Senior Securities.	3832

ITEM 4.	Mine Safety Disclosures.	3832

ITEM 5.	Other Information.	3832

ITEM 6.	Exhibits.	3832

SIGNATURES		3933

	●	the ~~ongoing effect of the novel coronavirus pandemic (“COVID-19”), including its macroeconomic~~ effects on our business, financial condition, and results of operations of current and ~~financial results;~~future economic, business, market and regulatory conditions, including the ~~effect of governmental lockdowns, restrictions~~current global inflation, economic downturn, and ~~new regulations~~other economic and market conditions, and their effects on our ~~operations~~customers and ~~processes;~~their capital spending and ability to finance purchases of our products, services, technologies and systems;

	●	our prospects, including our future business, revenues, recurring revenues, expenses, net income, earnings per share, margins, profitability, cash flow, cash position, liquidity, financial condition and results of operations, backlog of orders and revenue, our targeted growth rate, our goals for future revenues and earnings, and our expectations about realizing the revenues in our backlog and in our sales pipeline;

	●	the effects on our business, financial condition and results of operations of current and future economic, business, market and regulatory conditions, including the current global inflation and other economic and market conditions, and their effects on our customers and their capital spending and ability to finance purchases of our products, services, technologies and systems;

	●	our expectation that the shift from an offline to online world will continue to benefit our business;

	●	our ability to integrate our recent acquisitions and any future acquisitions, grow their businesses and obtain the expected financial and operational benefits from those businesses;

	●	the effects of fluctuations in sales on our business, revenues, expenses, net income, earnings per share, margins, profitability, cash flow, capital expenditures, liquidity, financial condition and results of operations;

	●	our products, services, technologies and systems, including their quality and performance in absolute terms and as compared to competitive alternatives, their benefits to our customers and their ability to meet our customers’ requirements, and our ability to successfully develop and market new products, services, technologies and systems;

	●	our markets, including our market position and our market share;

	●	our ability to successfully develop, operate, grow and diversify our operations and businesses;

	●	our business plans, strategies, goals and objectives, and our ability to successfully achieve them;

	●	the sufficiency of our capital resources, including our cash and cash equivalents, funds generated from operations, availability credit and financing arrangements and other capital resources, to meet our future working capital, capital expenditure, lease and debt service and business growth needs;

	●	the value of our assets and businesses, including the revenues, profits and cash flow they are capable of delivering in the future;

	●	the amount and timing of revenue recognition from customer contracts with commitments for performance obligations, including our estimate of the remaining amount of commitments and when we expect to recognize revenues;

	●	industry trends and customer preferences and the demand for our products, services, technologies and systems; and

	●	the nature and intensity of our competition, and our ability to successfully compete in our markets.

	●	the terms “Intellinetics,” “Company,” “the ~~company,”~~company” “us,” “we,” “our,” and similar terms refer to Intellinetics, Inc., a Nevada corporation, and its subsidiaries;
	●	“Intellinetics Ohio” refers to Intellinetics, Inc., an Ohio corporation and a wholly-owned subsidiary of Intellinetics; and
	●	“Graphic Sciences” refers to Graphic Sciences, Inc., a Michigan corporation and a wholly-owned subsidiary of Intellinetics.


	Common Stock				Additional Paid-in		Accumulated
	Shares		Amount		Capital		Deficit			Total

Balance, June 30, 2021		2,823,072	$	2,823	$	24,251,172	$	(21,961,048	)	$	2,292,947

Stock Option Compensation		-		-		23,098		-			23,098

Net Income		-		-		-		296,437			296,437

Balance, September 30, 2021		2,823,072	$	2,823	$	24,274,270	$	(21,664,611	)	$	2,612,482

Balance, June 30, 2022		4,073,757	$	4,074	$	29,941,019	$	(22,032,609	)	$	7,912,484

Stock Option Compensation		-		-		118,999		-			118,999

Net Income		-		-		-		217,536			217,536

Balance, September 30, 2022		4,073,757	$	4,074	$	30,060,018	$	(21,815,073	)	$	8,249,019

	Common Stock				Additional Paid-in			Accumulated
	Shares		Amount		Capital			Deficit			Total

Balance, December 31, 2020	2,810,865	$	2,811	$	24,147,488		$	(22,996,267	)	$	1,154,032

Stock Issued to Directors	12,207		12		57,488			-			57,500

Stock Option Compensation	-		-		69,294			-			69,294

Net Income	-		-		-			1,331,656			1,331,656

Balance, September 30, 2021	2,823,072	$	2,823	$	24,274,270		$	(21,664,611	)	$	2,612,482

Balance, December 31, 2021	2,823,072	$	2,823	$	24,297,229		$	(21,638,316	)	$	2,661,736

Stock Issued to Directors	8,097		8		57,492			-			57,500

Stock Option Compensation	-		-		244,951			-			244,951

Stock Issued	1,242,588		1,243		5,739,515			-			5,740,758

Equity Issuance Costs	-		-		(492,182	)		-			(492,182	)

Warrants Issued and Extended	-		-		213,013			-			213,013

Net Loss	-		-		-			(176,757	)		(176,757	)
Net Income (Loss)	-		-		-			(176,757	)		(176,757	)

Balance, September 30, 2022	4,073,757	$	4,074	$	30,060,018		$	(21,815,073	)	$	8,249,019

	2023			2022
	For the Three Months Ended March 31,
	2023			2022

Revenues:
Sale of software	$	15,293		$	64,491
Software as a service		1,238,432			431,221
Software maintenance services		349,542			336,602
Professional services		2,299,289			1,587,948
Storage and retrieval services		284,277			283,250
Total revenues		4,186,833			2,703,512

Cost of revenues:
Sale of software		8,181			26,193
Software as a service		220,640			91,249
Software maintenance services		16,716			18,300
Professional services		1,187,116			848,167
Storage and retrieval services		108,341			87,766
Total cost of revenues		1,540,994			1,071,675

Gross profit		2,645,839			1,631,837

Operating expenses:
General and administrative		1,554,611			935,691
Change in fair value of earnout liabilities		-			64,204
Transaction costs		-			70,051
Sales and marketing		579,511			352,114
Depreciation and amortization		227,718			117,302
Total operating expenses		2,361,840			1,539,362

Income from operations		283,999			92,475

Interest expense		(171,436	)		(112,601	)

Net income (loss)	$	112,563		$	(20,126	)

Basic net income (loss) per share:	$	0.03		$	(0.01	)
Diluted net income per (loss) share:	$	0.03		$	(0.01	)

Weighted average number of common shares outstanding - basic		4,073,757			2,830,899
Weighted average number of common shares outstanding - diluted		4,695,106			2,830,899

	Balance at Beginning of Period		Revenue Recognized in Advance of Billings		Billings			Balance at End of Period
Nine months ended September 30, 2022
Accounts receivable, unbilled	$	444,782	$	2,573,944	$	(2,526,780	)	$	491,946

Nine months ended September 30, 2021
Accounts receivable, unbilled	$	523,522	$	3,281,320	$	(3,151,767	)	$	653,075

	Balance at Beginning of Period		Billings		Payments Received			Balance at End of Period
Three months ended March 31, 2023
Accounts receivable	$	1,121,083	$	3,341,583	$	(3,280,144	)	$	1,182,523

Three months ended March 31, 2022
Accounts receivable	$	1,176,059	$	2,622,808	$	(2,900,468	)	$	898,400

	Balance at Beginning of Period		Commissions Paid		Commissions Recognized			Balance at End of Period
Nine months ended September 30, 2022
Other contract assets	$	78,556	$	102,321	$	(58,123	)	$	122,754

Nine months ended September 30, 2021
Other contract assets	$	31,283	$	107,364	$	(68,235	)	$	70,412

	Balance at Beginning of Period		Revenue Recognized in Advance of Billings		Billings			Balance at End of Period
Three months ended March 31, 2023
Accounts receivable, unbilled	$	596,410	$	1,336,851	$	(1,045,519	)	$	887,742

Three months ended March 31, 2022
Accounts receivable, unbilled	$	444,782	$	700,869	$	(671,665	)	$	473,986

	Balance at Beginning of Period		Addition from acquisition (Note 4)		Billings		Recognized Revenue			Balance at End of Period
Nine months ended September 30, 2022
Contract liabilities: Deferred revenue	$	1,194,649	$	860,456	$	5,560,018	$	(4,616,476	)	$	2,998,647

Nine months ended September 30, 2021
Contract liabilities: Deferred revenue	$	996,131	$	-	$	2,954,212	$	(2,613,480	)	$	1,336,863


	For the Nine months ended
	(unaudited)			(unaudited)
	September 30, 2022			September 30, 2021
Total revenues	$	10,756,634		$	10,762,099

Net (loss) income	$	(142,241	)	$	963,866

Basic net (loss) income per share	$	(0.03	)	$	0.24
Diluted net (loss) income per share	$	(0.03	)	$	0.22

	Three months ended September 30, 2022
Fair value at July 31, 2022	$	728,853
Payment		-
Change in fair value		28,494
Fair value at September 30, 2022	$	757,347

	Nine months ended September 30, 2022
Fair value at December 31, 2021	$	1,630,681
Payment		(1,018,333	)
Change in fair value		144,999
Fair value at September 30, 2022	$	757,347

	Three months ended September 30, 2021
Fair value at July 31, 2021	$	1,566,478
Payment		-
Change in fair value		-
Fair value at September 30, 2021	$	1,566,478

	Nine months ended September 30, 2021
Fair value at December 31, 2020	$	2,444,000
Fair value, Beginning balance	$	2,444,000
Payment		(954,733	)
Change in fair value		77,211
Fair value at September 30, 2021	$	1,566,478
Fair value, Ending balance	$	1,566,478

For the nine months ending September 30, 2022:
Operating cash flows from operating leases	$	318,030
Weighted average remaining lease term – operating leases		4.7 years
Weighted average discount rate – operating leases		6.99	%