*Converted into shares of common stock on March 2, 2020, as part of the 2020 note conversion, described below.

The following convertible notes were issued by the Company to stockholders holding more than 5% beneficial ownership of ~~our~~the Company’s common stock. The terms for all the following notes provided for an original issue discount of 12% and maturity on May 15, 2020. Each note holder had a right, in their sole discretion, to convert the notes into securities to be issued by the Company in a private placement of equity, equity equivalent, convertible debt or debt financing. The noteholders converted the non-OID portion of the 2019 ~~Bridge Notes~~bridge notes into shares of common stock as part of the 2020 private placement, described below.

*Converted the non-OID portion of the 2019 bridge notes into shares of common stock as part of the 2020 note conversion, described below.

Certain related persons participated as investors in a private placement of securities by the Company, on the same terms as all other investors in such private placement.

On March 2, 2020, the Company completed the 2020 private placement by entering into a Securities Purchase Agreement with certain accredited investors, pursuant to which wethe Company issued and sold (i) shares of the ~~our~~Company’s common stock, at a price of $4.00 per ~~share~~Share and (ii) units, with each unit consisting of $1,000 in 12% subordinated notes and 40 shares.The principal amount of the 12% subordinated notes, together with any accrued and unpaid interest thereon, become due and payable on February 28, 2023.

The following related persons participated in such offering, on the same terms as all other investors participating in the offering:

Certain related persons held convertible promissory notes issued by the Company that were converted in accordance with their terms on March 2, 2020, as part of the 2020 note conversion, on the same terms as all other note holders.

On March 2, 2020, wethe Company entered into amendments to all of its currently outstanding convertible promissory notes, which were issued by the Company to various investors in 2016, 2017, and 2018. As amended, the notes permitted the Company to convert all of the then-outstanding principal and accrued and unpaid interest payable with respect to the notes into shares of common stock upon the same terms those offered to investors in any concurrent private placement of securities. In accordance with the amended terms, wethe Company converted all of the then-outstanding principal and accrued and unpaid interest payable with respect to all outstanding convertible promissory notes into shares of common stock at a conversion price of $4.00 per share.

The following related persons held convertible promissory notes that were converted into shares of common stock, on the same terms as all other investors participating in the offering:

Certain related persons participated as investors in a private placement of securities by the Company, on the same terms as all other investors in such private placement.

On ~~January 3, 2017, Matthew L. Chretien exercised warrants~~April 1, 2022, the Company completed the 2022 private placement by entering into a Securities Purchase Agreement with certain accredited investors, pursuant to ~~purchase 9,922~~which the Company issued and sold (i) shares of the Company’s common stock, at a price of $4.62 per Share and (ii) 12% subordinated notes. The principal amount of the ~~Company, from~~12% subordinated notes, together with any accrued and unpaid interest thereon, become due and payable on March 30, 2025.

The following related persons participated in such offering, on the ~~Registrant through a cashless exercise, at an exercise price of $0.35 per share. These warrants were issued~~same terms as ~~consideration for Matthew L. Chretien returning to treasury 10,000 shares of common stock he owned~~all other investors participating in ~~2013.~~the offering:

~~Robert C. Schroeder,~~William M. Cooke, a director and Chairman of ~~the Company,~~our Board, is ~~the~~ Vice President of Investment Banking at Taglich Brothers, Inc. Robert F. Taglich and Michael N. Taglich, each beneficial owners of more than 5% of the Company’s common stock, are also both principals of Taglich Brothers, Inc.

We~~retained~~ Robert C. Schroeder, formerly a director and Chairman of our Board, was also Vice President of Investment Banking at Taglich Brothers, Inc. ~~as the exclusive placement agent for the private placement offering of notes in 2017. In connection~~during his tenure with the offering, we paid Taglich Brothers, Inc. a cash payment of $172,000, which represented an 8% commission of the gross proceeds of the private placement, and approximately $35,000 for reimbursement for reasonable out of pocket expenses, FINRA filing fees and related legal fees. In addition, we issued warrants to the designees of Taglich Brothers, Inc. to purchase 17,200 shares of common stock, which represented 8% of the shares of common stock into which the convertible notes sold in the 2017 private placement could be converted. The warrants have an exercise price of $12.50 per share of common stock, will be exercisable for a period of five years, contain customary cashless exercise and anti-dilution protection and are entitled to registration rights.our Board.

Weretained Taglich Brothers, Inc. as the exclusive placement agent for the private placement offering of the notes in 2018. In connection with the offering, we paid Taglich Brothers, Inc. a cash payment of $104,000, which represented an 8% commission of the gross proceeds of the private placement. In addition, we issued warrants to the designees of Taglich Brothers, Inc. to purchase 16,000 shares of common stock, which represented 8% of the shares of common stock into which the convertible notes sold in the 2018 private placement could be converted. The warrants have an exercise price of $9.00 per share of common stock, will be exercisable for a period of five years, contain customary cashless exercise and anti-dilution protection and are entitled to registration rights.

Weretained Taglich Brothers, Inc. on an exclusive basis to render financial advisory and investment banking services to the Company in connection with ~~our~~its acquisition of Graphic Sciences. Pursuant to an Engagement Agreement, dated April 15, 2019, wethe Company paid Taglich Brothers, Inc. a success fee of $300,000 as a result of the successful completion of the acquisition of Graphic Sciences, Inc.

Weretained Taglich Brothers, Inc., as the exclusive placement agent for the 2020 private placement, as described above, pursuant to a Placement Agent Agreement. In connection with the 2020 private placement, we paid Taglich Brothers, Inc. $440,000, which represented an 8% commission based upon the gross proceeds of the 2020 private placement. In addition, for its services in the 2020 private placement, Taglich Brothers, Inc. was issued warrants to purchase 95,500 shares of common stock, which amount is equal to 10% of the shares and unit shares sold in the 2020 private placement, which have an exercise price of $4.00 per share of common stock, are exercisable for a period of five years, contain customary cashless exercise and anti-dilution protection rights and are entitled to piggy-back registration rights.

Weretained Taglich Brothers, Inc. as the exclusive placement agent for the 2020 note conversion, as described above, pursuant to the Placement Agent Agreement. In connection with the 2020 note conversion, we issued 35,250 shares of common stock to Taglich Brothers, Inc., which, based on the conversion price of $4.00 per share, was equal to 3% of the original principal amount of the converted notes.

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

We retained Taglich Brothers, Inc., as the exclusive placement agent for the 2022 private placement, as described above, pursuant to a Placement Agent Agreement. In connection with the 2022 private placement, we paid Taglich Brothers, Inc. $696,420, which represented an 8% commission based upon the gross proceeds of the 2022 private placement. In addition, for its services in the 2022 private placement, Taglich Brothers, Inc. was issued warrants to purchase 124,258 shares of common stock, which amount is equal to 10% of the shares sold in the 2022 private placement, which have an exercise price of $4.62 per share of common stock, are exercisable for a period of five years, contain customary cashless exercise and anti-dilution protection rights and are entitled to piggy-back registration rights. In connection with the 2022 private placement, we also agreed to extend the expiration dates of 131,700 currently outstanding warrants previously issued to Taglich Brothers, Inc. (and its assignees) to March 30, 2027.

The Selling Stockholders identified in this prospectus may offer and sell up to ~~2,519,490~~1,366,846 shares of our Common Stock, consisting of:

The ~~2,519,490~~1,366,846 shares of our common stock included in this prospectus were issued to the selling stockholders pursuant to exemptions from the registration requirements of the Securities Act pursuant to Regulation D promulgated thereunder.

The selling stockholders named below, or their respective successors, including transferees, may from time to time sell or otherwise dispose of, pursuant to this prospectus, all, some or none of their shares of our common stock being registered hereby. See “Plan of Distribution” below.

Information in the table below and the notes thereto has been provided to us by the selling stockholders or by the placement agent. Unless otherwise indicated, to our knowledge, each selling stockholder listed below has sole dispositive and voting power with respect to the shares of our common stock shown below as beneficially owned by such selling stockholder, except to the extent authority is shared by spouses under applicable law. Beneficial ownership and percentage have been determined in accordance with Rule 13d-3 under the Exchange Act and generally includes voting or dispositive power with respect to the securities. The information listed below is not necessarily indicative of beneficial ownership for any other purpose. Except as described in the notes below, none of the selling stockholders has held any position, office or other material relationship with us or any of our affiliates within the past three years.

Each selling stockholder of the common stock and any of their pledgees, assignees and successors-in-interest may, from time to time, sell any or all of their shares of Common Stock on the OTCQB or any other stock exchange, market or trading facility on which the shares are traded or in private transactions. These sales may be at fixed or negotiated prices. A selling stockholder may use any one or more of the following methods when selling shares:

The selling stockholders may also sell shares under Rule 144 under the Securities Act, if available, rather than under this prospectus.

Broker-dealers engaged by the selling stockholders may arrange for other brokers-dealers to participate in sales. Broker-dealers may receive commissions or discounts from the selling stockholders (or, if any broker-dealer acts as agent for the purchaser of shares, from the purchaser) in amounts to be negotiated, but, except as set forth in a supplement to this prospectus, in the case of an agency transaction not in excess of a customary brokerage commission in compliance with FINRA Rule 2440; and in the case of a principal transaction a markup or markdown in compliance with FINRA IM-2440.

In connection with the sale of the common stock or interests therein, the selling stockholders may enter into hedging transactions with broker-dealers or other financial institutions, which may in turn engage in short sales of the common stock in the course of hedging the positions they assume. The selling stockholders may also sell shares of the common stock short and deliver these securities to close out their short positions, or loan or pledge the common stock to broker-dealers that in turn may sell these securities. The selling stockholders may also enter into option or other transactions with broker-dealers or other financial institutions or the creation of one or more derivative securities which require the delivery to such broker-dealer or other financial institution of shares offered by this prospectus, which shares such broker-dealer or other financial institution may resell pursuant to this prospectus (as supplemented or amended to reflect such transaction).

The selling stockholders and any broker-dealers or agents that are involved in selling the shares may be deemed to be “underwriters” within the meaning of the Securities Act in connection with such sales. In such event, any commissions received by such broker-dealers or agents and any profit on the resale of the shares purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act. Each selling stockholder has informed us that it does not have any written or oral agreement or understanding, directly or indirectly, with any person to distribute the common stock. In no event shall any broker-dealer receive fees, commissions and markups which, in the aggregate, would exceed eight percent (8%).

We are required to pay certain fees and expenses incurred by the Company incident to the registration of the shares. We have agreed to indemnify the selling stockholders against certain losses, claims, damages and liabilities, including liabilities under the Securities Act.

Because selling stockholders may be deemed to be “underwriters” within the meaning of the Securities Act, they will be subject to the prospectus delivery requirements of the Securities Act including Rule 172 thereunder. In addition, any securities covered by this prospectus which qualify for sale pursuant to Rule 144 under the Securities Act may be sold under Rule 144 rather than under this prospectus. There is no underwriter or coordinating broker acting in connection with the proposed sale of the resale shares by the selling stockholders.

We agreed to keep this prospectus effective until the earlier of (i) the date on which the shares may be resold by the selling stockholders without registration and without regard to any volume or manner-of-sale limitations by reason of Rule 144, without the requirement for the Company to be in compliance with the current public information under Rule 144 under the Securities Act or any other rule of similar effect or (ii) all of the shares have been sold pursuant to this prospectus or Rule 144 under the Securities Act or any other rule of similar effect. The resale shares will be sold only through registered or licensed brokers or dealers if required under applicable state securities laws. In addition, in certain states, the resale shares may not be sold unless they have been registered or qualified for sale in the applicable state or an exemption from the registration or qualification requirement is available and is complied with.

Under applicable rules and regulations under the Exchange Act, any person engaged in the distribution of the resale shares may not simultaneously engage in market making activities with respect to the common stock for the applicable restricted period, as defined in Regulation M, prior to the commencement of the distribution. In addition, the selling stockholders will be subject to applicable provisions of the Exchange Act and the rules and regulations thereunder, including Regulation M, which may limit the timing of purchases and sales of shares of the common stock by the selling stockholders or any other person. We will make copies of this prospectus available to the selling stockholders and have informed them of the need to deliver a copy of this prospectus to each purchaser at or prior to the time of the sale (including by compliance with Rule 172 under the Securities Act).

The SEC has adopted Rule 15g-9 which establishes the definition of a “penny stock,” for the purposes relevant to us, as any equity security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain exceptions. For any transaction involving a penny stock, unless exempt, the rules require:

In order to approve a person’s account for transactions in penny stocks, the broker or dealer must:

The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the SEC relating to the penny stock market, which, in highlight form:

Generally, brokers may be less willing to execute transactions in securities subject to the “penny stock” rules. This may make it more difficult for investors to dispose of our common stock and cause a decline in the market value of our stock.

Disclosure also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading and about the commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and the rights and remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stock.

Our Articles of Incorporation, as amended, authorize the issuance of 25,000,000 shares of common stock.

As of ~~April~~May 13, ~~2020,~~2022, we had no options issued to purchase any capital stock or other securities convertible into capital stock, other than stock options issued pursuant to the 2015 Intellinetics Inc. Equity Incentive Plan and reserved for under that ~~Plan.~~Plan or otherwise as set forth above.

Holders of shares of common stock are entitled to one vote per share on all matters submitted to a vote of the stockholders. Shares of common stock do not have cumulative voting rights. Holders of record of shares of common stock are entitled to receive dividends when and if declared by the Board of Directors. To date, we have not paid cash dividends. We intend to retain any earnings for the operation and expansion of our business and do not anticipate paying cash dividends in the foreseeable future.

Any future determination as to the payment of cash dividends will depend on future earnings, results of operations, capital requirements, financial condition and such other factors as the Board of Directors may consider. Upon liquidation, dissolution or winding-up, the holders of our common stock are entitled to share ratably in all assets that are legally available for distribution.

Holders of our common stock do not have pre-emptive rights to subscribe for or to purchase any stock, obligations or other securities.

The warrants outstanding as of ~~April~~May 13, ~~2020,~~2022, to purchase ~~230,032~~255,958 shares of our common stock are immediately exercisable and consist of the following:

The shares of common stock offered under this prospectus are already issued and outstanding, other than ~~95,500~~124,258 shares of common stock issuable upon the exercise of outstanding warrants that are offered under this prospectus. Thus, the issuance of shares of common stock hereunder will not cause any additional dilution other than any dilution that occurs if any of these outstanding warrants are exercised. Any dilution due to the exercise of warrants by the selling stockholders would not result in material dilution.

Out of the 25,000,000 authorized shares of our common stock, ~~21,891,798~~20,172,955 shares, or approximately ~~88%~~81% of authorized shares, remain available for future issuances. We may issue some or all of these available shares in any attempt by us to raise additional funds through the sale of equity or convertible debt, and this will result in further dilution for existing stockholders. In addition, if we issue all of the authorized shares of our common stock, we may seek stockholder approval in the future to authorize additional stock, and this would also result in further dilution for existing stockholders.

Upon completion of this offering, and assuming the exercise of all warrants covered by this prospectus, we will have ~~2,906,340~~4,198,015 shares of our common stock issued and outstanding, representing approximately ~~12%~~17% of the 25,000,000 authorized shares of our common stock. Furthermore, if all of our other outstanding warrants and options were exercised, we will have ~~3,108,202~~4,697,832 shares of our common stock issued and outstanding, still representing approximately ~~12%~~19% of the 25,000,000 authorized shares of our common stock. The number of shares of our common stock outstanding after the offering is based on ~~2,810,840~~4,073,757 shares of our common stock outstanding as of ~~April~~May 13, ~~2020,~~2022, but this amount excludes ~~230,032~~255,958 shares of our common stock issuable upon exercise of warrants outstanding as of ~~April~~May 13, ~~2020,~~2022, and ~~67,330~~497,330 shares reserved for issuance under the 2015 Intellinetics Inc. Equity Incentive Plan.

The selling stockholders identified in this prospectus may, from time to time, offer and sell up to ~~2,519,490~~1,366,846 shares of our common stock consisting of (a) ~~955,000~~1,242,588 issued to investors in a private placement of securities completed on ~~March 2, 2020;~~April 1, 2022 and (b) 1,433,740 shares of our common stock, issued upon conversion of all the outstanding principal and interest payable pursuant to convertible notes held by certain noteholder; (c) 35,250 shares of our common stock, issued to the placement agent in connection with the 2020 note conversion; and (d) up to ~~95,500~~124,258 shares of our common stock, issuable upon the exercise of warrants issued to the placement agent in connection with the ~~2020~~2022 private placement.

Sales of substantial amounts of our common stock in the public market, or the perception that future sales may occur, could materially and adversely affect the prevailing market price of our common stock.

In connection with the ~~2020~~2022 private placement, we entered into a registration rights agreement with certain selling stockholders who now own an aggregate of ~~955,000~~1,242,588 shares of common stock, under which such selling stockholders are entitled to certain registration rights, and this prospectus is a part of the Registration Statement that we filed pursuant to our obligations under that registration rights agreement. Under the terms of the registration rights agreement, we have agreed to prepare and, as soon as practicable, but in no event later than ~~April~~May 16, ~~2020,~~2022, file with the SEC a registration statement covering the resale under the Securities Act of all of the shares, and to use commercially reasonable efforts to have such registration statement declared effective by the SEC as soon as practicable, but in no event later than ~~July 15, 2020~~June 30, 2022 (or 9045 days after filing).

The consolidated financial statements of Intellinetics, Inc. as of December 31, ~~2019~~2021 and ~~2018~~2020, included in this ~~Prospectus~~prospectus and in the Registration Statement have been so included in reliance on the report of GBQ Partners, LLC, an independent registered public accounting firm ~~(the report on the consolidated financial statements contains an explanatory paragraph regarding the Company's ability to continue as a going concern)~~ appearing elsewhere herein and in the Registration Statement, given on the authority of said firm as experts in auditing and accounting.

The validity of our common stock offered hereby will be passed upon for us by McDonald Carano LLP, Reno, Nevada.

This prospectus is part of a Registration Statement on Form S-1 we have filed with the SEC. We have not included in this prospectus all of the information contained in the Registration Statement and you should refer to our Registration Statement and its exhibits for further information. You can obtain a copy of the Registration Statement, including the exhibits filed with it, from the SEC as indicated below.

We file annual, quarterly and current reports, proxy statements and other information with the SEC. You may read and copy any materials we file with the SEC at their Public Reference Room at 100 F Street, NE, Washington, DC 20549, on official business days during the hours of 10 a.m. to 3 p.m. You may obtain information about the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. Our filings are ~~also~~ available to the public from commercial document retrieval services and at the website maintained by the SEC at www.sec.gov.

We make available, free of charge, on our website located at www.intellinetics.com, our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports as soon as reasonably practicable after we electronically file them with or furnish them to the SEC. The contents of and the information on or accessible through our corporate website and our investor relations website are not a part of, and are not incorporated into, this prospectus and the accompanying prospectus or any report or document we file with or furnish to the SEC and any references to these websites are intended to be inactive textual references only.

Our website address is www.intellinetics.com. The information on our website is not incorporated into this prospectus.

The SEC allows us to “incorporate by reference” into this prospectus the information contained in documents that we file with the SEC. This means that we can disclose important information to you by referring you to those documents filed separately by us with the SEC. The information that we incorporate by reference is considered to be a part of this prospectus, except for any information that is superseded by information that is included directly in this prospectus or incorporated by reference from information contained in documents that we file later with the SEC, which will automatically update and supersede this information.

We incorporate by reference into this prospectus information contained in any reports and other documents that we file with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act on or after the effective date of this prospectus and prior to the completion or termination of the offering of the securities covered by this prospectus, other than information that is furnished but not filed with the SEC under those filings.

Any statement contained in a document incorporated by reference into this prospectus will be deemed to be modified or superseded for purposes of this prospectus to the extent that a statement contained in this prospectus or in any subsequently filed document which is also incorporated or deemed to be incorporated by reference in this prospectus modifies or supersedes that previous statement. Any statement so modified or superseded will not be deemed, except as so modified or superseded, to constitute a part of this prospectus.

The information relating to us contained in this prospectus should be read together with the information in the documents incorporated or deemed to be incorporated by reference in this prospectus.

Documents incorporated by reference are available from the SEC as described above or from us without charge, excluding any exhibits to those documents unless the exhibit is specifically incorporated by reference as an exhibit in this prospectus. We will provide to each person, including any beneficial owner, to whom this prospectus is delivered, upon written or oral request, at no cost, a copy of any and all of the information that is incorporated by reference in this prospectus. Requests for such documents shall be directed to:

You should rely only on the information contained in, or incorporated by reference into, this prospectus and any prospectus supplement. We have not authorized any person to provide you with any information that is different from that contained in this prospectus or incorporated by reference in this prospectus.

We are not making an offer to sell or seeking an offer to buy these securities in any jurisdiction in which such an offer, sale or solicitation is not permitted. You should not assume that the information in this prospectus is accurate as of any date other than the date on the front of this prospectus, regardless of the time of delivery of this prospectus or any sale of the securities.

~~Annual~~ Financial Statements for the Twelve Months Ended December 31, 2021 and 2020

Unaudited Financial Statements for the Three Months Ended March 31, 2022

We have audited the accompanying consolidated balance sheets of Intellinetics, Inc. and ~~Subsidiary~~Subsidiaries (the “Company”) as of December 31, ~~2019~~2021 and ~~2018,~~2020, the related consolidated statements of operations, stockholders’ ~~deficit,~~equity (deficit), and cash flows for each of the years then ended, and related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, ~~2019~~2021 and ~~2018,~~2020, and the results of its operations and its cash flows for each of the two years in the period ended December 31, ~~2019,~~2021, in conformity with accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the consolidated financial statements, the Company has recurring losses and negative cash flows from operations that raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 3. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

~~Subsequent Event - Significant Acquisition~~Evaluation of the Fair Value of Earnout Liabilities Related to Business Acquisitions

As ~~described~~discussed in Note 167 to the consolidated financial statements, the Company ~~acquired 100%~~makes certain assumptions and judgment in determining fair value measurements for business acquisitions. During 2020, the Company consummated two business acquisitions. The acquisitions resulted in the recognition of earnout liabilities totaling $889,200, subsequently revalued at $2,444,000 at December 31, 2020. During 2021, the Company paid out $954,733 and recorded a change in fair value of $141,414. The remaining earnout liability amounted to $1,630,681 at December 31, 2021.

We identified the evaluation of the ~~Graphic Sciences capital stock, pursuant~~fair value of the earnout liabilities related to the acquired businesses as a ~~Stock Purchase Agreement~~critical audit matter. Evaluating the fair value involved a high degree of assumptions used within the valuation models including forecasts of projected revenues and volatility rates. In addition, changes in these assumptions could have a significant impact on ~~March 2, 2020.~~the fair value of the earnout liabilities.

How We Addressed the Matter in Our ~~opinion is not modified with respect~~Audit

We obtained an understanding and evaluated the design of internal control over the Company’s process for determining the fair value of earnout liabilities related to ~~this matter.~~the business acquisitions, specifically related to the determination of the key assumptions. We evaluated the forecasts of projected revenues and customer attrition rate assumptions used by the Company by comparing the assumptions to the acquirees’ historical performance. We evaluated certain forecasts of projected revenues used by the Company to value the earnout liabilities using retrospective analysis as well as historical performance and qualitative factors used in forward looking forecast.

~~For the Twelve Months~~ Years Ended December 31, ~~2019~~2021 and ~~2018~~2020

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

~~The Company is a document~~Our digital transformation products and services are provided through two reporting segments: Document Management and Document Conversion. Our Document Management segment, which includes the CEO Imaging Systems, Inc. (“CEO Image”) asset acquisition in April 2020, consists primarily of solutions ~~software development, sales and marketing company serving both the public and private sectors. The Company’s~~involving our software platform, ~~allows~~allowing customers to capture and manage ~~all~~their documents across operations such as scanned hard-copy documents and ~~all~~ digital documents including those from Microsoft Office 365, digital images, audio, video and emails. ~~The Company’s~~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 ~~processes they drive~~people who need them by making ~~them~~those documents easy to find and access, while also being secure and compliant with ~~its~~the customers’ audit requirements. Solutions are sold both directly to end-users and through resellers.

~~On March 2, 2020, Intellinetics acquired all~~2.Basis of the issued and outstanding capital stock of Graphic Sciences, Inc. (the “GSI Acquisition”). Located in Madison Heights, Michigan, Graphic Sciences is a document management company that provides indexing and scanning services, as well as physical document storage and retrieval services. See Note 16 to the Consolidated Financial Statements, Subsequent Events, for more detail on the GSI Acquisition.Presentation

The accompanying audited consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles (“U.S. GAAP”). ~~The Company has~~We have evaluated subsequent events through the issuance of this Form 10-K.

~~Through December 31, 2019, the Company had incurred an accumulated deficit since its inception of $20,796,066. At December 31, 2019, the Company had a cash balance of $404,165.~~3. Corporate Actions

~~From the Company’s inception, it has generated revenues from the sales and implementation of its internally generated software applications.~~

The Company’s business plan is to increase our sales and market share by developing a targeted marketing approach to select vertical markets, enhance our direct selling results, continue to develop a network of select resellers through whichOn March 20, 2020, we expect to sell our expanded software product portfolio. We expect that this marketing initiative will require us to continue our efforts towards direct marketing campaigns and leads management, reseller on-boarding, and to develop additional software integration and customization capabilities, all of which will require additional capital.

The Company believes that, through the next 12 months, the capital requirements to cover the Company’s operating costs and fund growth may not be met from cash flows generated by operations. Given the current outbreak of and containment strategies for coronavirus (COVID-19) and given our history of operating losses, there is no assurance that the Company will be able to obtain additional capital or debt financing within that time. During 2018 and 2019, the Company has used, and been dependent upon, the proceeds from the issuance of convertible notes to sustain operations and execute its business plan. There is no assurance that the Company has, or in the future will be able to obtain, sufficient funds to continue to fund the Company’s operations. Given these conditions, the Company’s ability to continue as a going concern is contingent upon either sufficiently enhancing its operating cash flow, through increasing its revenues and successfully managing its cash requirements, or raising financing through the issuance of additional debt or equity, or some combination of both. In addition, the Company’s ability to continue as a going concern must be considered in light of the problems, expenses and complications frequently encountered by entrants into established markets, the competitive environment in which the Company operates and its cash requirements. These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern.

Since inception, the Company’s operations have primarily been funded through a combination of gross profits, state business development loans, bank loans, convertible loans, and the sale of securities. Although management believes that the Company may have access to additional capital resources, there are currently no commitments or arrangements in effect that would provide for new financing and there is no assurance that the Company will be able to obtain sufficient additional funds on commercially acceptable terms, if at all.

During the twelve months ended December 31, 2019, the Company raised $350,000 through the issuance of notes payable. During the twelve months ended December 31, 2018, the Company raised $1,169,159, net of financing costs of $130,841, through the issuance of convertible notes and warrants. The proceeds from the issuances were used to fund the Company’s working capital needs and debt repayment obligations. See also Note 16 for additional information about the Company’s acquisition and related subsequent events.

The current level of cash and operating margins may not be enough to cover the existing fixed and variable obligations of the Company, so increased revenue performance and the addition of capital are critical to the Company’s success.

The Company’s consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should it be unable to continue as a going concern.

On February 10, 2012, Intellinetics Ohio was acquired by Intellinetics, when it was known as GlobalWise Investments, Inc., pursuant to a reverse merger, with Intellinetics Ohio surviving as a wholly owned subsidiary of Intellinetics.

~~On September 1, 2014, the Company changed its name from GlobalWise Investments, Inc., to Intellinetics, Inc. and~~ effected a ~~one-for-seven (1-for-7)~~one-for-fifty (1-for-50) reverse stock splitof ~~the Company’s~~our common stock. All share and per share amounts herein have been adjusted to reflect the reverse stock split.

The 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 50% 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 of consolidated financial statements in conformity with ~~U.S.~~ GAAP requires management to make estimates and assumptions. Such estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses. ~~Actual~~By their nature, these estimates and assumptions are subject to an inherent degree of uncertainty. The impact of 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.

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 ~~liability,~~liabilities, estimates of fair value deferred taxes and related valuation allowances. ~~The Company’s~~Our management monitors these risks and assesses ~~its~~our business and financial risks on a quarterly basis.

Effective January 1, 2018, we adopted Accounting Standards Codification (“ASC”) 606, “Revenue from Contracts with Customers” (“ASC 606”), using the full retrospective transition method. Adoption of the standard using the full retrospective method required us to restate certain previously reported results.

In accordance with ASC 606, ~~the Company follows~~“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 ~~third party~~storage and retrieval services. We earn the majority of our revenue from the sale of ~~software as a service and~~professional services, followed by the sale of software maintenance ~~services. Specific~~services and software as a service. We apply our revenue recognition policies ~~apply to~~as required in accordance with ASC 606 based on the facts and circumstances of each category of revenue.

Revenues included in this classification typically include sales of licenses with professional services to new customers, additional software licenses to existing customers, and sales of software with or without services to ~~the Company’s~~our resellers (See section j) - Reseller Agreements, below. Our software licenses are functional intellectual property and typically provide customers with the right to use our software in perpetuity as it exists when made available to the customer. We recognize revenue from software licenses at a point in time upon delivery, provided all other revenue recognition criteria are met.

Sale of software as a service (“SaaS”) consists of revenues from arrangements that provide customers the use of ~~the Company’s~~our software applications, as a service, typically billed on a monthly or annual basis. Advance billings of these services are not recorded to the extent that the term of the arrangement has not commenced and payment has not been received. Revenue on these services is recognized over the contract period.

Software maintenance services revenues consist of revenues derived from arrangements that provide post-contract support (“PCS”), including software support and bug fixes, to ~~the Company’s~~our software license holders. Advance billings of PCS are not recorded to the extent that the term of the PCS has not commenced and payment has not been received. PCS are considered distinct services. However, these distinct services are considered a single performance obligation consisting of a series of services that are substantially the same and have the same pattern of transfer to the customer. These revenues are recognized over the term of the maintenance contract.

Professional services revenues consist ~~principally~~ of revenues from document scanning and conversion services, consulting, discovery, training, and advisory services ~~training~~to assist customers with document management needs, as well as repair and maintenance services for customer ~~assistance with management and uploading of data into the Company’s applications.~~equipment. We recognize professional services revenue over time as the services are delivered using an input or output method ~~(i.e.~~(e.g., labor hours incurred as a percentage of total labor hours ~~budgeted)~~budgeted, images scanned, or similar milestones), as appropriate for the contract, provided all other revenue recognition criteria are met.

Sale of ~~third party~~document storage and retrieval services consist principally of ~~third party software and/or equipment~~secured warehouse storage of customer documents, which are typically retained for many years, as ~~a pass through of software~~well as retrieval per agreement terms and ~~equipment purchased from third parties at the request of customers.~~certified destruction if desired. We recognize revenue from ~~third party~~document storage and retrieval services at a point in time upon delivery, provided all other revenue recognition criteria are met. In addition, we have considered our relationship with third party vendors as it relates to principal vs. agent considerationsover the term of the contract for storage and ~~have determined that we are in control of establishing the transaction price~~ for the ~~customer, managing all aspects of the shipments process~~retrieval and ~~taking the risk of loss for delivery, collection, and returns. Based on our evaluation of the control model, we determined that we act~~destructions components, as the ~~principal rather than the agent within our revenue arrangements and as such, revenues~~services are ~~reported on a gross basis.~~delivered. Customers are generally billed monthly based upon contractually agreed-upon terms.

In addition to selling software licenses, software as a service, software maintenance services, professional services, and ~~third party~~storage and retrieval services on a stand-alone basis, a portion of our contracts include multiple performance obligations. For contracts with multiple performance obligations, ~~the Company allocates~~we allocate the transaction price of the contract to each distinct performance obligation, on a relative basis using its standalone selling price. ~~The Company determines~~We determine the standalone selling price based on the price charged for the deliverable when sold separately.

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, ~~receivables,~~ which are ~~included~~disclosed on the consolidated balance sheets, as well as other contract assets which are comprised of employee sales commissions paid in ~~prepaid expenses and other current assets.~~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 ~~or noncurrent~~ based on the timing of when we expect to recognize ~~revenue.~~revenue, which are disclosed on the consolidated balance sheets.

The following table ~~present~~presents changes in our contract assets ~~and liabilities~~ during the ~~twelve months~~years ended December 31, ~~2019~~2021, and ~~2018:~~2020:

~~(a) Unbilled receivables were reflected within other current assets on the consolidated balance sheets.~~

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 be recognized. Deferred revenues typically relate to maintenance and ~~software-as-a-service~~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~~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 ~~91%~~99% of the remaining performance obligations over the next 12 months, with the remainder recognized thereafter. As of December 31, ~~2019,~~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 ~~$69,381.~~$16,835. As of December 31, 2020, 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 $45,323. 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 years ended December 31, 2021 and 2020:

~~The Company does~~We do not generally offer variable consideration, financing components, rights of return or any other incentives such as concessions, product rotation, or price protection and, therefore, does not provide for or make estimates of rights of return and similar incentives. Our contracts with customers generally do not include customer acceptance clauses.

~~The Company executes~~We execute certain sales contracts through resellers. ~~The Company recognizes~~We recognize revenues relating to sales through resellers when all the recognition criteria have been met including passing of control. In addition, ~~the Company assesses~~we assess the credit-worthiness of each reseller, and if the reseller is undercapitalized or in financial difficulty, any revenues expected to emanate from such resellers are deferred and recognized only when cash is received and all other revenue recognition criteria are met.

~~The Company capitalizes~~We capitalize the incremental costs of obtaining a contract with a customer. We have determined that certain sales commissions meet the requirement to be capitalized, and we amortize these costs on a consistent basis with the pattern of transfer of the goods and services in the contract. Total capitalized costs to obtain contracts ~~were immaterial during the periods presented and~~ are included in other ~~current and long-term~~contract assets on our consolidated balance sheets.

Sales taxes charged to and collected from customers as part of ~~the Company’s~~our sales transactions are excluded from revenues, as well as the determination of transaction price for contracts with multiple performance obligations, and recorded as a liability to the applicable governmental taxing authority.

~~The Company provides~~We provide disaggregation of revenue based on product groupings in our consolidated statements of operations as itwe believes this best depicts how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors. Revenues from contracts are primarily within the United States. International revenues were not material to the consolidated financial statements for the ~~twelve months~~years ended December 31, ~~2019~~2021 and ~~2018.~~2020.

~~The Company’s~~Our customers typically do not pay in advance for goods or services to be transferred in excess of one year. As such, it is not necessary to determine if ~~the Company benefits~~we benefit from the time value of money and should record a component of interest income related to the upfront payment due to the practical expedient of ASC 606-10-32-18.

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

The number of customers that comprise ~~the Company’s~~our customer base, along with the different industries, governmental entities and geographic regions, in which ~~the Company’s~~our customers operate, limits concentrations of credit risk with respect to accounts ~~receivable. The Company does~~receivable, with the exception of the State of Michigan. In the years ended December 31, 2021 and 2020, our sales to the State of Michigan totaled approximately 47% of revenues. We have not experienced any losses, nor is not aware of any losses by Graphic Sciences, resulting from nonpayment by the State of Michigan.

We do not generally require collateral or other security to support customer receivables; however, ~~the Company~~we may require ~~its~~ customers to provide retainers, up-front deposits or irrevocable letters-of-credit when considered necessary to mitigate credit risks. ~~The Company has~~We have established an allowance for doubtful accounts based upon facts surrounding the credit risk of specific customers and past collections history. Credit losses have been within management’s expectations. At December 31, ~~2019~~2021 and ~~2018, the Company’s~~2020, our allowance for doubtful accounts was ~~$35,733~~$48,783 and ~~$7,427,~~$65,927, respectively.

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 and $15,000 at December 31, 2021 and 2020, respectively.

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.~~years. Leasehold improvements are amortized over the life of the lease or the asset, whichever is shorter, generally seven to ten ~~years.~~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.

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.

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.

~~The Company accounts~~We account for the impairment and disposition of long-lived assets in accordance with ASC 360, “Property, Plant, and Equipment.” ~~The Company~~We tests 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 0 impairment of long lived assets in the twelve month periods ended 2021 or 2020.

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. 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 earnout 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.

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 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.

~~The Company accounts~~We account for stock-based payments to employees in accordance with ASC 718, “Compensation - Stock Compensation.” Stock-based payments to employees include grants of stock that are recognized in the consolidated statement of operations based on their fair values at the date of grant.

~~The Company accounts~~We account for stock-based payments to non-employees in accordance with ASC 718, “Compensation - Stock Compensation,” which requires that such equity instruments are recorded at their fair values on the grant date.

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. ~~The Company estimates~~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 ~~the Company’s~~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.

~~The Company designs, develops, tests, markets, licenses,~~We design, develop, test, market, license, and ~~supports~~support new software products and enhancements of current products. ~~The Company~~We continuously ~~monitors its~~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,” ~~the Company expenses~~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 ~~the Company’s~~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. No such costs were capitalized during the periods presented in this report.

In accordance with ASC 350-40, “Internal-Use Software,” ~~the Company capitalizes~~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 ~~complete~~completion of all substantial testing. ~~The Company~~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 $38,305 were capitalized during 2021. No such costs were capitalized ~~during~~in 2020. Such capitalized costs are stated at cost less accumulated amortization. Amortization is computed over the ~~periods presented~~ estimated useful lives of the related assets on a straight-line basis, which is three years. At December 31, 2021 and 2020, our consolidated balance sheets included $38,305 and $0, respectively, in ~~this report.~~other long term assets.

For the ~~twelve months~~years ended December 31, ~~2019~~2021, and ~~2018,~~2020, our expensed software development costs were ~~$467,364~~ $345,697 and ~~$359,789,~~$293,092, respectively.

In February 2016, the FASB issued ASU No. 2016-02, Leases (“ASC 842”) (“ASU 2016-02”), which modified lease accounting for both lessees and lessors to increase transparency and comparability by recognizing lease assets and lease liabilities by lessees for those leases classified as operating leases under previous accounting standards and disclosing key information about leasing arrangements. ASU 2016-02 was effective for the Company beginning in its first quarter of 2019. On January 1, 2019, the Company recorded a lease liability of $143,761 and a net right-of-use asset of $138,549 using the required modified retrospective approach. In adopting ASC 842, the Company elected to utilize the available package of practical expedients permitted under the transition guidance within the new standard, which does not require the reassessment of the following: i) whether existing or expired arrangements are or contain a lease, ii) the lease classification of existing or expired leases, and iii) whether previous initial costs would qualify as capitalization under the new lease standard.

In August 2018, the FASB issued ASU 2018-15, which addresses a customer’s accounting for implementation costs incurred in a cloud computing arrangement that is a service contract. Under the new guidance, customers will apply the same criteria for capitalizing implementation costs as they would for an arrangement that has a software license. ASC 2018-15 is effective for annual reporting periods beginning after December 15, 2019, including interim reporting periods within those annual reporting periods. Early adoption is permitted. The Company is currently evaluating the impact of the new guidance on its consolidated financial statements and related disclosures.

In August 2018, the FASB issued ASU 2018-13, which is guidance that changes the fair value measurement disclosure requirements of ASC 820. ASU 2018-13 is effective for annual reporting periods beginning after December 15, 2019, including interim reporting periods within those annual reporting periods. Early adoption is permitted for any eliminated or modified disclosures upon issuance of this ASU. The Company is currently evaluating the impact of the new guidance on its consolidated financial statements and related disclosures.

In June 2016, the FASB issued ASU 2016-13,Financial Instruments – Credit Losses (Topic 326), which requires entities to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. This replaces the existing incurred loss model and is applicable to 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, ~~2019,~~2023, including interim reporting periods within those annual reporting periods. Early adoption is permitted. ~~The Company is~~We are currently evaluating the impact of the new guidance on its consolidated financial statements and related disclosures.

In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting” which provides optional relief through specific exceptions and practical expedients for transitioning away from reference rates that are expected to be discontinued. The relief generally applies to eligible modifications of contractual terms that change (or have the potential to change) the amount or timing of contractual cash flows related to replacement of a reference rate. The relief allows such modifications to be accounted for as continuations of existing contracts without additional analysis. The optional relief is available from March 2020 through December 31, 2022. We do not anticipate any impact on our business from this standard.

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

~~The Company expenses~~We expense the cost of advertising as incurred. Advertising expense for the ~~twelve months~~years ended December 31, ~~2019~~2021 and ~~2018~~2020 amounted to ~~$4,255~~ $10,237 and ~~$21,402,~~$7,362, respectively.

Basic ~~earnings~~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. ~~The Company has outstanding stock options which have not been included in the calculation of diluted net~~Diluted income or loss per share ~~because~~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 ~~do so would be anti-dilutive. As such,~~all dilutive potential common shares outstanding during the ~~numerator~~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 ~~the denominator used in computing both basic~~for those periods with a net loss. We reported a net income for 2021 and ~~diluted~~a net loss ~~per share~~ for ~~each period are the same.~~2020.

~~The Company~~Intellinetics and its ~~subsidiary~~subsidiaries file a consolidated federal income tax return. 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%~~100% valuation allowance has been established on deferred tax assets at December 31, ~~2019~~2021 and ~~2018,~~2020, due to the uncertainty of our ability to realize future taxable income. For 2020 we recovered a net $179,400 of its valuation allowance in conjunction with the consolidation of the net deferred tax liability of our wholly owned subsidiary, Graphic Sciences.

~~The Company accounts~~We account for uncertainty in income taxes in ~~its~~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 ~~the Company~~us in ~~its~~our tax returns.

Operating segments are defined in the criteria established under the FASB ASC 280 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 2 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 no intersegment sales. We evaluate the performance of our segments based on gross profits.

The ~~Company has one reportable~~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 and federal, county, and municipal governments. Solutions are sold both directly to end-users and through a reseller distributor.

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

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

On March 2, 2020, we acquired all of the issued and outstanding stock of Graphic Sciences. The purchase price paid for Graphic Sciences was $3,906,253 in cash plus potential contingent, or earnout, payments of up $833,000 annually over a three year period based on a gross profit level achieved by Graphic Sciences on an annual basis, for maximum total earnout payments over a three year period of $2,500,000, and with no minimum earnout payments. At the time of this acquisition, management estimated a fair value of the contingent liability—earnout (“earnout liability”) of $686,200 based on the terms of the earnout, and accordingly, recorded this amount as our earnout liability at the acquisition date in accordance with GAAP. For the years ended December 31, 2021 and 2020 we recorded a change in fair value of our earnout liabilities in the amount of $123,377 and $1,554,800, respectively. On June 8, 2021, we paid $769,733 for the first annual period. At December 31, 2021, our consolidated balance sheets reflected an earnout liability for Graphic Sciences in the amount of $1,463,644. See Note 7 for the estimated fair value of the earnout liability as of December 31, 2021.

On April 21, 2020, we acquired substantially all of the assets of CEO Image. The purchase price paid for the assets of CEO Image consisted of $128,832 in cash, $170,000 in installment payments paid during 2020, and potential contingent, or earnout, payments of up $185,000 annually over a two year period based on a sales revenue level achieved by certain customers of CEO Image on an annual basis, for maximum total earnout payments over a two year period of $370,000, and with no minimum earnout payments. At the time of this acquisition, management estimated a fair value of the contingent liability—earnout (“earnout liability”) of $203,000 based on the terms of the earnout, and accordingly, recorded this amount as our earnout liability at the acquisition date in accordance with GAAP. For the year ended December 31, 2021 we recorded a change in fair value of our earnout liabilities in the amount of $18,038 and $0, respectively. On June 10, 2021, we paid $185,000 for the first annual period. At December 31, 2021, our consolidated balance sheets reflected an earnout liability for CEO Image in the amount of $167,038. See Note 7 for the estimated fair value of the earnout liability as of December 31, 2021.

The purchase price was 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:

Acquisition costs which include legal and other professional fees of approximately $636,440 were expensed as nonrecurring transaction costs and are included in significant transaction costs for 2020 in the accompanying consolidated statement of operations.

The following unaudited pro forma information presents a summary of our consolidated results of operations, as if the acquisitions of Graphic Sciences and CEO Image had occurred on January 1, 2020.

The unaudited pro forma consolidated results are based on our historical financial statements and those of Graphic Sciences and CEO Image 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, 2020.

Amortization expense for the years ended December 31, 2021 and 2020, amounted to $216,475 and $176,029, respectively. The following table represents future amortization expense for intangible assets subject to amortization.

Under ~~U.S.~~ GAAP, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value hierarchy ~~included in U.S. GAAP gives~~consists of the ~~highest priority to~~following three levels. Level 1 inputs ~~which consist of unadjusted~~are quoted prices in active markets for identical ~~instruments in active markets.~~assets or liabilities. Level 2 inputs consist of quoted prices for similar ~~instruments.~~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 ~~valuations~~inputs are derived from valuation techniques in which one or more significant inputs ~~that~~or value drivers are ~~significant and unobservable, and these valuations have the lowest priority.~~unobservable.

~~Management believes that the~~The carrying values of cash and equivalents, accounts receivable, accounts payable, accrued expenses, and the ~~2019 Related Notes~~PPP loan (prior to forgiveness) approximate fair value because of ~~their~~its short maturity. Management believes that the carrying value of the 2020 Notes approximate fair value given the March 2, 2020 transaction proximity to December 31, 2020 in conjunction with the absence of significant net change in the overall economic environment with regards to availability of credit to Company.

We have earnout liabilities related to our two 2020 acquisitions which are 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 considered to be Level 3 inputs due to the lack of relevant market activity and significant management judgment. Key unobservable inputs include revenue growth rates, which ranged from 0% to 7%, and volatility rates, which were 20% for gross profits. 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 years ended December 31, 2021 and 2020:

The ~~table below reflects all notes payable at December 31, 2019~~fair values of amounts owed are recorded in the current and ~~2018, respectively.~~long-term portions of earnout liabilities in our consolidated balance sheets. Changes in fair value are recorded in change in fair value of earnout liabilities in our consolidated statements of operations.

Total depreciation expense on ~~the Company’s~~our property and equipment for the ~~twelve months~~years ended December 31, ~~2019~~2021 and ~~2018~~2020 amounted to ~~$7,701~~ $197,457 and ~~$9,040,~~$120,906, respectively.

The table below summarizes all notes payable at December 31, 2021 and 2020, respectively. See also Note 10 “Notes Payable - Related Parties.”

~~The Company has~~Future minimum principal payments of the 2020 Notes are as follows:

As of December 31, 2021 and 2020, accrued interest for these notes payable with the exception of the related party notes in Note 10, “Notes Payable - Related Parties,” was $0. As of December 31, 2021 and 2020, unamortized debt issuance costs and unamortized debt discount were reflected within long term liabilities on the consolidated balance sheets.

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 years ended December 31, 2021 and 2020 was $452,120 and $548,742, respectively.

We have evaluated the terms of ~~its~~our convertible notes payable in accordance with ASC 815 – 40, “Derivatives and Hedging - Contracts in Entity’s Own Stock” and determined that the underlying common stock is indexed to ~~the Company’s~~our common stock. ~~The Company~~We determined that the conversion feature did not meet the definition of a derivative and therefore did not bifurcate the conversion feature and account for it as a separate derivative liability. ~~The Company~~We evaluated the conversion feature for a beneficial conversion feature. The effective conversion price was compared with the market price on the date of each note. If the conversion price was deemed to be less than the market value of the underlying common stock at the inception of the note, then ~~the Company~~we recognized a beneficial conversion feature resulting in a discount on the note payable, upon satisfaction of the contingency. The beneficial conversion features ~~are~~were amortized to interest expense over the life of the respective notes, starting from the date of recognition.

In 2016 through 2018, we issued convertible promissory notes ~~on December 30, 2016~~to unrelated parties in an aggregate principal amount of ~~$315,000, and on January 6, 2017 and January 31, 2017 in an aggregate amount of $560,000 (collectively, the “2016 Unrelated Notes”)~~$3,535,000. On March 2, 2020, we entered into amendments to these convertible promissory notes, as well as amendments to convertible promissory notes with related parties (see note 10), that permitted us to ~~unrelated accredited investors (the “2016 Note Investors”). Placement agent and escrow agent fees of $100,255 in the aggregate for those issuances, were paid out~~convert all of the ~~cash proceeds of those issuances. The 2016 Unrelated Notes bore~~outstanding principal and accrued and unpaid interest ~~at an annual rate of interest of 12% until maturity, with partial interest of 6%~~ payable ~~quarterly, and an original maturity date of December 31, 2018. The 2016 Note Investors had the right, in their sole discretion, to convert the 2016 Unrelated Notes~~on all outstanding convertible promissory notes into shares of ~~Company~~common stock at a reduced conversion rate equal to the purchase price of our common stock issued in the contemporaneous private placement offering. Pursuant thereto, we converted all of the outstanding principal and accrued and unpaid interest payable with respect to all convertible promissory notes, with related parties and with unrelated parties, into a total of 1,433,689 shares of our common stock at a conversion rate of ~~$0.65~~$4.00 per share. Taglich Brothers, Inc. acted as the exclusive placement agent for the note conversion and received compensation (relating to the conversion of both the related and the unrelated notes) of 35,250 shares of our common stock, based on a fee valued at $4.00 per share.

On ~~September 17, 2018, the 2016 Unrelated Notes were amended to mature on December 31,~~March 2, 2020, ~~and bear interest~~we sold 2,000 units, at an ~~annual~~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 accrued interest of the 2020 Notes are due and payable on February 28, 2023. Interest on the 2020 Notes accrues at the rate of ~~interest~~12% per annum, payable quarterly in cash, beginning on June 30, 2020. Any accrued but unpaid quarterly installment of ~~10% until maturity, with partial~~ interest of 5% payable quarterly. With the amendment, the 2016 Note Investors have the right, in their sole discretion, to convert the 2016 Unrelated Notes into shares of Company common stock at a conversion rate of $0.40 per share. The amendment was accounted for as a troubled debt restructuring with the future undiscounted cash flows being greater than the carrying value of the debt prior to extension. No gain was recorded on the amendment, and a new effective interest rate on the 2016 Unrelated Notes was established based on the carrying value of the debt and the revised future cash flows. If the 2016 Unrelated Notes have not been fully repaid by the Company by the maturity date or converted into shares at the election of the 2016 Note Investors prior to maturity, then they will accrue interest at the ~~annual~~ rate of ~~12%~~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 ~~the date the 2016 Unrelated Notes are repaid~~paid in full. ~~Any interest not paid quarterly will also accrue interest at the annual rate of 7% instead of 5%. The Company~~We used ~~the proceeds~~a portion of the ~~2016 Unrelated Notes~~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, and~~purposes. We recognized a debt ~~repayment.~~discount of $320,000 for the 80,000 shares issued in conjunction with the units. The Company recognized an initial beneficial conversion feature in the amount of $369,677, plus a fair value adjustment of $56,661 under the troubled debt restructuring accounting. Interest expense recognized on the amortization of the ~~beneficial conversion feature~~debt discount, which will be recognized over the life of the ~~2016 Unrelated~~2020 Notes ~~was $50,703 and $145,424~~as interest expense, for the ~~twelve months~~years ended December 31, ~~2019~~2021 and ~~2018,~~2020 was $106,666 and $88,889, respectively.

On November 17 and November 30, 2017, the Company issued convertible promissory notes in an aggregate amount of $1,760,000 (“2017 Unrelated Notes”) to unrelated accredited investors (the “2017 Note Investors”). Placement agent and escrow agent fees of $174,810April 15, 2020, we were paid out of the cash proceeds. The 2017 Unrelated Notes had an original maturity date of November 30, 2019. On September 14, 2018, the 2017 Unrelated Notes were amended to mature on December 31, 2020. The amendment was accounted for as a troubled debt restructuring with the future undiscounted cash flows being greater than the carrying value of the debt prior to extension. No gain was recorded on the amendment, and a new effective interest rate on the 2017 Unrelated Notes was established based on the carrying value of the debt and the revised future cash flows. The 2017 Unrelated Notes bear interest at an annual rate of interest of 8% until maturity, with interest of 8% payable quarterly beginning July 1, 2018. The 2017 Note Investors have the right, in their sole discretion, to convert the 2017 Unrelated Notes into shares of Company common stock under certain circumstances at a conversion rate of $0.20 per share. If the 2017 Unrelated Notes have not been fully repaid by the Company by the maturity date or converted into shares of Company common stock at the election of the 2017 Note Investors prior to maturity, then they will accrue interest at the annual rate of 12% from the maturity date until the date the 2017 Unrelated notes are repaid in full. The Company used the proceeds of the 2017 Unrelated Notes for working capital, general corporate purposes, and debt repayment.

On September 20 and September 26, 2018, the Company issued convertible promissory notes in an aggregate amount of $900,000 (“2018 Unrelated Notes”) to unrelated accredited investors (the “2018 Note Investors”). Placement agent and escrow agent fees of $106,740 were paid out of the cash proceeds. The 2018 Unrelated Notes mature on December 31, 2020, and bear interest at an annual rate of interest of 8% until maturity, with interest of 8% payable quarterly beginning January 2, 2019. The 2018 Note Investors have the right, in their sole discretion, to convert the 2018 Unrelated Notes into shares of Company common stock under certain circumstances at a conversion rate of $0.13 per share. If the 2018 Unrelated notes have not been fully repaid by the Company by the maturity date or converted into shares at the election of the 2018 Note Investors prior to maturity, then they will accrue interest at the annual rate of 12% from the maturity date until the date the 2018 Unrelated Notes are repaid in full. The Company is using the proceeds of the 2018 Unrelated Notes for working capital, general corporate purposes, and debt repayment.

~~The table below reflects all notes payable at December 31, 2019 and 2018, respectively, with the exception of related party notes disclosed in Note 9 - Notes Payable - Related Parties.~~

~~Future minimum principal payments of these notes payable as described in this Note 8, with the exception of the related party notes in Note 9 - Notes Payable - Related Parties, are as follows:~~

As of December 31, 2019 and 2018, accrued interest for these notes payable with the exception of the related party notes in Note 9 - Notes Payable - Related Parties, was $918,307 and $379,339, respectively. As of December 31, 2019, unamortized deferred financing costs were $144,334, and was reflected within current liabilities on the consolidated balance sheets. As of December 31, 2018, unamortized deferred financing costs were $288,669, and was reflected within long-term liabilities on the consolidated balance sheets.

With respect to all notes outstanding (other than the notes to related parties), for the twelve months ended December 31, 2019 and 2018, interest expense, including the amortization of deferred financing costs, accrued loan participation fees, original issue discounts, deferred interest and related fees, interest expense related to warrants issued for the conversion of convertible notes, and the embedded conversion feature was $735,474 and $666,458, respectively.

~~On March 27, 2012, the Company~~ issued an unsecured promissory note in(“PPP Note”) for the PPP loan through PNC Bank with a principal amount of ~~$238,000, bearing~~$838,700. The term of the PPP Note Payable was two years, with an interest ~~at an annual~~ rate of ~~10%, payable to Ramon Shealy, a then-director~~1.0% per annum deferred for the first six months. We received notice on January 20, 2021 that the SBA had forgiven the full amount of ~~the Company, who subsequently resigned from the Company’s board of directors (“Board of Directors”) on December 17, 2012, for personal reasons. All~~ principal and interest was initially due and payable on September 27, 2012, but was later extended to November 24, 2012. On April 16, 2012, the Company issued another promissory note payable to Mr. Shealy in the amount of $12,000, bearing interest at a rate of 10%. All principal and interest was initially due on July 15, 2012, but was later extended to November 24, 2012. On November 24, 2012, the two notes were cancelled and replaced with a $250,000 promissory note, under the same terms, with an initial maturity date of January 1, 2014 (the “Shealy Note”). On December 24, 2013, the maturity date of the ~~$250,000 Shealy~~PPP Note, ~~was extended to January 1, 2015. On March 13, 2013, the Company paid $100,000~~and we have recognized a gain on extinguishment of ~~the principal amount~~debt of ~~the $250,000 Shealy Note. On December 31, 2014, the Company and Mr. Shealy agreed to extend the repayment terms of the Shealy Note~~ $845,083 for the remaining total principal and interest in the amount of $193,453 so that the outstanding balance of the Shealy Note became payable in 60 monthly installments beginning January 31, 2015, with a maturity date of January 1, 2020. As of December 31, 2019 the Shealy Note was fully repaid. As of December 31, 2018, this Shealy Note had a principal balance of $46,807.

On December 30, 2016, the Company issued convertible promissory notes in an aggregate amount of $375,000 (the “2016 Related Notes”) to accredited investors (the “2016 Related Note Investors”), including Robert Taglich and Michael Taglich (each holding more than 5% beneficial interest in the Company’s shares) and Robert Schroeder (a director of the Company). The 2016 Related Notes bore interest at an annual rate of interest of 12% until maturity, with partial interest of 6% payable quarterly, and an initial maturity date of December 31, 2018. The 2016 Related Note Investors had a right, in their sole discretion, to convert the 2016 Related Notes into shares of Company common stock at a conversion rate of $0.65 per share. On September 17, 2018, the 2016 Related Notes were amended to mature on December 31, 2020, and to bear interest at an annual rate of interest of 10% until maturity, with partial interest of 5% payable quarterly. With the amendment, the 2016 Related Note Investors have the right, in their sole discretion, to convert the 2016 Related Notes into shares at a conversion rate of $0.40 per share. The amendment was accounted for as a troubled debt restructuring with the future undiscounted cash flows being greater than the carrying value of the debt prior to extension. No gain was recorded on the amendment, and a new effective interest rate on the 2016 Related Notes was established based on the carrying value of the debt and the revised future cash flows. If the 2016 Related Notes have not been fully repaid by the Company by the maturity date or converted into shares at the election of the 2016 Related Note Investors prior to the maturity date, then they will accrue interest at the annual rate of 12% from the maturity date until the date the 2016 Related Notes are repaid in full. Any interest not paid quarterly will also accrue interest at the annual rate of 7% instead of 5%. The Company used the proceeds of the 2016 Related Notes for working capital, general corporate purposes, and debt repayment. The Company recognized an initial beneficial conversion feature in the amount of $144,231, plus a fair value adjustment of $24,710 under the troubled debt restructuring accounting. Interest expense recognized on the amortization of the beneficial conversion feature of the 2016 Related Notes was $20,015 and $56,796 for the twelve monthsyears ended December 31, ~~2019 and 2018, respectively.~~2021.

For the Company issued convertible promissory notes in an aggregate principal amount of $154,640 (the “2017 Bridge Notes”) to Robert Taglich and Michael Taglich (each holding more than a 5% beneficial interest in the Company’s shares). The 2017 Bridge Notes included an original issue discount of $4,640. Interest expense recognized on the amortization of the original discount was $889 for the twelve monthsyear ended December 31, ~~2017. The 2017 Bridge Notes bore~~ 2021, there was no interest at an annual rate of 8% beginning March 21, 2018 until maturity on September 21, 2018. The effective interest rate was 7% for the term of the 2017 Bridge Notes. Any interest not paid at maturity would accrue interest at the annual rate of 12% instead of 8%. The 2017 Bridge Note investors had the right,expense in their sole discretion, to convert the 2017 Bridge Notes into securities to be issued by the Company in a private placement of equity, equity equivalents, convertible debt or debt financing. In conjunctionconnection with the issue of the 2016 Bridge Notes, 150,000 warrants were issued to the 2017 Bridge Note investors. The warrants have an exercise price equal to $0.30 per share and contain a cashless exercise provision. All warrants are immediately exercisable and are exercisable for five years from issuance. The Company recognized debt issuance costs, recorded as a debt discount, on the issue of the warrants in the amount of $38,836. Interest expense recognized on the amortization of the debt discount was $38,836 for the twelve months ended December 31, 2017. On November 30, 2017, principal in the amount of $150,000 of the 2017 Bridge Notes was converted by the 2017 Bridge Note investors into the 2017 Related Notes, described below.

On November 17, 2017, the Company issued convertible promissory notes in an aggregate amount of $390,000 (the “2017 Related Notes”) to accredited investors, including Robert Taglich and Michael Taglich (each holding more than a 5% beneficial interest in the Company’s shares) and James DeSocio (President, Chief Executive Officer and Director), in exchange for the conversion of $150,000 principal amount under the 2017 Bridge Notes and the receipt of $240,000 cash. The 2017 Related Notes were initially scheduled to mature on November 30, 2019. On September 14, 2018, the 2017 Related Notes were amended to mature on December 31, 2020. The amendment was accounted for as a troubled debt restructuring with the future undiscounted cash flows being greater than the carrying value of the debt prior to extension. No gain was recorded, and a new effective interest rate was established based on the carrying value of the debt and the revised future cash flows. The 2017 Related Notes bear interest at an annual rate of 8% until maturity, with interest payable quarterly beginning July 1, 2018. The 2017 Related Note investors have the right, in their sole discretion, to convert the 2017 Related Notes into shares of Company common stock under certain circumstances at a conversion rate of $0.20 per share. If the 2017 Related Notes have not been either fully repaid by the Company or converted into shares by the maturity date, then the 2017 Related Notes will accrue interest at the annual rate of 12% from the maturity date until the date they are repaid in full. The Company used the proceeds of the 2017 Related Notes for working capital, general corporate purposes, and debt repayment.

On September 26, 2018, the Company issued convertible promissory notes in an aggregate amount of $400,000 (the “2018 Related Notes”) to accredited investors, including Robert Taglich and Michael Taglich (each holding more than a 5% beneficial interest in the Company’s shares). The 2018 Related Notes mature on December 31, 2020, and bear interest at an annual rate of 8% until maturity, with interest payable quarterly beginning January 2, 2019. The 2018 Related Note investors have the right, in their sole discretion, to convert the 2018 Related Notes into shares of Company common stock under certain circumstances at a conversion rate of $0.13 per share. If the 2018 Related Notes have not been either fully repaid by the Company or converted into shares by the maturity date, then the 2018 Related Notes will accrue interest at the annual rate of 12% from the maturity date until the date they are repaid in full. The Company used the proceeds of the 2018 Related Notes for working capital, general corporate purposes, and debt repayment.

On November 15, 2019, the Company issued promissory notes in a maximum aggregate principal amount of $397,728 (the “2019 Related Notes”) to Robert Taglich and Michael Taglich (each holding more than 5% beneficial interest in the Company’s Shares). The notes included an original issue discount of $47,728. Interest expense recognized on the amortization of the original discount was $11,932, for the twelve months ended December 31, 2019. The notes bear no interest in addition to the original issue discount, which is 12% for the term of the notes, and mature on May 15, 2020. If the 2019 Related Notes have not been either fully repaid by the Company or converted into Company shares or other securities by the maturity date, then the 2019 Related Notes will accrue interest at the annual rate of 12% from the maturity date until the date they are repaid in full. The Company is using the proceeds of the 2019 Related Notes for working capital, general corporate purposes, and debt repayment.

~~The table below reflects the notes payable to related parties at December 31, 2019 and 2018, respectively:~~

~~Future minimum principal payments of these notes payable as described in this Note 9 are as follows:~~

~~As of December 31, 2019 and 2018, accrued interest for these~~ notes payable – related parties amounted to $294,191 and $122,956, respectively, and on the consolidated balance sheets was reflected within current liabilities as of December 31, 2019 and within other long-term liabilities as of December 31, 2018.

parties. For the ~~twelve months~~year ended December 31, ~~2019 and 2018,~~2020, interest expense in connection with notes payable – related parties was ~~$245,215~~$88,941.

2016-19 Related Party Notes and ~~$199,043 respectively.~~2020 Note Conversion

In 2016 through 2019, we issued convertible promissory notes to related parties, including 5% stockholders, executive officers and directors, in an aggregate principal amount of $1,562,728. On March 2, 2020, we entered into amendments to these convertible promissory notes with related parties, as well as to convertible promissory notes with unrelated parties (see note 9), that permitted us to convert all of the outstanding principal and accrued and unpaid interest payable thereon into shares of common stock at a reduced conversion rate equal to the purchase price of our common stock issued in the contemporaneous private placement offering. Pursuant thereto, we converted all of the outstanding principal and accrued and unpaid interest payable with respect to all convertible promissory notes (with related parties as well as with unrelated parties) into a total of 1,433,689 shares of our common stock at a conversion rate of $4.00 per share, with the exception of the 2019 related party notes. On March 2, 2020, $350,000 of the 2019 related party notes were converted into equity. On May 15, 2020, we repaid the remaining balance of $47,728 in cash.

Pursuant to ~~the Company’s~~an employment ~~agreements with the founders, the founders~~agreement, we have ~~earned~~accrued incentive compensation totaling ~~$117,166 and $165,166 in cash,~~ $100,828 as of December 31, ~~2019~~2021 and ~~2018, respectively, which~~2020 for one of our founders. We deferred these payment ~~obligation has been deferred by the Company~~obligations until itwe reasonably ~~believes it has~~believe we have sufficient cash to make ~~the payment.~~those payments in cash. We made no deferred incentive compensation payments during 2021. Following the retirement of founder A. Michael Chretien on December 8, 2017, ~~the Company expects to make~~we made bi-weekly payments ~~of $1,846~~ until ~~the~~his deferred compensation ~~has~~had been fully paid, which ~~will comprise 61 full payments and one partial payment of $1,569. For~~occurred in May 2020. During the ~~twelve months~~years ended December 31, ~~2019~~2021 and ~~2018, the Company~~2020, we paid ~~$48,000,~~$0 and $16,338, respectively, in deferred incentive compensation, which isamounts were reflected as a reduction in ~~the~~our deferred compensation liability.

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.

~~The Company has~~We have entered into employment agreements with three of ~~its~~our key ~~executives.~~executives, including one of our founders. Under their respective employment agreements, the executives ~~serve at will~~are employed on an “at-will” basis and are bound by typical confidentiality, non-solicitation and non-competition provisions. Deferred compensation for ~~the founders of the Company, as disclosed in Note 10 above, is still~~one founder remains outstanding as of December 31, ~~2019.~~2021.

On January 1, 2010, ~~the Company~~we entered into an agreement to lease 6,000 rentable square feet of office space in Columbus, Ohio. The lease commenced on January 1, 2010and, pursuant to a lease extension dated ~~August 9, 2016,~~September 18, 2021, the lease expires on December 31, ~~2021.~~2028. The monthly rental payment is $4,638, with gradually higher annual increases each January up to $5,850 for the final year.

~~Future~~Our subsidiary, Graphic Sciences, uses 36,000 square feet of leased space in Madison Heights, Michigan as its main facility. Graphic Sciences uses about 20,000 square feet for its records storage services, with the remainder of the space used for production, sales, and administration. The monthly rental payment is $41,508, 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 also leases and uses a separate 37,000 square foot building in Sterling Heights, Michigan for document storage, except approximately 5,000 square feet for production, and a satellite office in Traverse City, Michigan for production. The monthly Sterling Heights rental payment is $20,452, 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. The monthly Traverse City rental payment is $4,500, with a lease term continuing until January 31, 2024. Graphic Sciences also leases and uses four leased vehicles for logistics. The monthly rental payments for these vehicles total $2,618, with lease terms continuing until October 31, 2024.

Graphic Sciences also leases and uses an additional temporary storage space in Madison Heights, 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 ~~this~~these operating ~~lease are as follows:~~leases:

Lease costs charged to operations for the ~~twelve months~~years ended December 31, ~~2019~~2021 and ~~2018~~2020 amounted to ~~$51,254~~ $1,043,980 and ~~$53,006,~~$743,373, respectively. ~~Additional~~Included in the lease costs for the years ended December 31, 2021 and 2020 were short-term lease costs of $97,024 and $71,411, respectively. The following table sets forth additional information pertaining to our leases:

Because these leases do not provide an implicit rate, we use an incremental borrowing rate based on the ~~Company’s~~information available at the lease ~~are as follows:~~commencement date in determining the present value of lease payments.

~~The Company is~~We are authorized to issue up to 25,000,000 shares of common stock with ~~$0.001~~ $0.001 par value. The holders of ~~the Company’s~~our common stock are entitled to one vote per share. The holders of common stock are entitled to receive ratably such dividends, if any, as may be declared by the Board of Directors out of legally available funds. However, the current policy of the Board of Directors is to retain earnings, if any, for the operation and expansion of the business. Upon liquidation, dissolution or winding-up of ~~the Company,~~Intellinetics, the holders of common stock are entitled to share ratably in all assets ~~of the Company that are~~ legally available for distribution.

~~On January 7, 2019 and January 5, 2018, the Company issued 10,454 and 6,052~~As of December 31, 2021, 2,823,072 shares ~~respectively,~~ of ~~restricted~~ common stock ~~to directors~~were issued and outstanding, 131,700 shares of ~~the Company as part of an annual compensation plan for directors. The grant of shares was not subject to vesting. Stock compensation of $87,500 and $57,500 was recorded on the issuance of the~~ common stock were reserved for issuance upon the ~~twelve months ended December 31, 2019~~exercise of outstanding warrants, and ~~2018, respectively.~~497,330 shares of common stock were reserved for issuance under our 2015 Equity Incentive Plan, as amended (the “2015 Plan”).

~~Between December 30, 2016~~our common stock and ~~January 31, 2017, the Company issued convertible promissory~~certain subordinated notes ~~the 2016 Unrelated Notes and the 2016 Related Notes (collectively, the “2016 Notes”),~~ in ~~an aggregate amount of $1,250,000~~a private placement to ~~certain~~ accredited investors ~~including related parties, in private placements. The Company retained Taglich Brothers, Inc.~~ as ~~the exclusive placement agent~~follows:

In connection with the private placement offering, ~~of the 2016 Notes. In January 2017, in compensation for the placement agent’s services in the private placement offering of the 2016 Notes, the Company~~we paid the placement agent a$440,000 in cash, ~~payment of $100,000,~~ equal to 8%8% of the gross proceeds of the offering, along with warrants to purchase 153,846 shares of Company common stock, and the reimbursement for the placement agent’s reasonable out of pocket expenses, FINRA filing fees and related legal fees. The warrants issued to the placement agent contained an exercise price at $0.75 per share, are exercisable for a period of five years after issuance, contain customary cashless exercise provisions and anti-dilution protection and, pursuant to piggyback registration rights, the underlying shares were registered in the Company’s a Registration Statement on Form S-1 declared effective in February 2018. Of the warrants issued to the placement agent, 84,923 warrants were issued in conjunction with proceeds raised in December 2016, and underwriting expense of $65,243 was recorded for the issuance of these warrants, utilizing the Black-Scholes valuation model to value the warrants issued. The remaining 68,923 warrants were issued in conjunction with proceeds raised in January 2017, and underwriting expense of $52,951 was recorded for the issuance of these warrants, utilizing the Black-Scholes valuation model. The fair value of warrants issued was determined to be $0.77.

On September 21, 2017, the Company issued warrants to purchase 150,000 shares of Company common stock to Robert Taglich and Michael Taglich (each holding more than a 5% beneficial interest in the Company’s shares) in connection with the 2017 Bridge Notes. The warrants are exercisable at an exercise price of $0.30 per share, contain a cashless exercise provision, antidilution protection and are exercisable for five years after issuance. A debt discount of $38,837 was recorded for the issuance of these warrants, utilizing the Black-Scholes valuation model. The 2017 Bridge Notes were converted into the 2017 Related Notes in November 2017. The fair value of warrants issued was determined to be $0.26 utilizing the Black-Scholes valuation model.

Between November 17 and November 30, 2017, the Company issued convertible promissory notes, the 2017 Unrelated Notes and the 2017 Related Notes (collectively, the “2017 Notes”), in an aggregate amount of $2,150,000 to certain accredited investors, including related parties, in private placements. The Company retained Taglich Brothers, Inc. as the exclusive placement agent for the private placement offering of the 2017 Notes. In compensation for the placement agent’s services in the private placement offering of the 2017 Notes, the Company paid the placement agent a cash payment of 8% of the gross proceeds of the offering, along with 95,500 warrants to purchase shares of Company common stock, and the reimbursement for the placement agent’s reasonable out of pocket expenses, FINRA filing fees and related legal fees. On November 17, 2017, the Company paid the placement agent cash in the amount of $172,000 and issued the placement agent warrants to purchase 354,000 shares at an exercise price at $0.25 per share, which are exercisable for a period of five years after issuance, contain customary cashless exercise provisions and anti-dilution protection and were entitled to piggyback registration rights that were exercised in connection with the Company’s Registration Statement on Form S-1 declared effective in February 2018. On November 30, 2017, the Company issued the placement agent warrants to purchase 506,000 shares at an exercise price at $0.25 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 registration rights that were exercised in connection with the Company’s Registration Statement on Form S-1 declared effective in February 2018. Debt issuance costs of $126,603 was recorded for the issuance of the November 17 and November 30, 2017 warrants, utilizing the Black-Scholes valuation model. The fair value of warrants issued was determined to be $0.17 and $0.13 for the November 17 and November 30 warrants, respectively. For the twelve months ended December 31, 2019 and 2018, interest expense of $88,356 and $149,890, respectively, was recorded as amortization of the debt issuance costs.

Between September 20 and September 26, 2018, the Company issued convertible promissory notes, the 2018 Unrelated Notes and the 2018 Related Notes (collectively, the “2018 Notes”), in an aggregate amount of $1,300,000 to certain accredited investors, including related parties, in private placements. The Company retained Taglich Brothers, Inc. as the exclusive placement agent for the private placement offering of the 2018 Notes. 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 Companyour common stock and reimbursement for the placement agent’s reasonable out of pocket expenses, FINRA filing fees and related legal fees. ~~On September 20, 2018, the Company paid the placement agent cash in the amount of $40,000 and issued the placement agent~~The warrants ~~to purchase 307,692 shares~~are exercisable at an exercise price at ~~$0.13~~ $4.00 per share ~~which are exercisable~~ for a period of five yearsafter issuance, contain customary cashless exercise provisions and anti-dilution protection and are entitled to limited piggyback registration rights. ~~On September 26, 2018, the Company paid the placement agent cash in the amount~~Underwriting expense of ~~$64,000~~ $236,761 and issued the placement agent warrants to purchase 492,308 shares at an exercise price at $0.18 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. Debtdebt issuance costs of ~~$64,348 was~~$135,291 were recorded for the issuance of the ~~September 20 and September 26, 2018~~March 2, 2020 warrants, utilizing the Black-Scholes valuation model. The fair value of warrants issued was determined to be ~~$0.10~~ $3.90. Underwriting expense of $307,867 and ~~$0.07~~debt issuance costs of $175,924 was recorded for the ~~September 20~~placement agent cash fee and ~~September 26 warrants, respectively.~~other related legal fees. For the ~~twelve months~~years ended December 31, ~~2019~~2021 and ~~2018,~~2020, interest expense of ~~$86,750~~ $103,739 and ~~$21,688,~~$86,449, respectively, was recorded as amortization of the debt issuance ~~costs.~~costs for this private placement offering.

In February 2020, upon recommendation and authorization by our Board of Directors, our stockholders holding a majority in interest of the issued and outstanding shares of our common stock, acting by written consent, adopted an amendment to our Articles of Incorporation to effectuate a reverse split of our issued and outstanding shares of common stock at a ratio of one-for-fifty (1-for-50) (the “Reverse Split”), and reduce the number of authorized shares of our common stock to 25,000,000 shares (the “25,000,000 Share Amendment”). The Reverse Split and the 25,000,000 Share Amendment became effective on March 20, 2020.

Effective March 2, 2020, before the Reverse Split and the 25,000,000 Share Amendment became effective, upon recommendation and authorization by the Board of Directors, stockholders holding a majority in interest of the issued and outstanding shares of our common stock, acting by written consent, adopted an amendment to our Articles of Incorporation to increase the authorized number of shares of our common stock to 160,000,000 shares (representing 3,200,000 shares on a post-split basis) from 75,000,000 shares (representing 1,500,000 shares on a post-split basis), in order to facilitate the acquisition of Graphic Sciences and certain private placement offerings and note conversions. Thereafter, on March 20, 2020, when the Reverse Split and the 25,000,000 Share Amendment became effective, our authorized capital stock became 25,000,000 shares of common stock.

The Reverse Split did not cause an adjustment to the par value of the common stock. Pursuant to the Reverse Split, we adjusted the amounts for shares reserved for issuance upon the exercise of outstanding warrants, outstanding stock options, and shares reserved for the 2015 Plan.

All references to shares of common stock and per share data in the accompanying consolidated financial statements and in these notes related thereto have been adjusted to reflect the Reverse Split for all periods presented.

The following sets forth the warrants to purchase our common stock that were outstanding as of December 31, 2021:

No warrants were issued during 2021. Warrants to purchase 95,500 shares of common stock were issued during the 2020 at a fair value determined to be $3.90 per warrant utilizing the Black-Scholes valuation model. The estimated ~~values~~value of the warrants issued during 2020, as well as the assumptions that were used in calculating such values, were based on estimates at the issuance date as follows:

~~Shares Issued and Outstanding and Shares Reserved for Exercise~~Schedule of Estimated Values of Warrants ~~Convertible Notes, and the 2015 Plan~~Valuation Assumptions

The Company had 370,497 Shares issued and outstanding, 134,532 Shares reserved for issuance upon the exercise of outstanding warrants, 561,756 Shares reserved for issuance upon the conversion of convertible debt, and 67,330 Shares reserved for issuance under the 2015 Plan, as of December 31, 2019.

On April 30, 2015, the Company entered into a Non-qualified Stock Option Agreement with Sophie Pibouin, a director of the Company, in accordance with the 2015 Plan. The agreement granted options to purchase 128,000 shares prior to the expiration date of April 29, 2025 at an exercise price of $0.75. The options granted vested on a graded scale over a period of time through October 31, 2015.

On January 1, 2016, the Company granted employees stock options to purchase 250,000 shares at an exercise price of $0.90 per share in accordance with the 2015 Plan. The options were fully vested as of January 1, 2019. The total fair value of $196,250 for these stock options was recognized by the Company over the applicable vesting period.

	~~F-21~~	Warrants Issued March 2, 2020
Risk-free interest rate			0.88	%
Weighted average expected term			5 years
Expected volatility			130.12	%
Expected dividend yield			0.00	%

F-23

14. 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 February ~~10, 2016, the Company granted employees~~15, 2021 and January 2, 2020, we issued 12,207 shares and 16,429 shares, respectively, of restricted common stock ~~options~~ to ~~purchase 210,000 shares at an exercise price~~our directors as part of ~~$0.96 per share in accordance with~~their annual compensation plan. The grants of restricted common stock were made outside the 2015 Plan ~~with~~and were not subject to any vesting ~~continuing until 2020. The total fair value~~conditions. Stock compensation of ~~$174,748~~$57,500was recorded for ~~these stock options is being recognized by~~ the ~~Company over the applicable vesting period.~~

On December 6, 2016, the Company granted one employee stock options to purchase 100,000 shares at an exercise price of $0.76 per share in accordance with the 2015 Plan, with vesting continuing until 2020. The total fair value of $63,937 for these stock options is being recognized by the Company over the applicable vesting period.

On September 25, 2017, the Company granted an employee stock options to purchase 750,000 shares at an exercise price of $0.30 per share and 500,000 shares at an exercise price of $0.38 per share, in accordance with the 2015 Plan. The options were fully vested as of September 25, 2019. The total fair value of $321,011 for these stock options was recognized by the Company over the applicable vesting period.

On January 30, 2019, the Company entered into a Non-qualified Stock Option Agreement with an individual consultant to the Company, in accordance with the 2015 Plan. The agreement granted options to purchase 12,500 shares prior to the expiration date ofyears ended December 31, ~~2025 at an exercise price of $0.90. The options granted were 100% vested as of the grant date.~~2021 and 2020.

On March 11, 2019, the Company canceled previously granted stock options to employees in the following amounts: 150,000 shares at an exercise price of $0.90 per share; 160,000 shares at an exercise price of $0.96 per share; 100,000 shares at an exercise price of $0.76 per share; 750,000 shares at an exercise price of $0.30 per share; and 500,000 shares at an exercise price of $0.38 per share. On March 11, 2019, the Company replaced those canceled stock options exercisable for a total of 1,660,000 shares with virtually identical stock options at an exercise price of $0.13 per share in accordance with the 2015 Plan. The incremental fair value of $24,898 for these stock options is being recognized by the Company over the applicable vesting periods, which range by tranche from fully vested at issuance through vesting by December 2020.Stock Options

On March 11, 2019, the Company granted employees stock options to purchase 505,000 shares at an exercise price of $0.13 per share in accordance with the 2015 Plan, with vesting continuing until 2023. The total fair value of $44,591 for these stock options is being recognized by the Company over the applicable vesting period.

~~The weighted average estimated values of director and employee~~We did not make any stock option grants ~~as well as the weighted average assumptions that were used in calculating such values~~ during ~~the twelve months ended December 31, 2019 and 2018, were based on estimates at the date of grant as follows:~~

April 30, January 1, February 10,
2015 Grant 2016 Grant 2016 Grant
Risk-free interest rate 1.43 % 1.76 % 1.15 %
Weighted average expected term 5 years 5 years 5 years
Expected volatility 143.10 % 134.18 % 132.97 %
Expected dividend yield 0.00 % 0.00 % 0.00 %

December 6, September 25,
2016 Grant 2017 Grant
Risk-free interest rate 1.84 % 1.85 %
Weighted average expected term 5 years 5 years
Expected volatility 123.82 % 130.79 %
Expected dividend yield 0.00 % 0.00 %

~~F-22~~

January 30, March 11,
2019 Grant 2019 Grant
Risk-free interest rate 2.54 % 2.44 %
Weighted average expected term 5 years 5 years
Expected volatility 115.80 % 116.46 %
Expected dividend yield 0.00 % 0.00 %

~~A summary of stock option activity during the twelve months ended December 31, 2019 and 2018 is as follows:~~

Weighted-
Weighted- Average
Shares Average Remaining Aggregate
Under Exercise Contractual Intrinsic
Option Price Life Value
Outstanding at January 1, 2018 2,238,000 $ 0.55 9 years 79,200

Outstanding at December 31, 2018 2,238,000 $ 0.55 8 years $ 79,200

Exercisable at December 31, 2018 1,589,250 $ 0.57 8 years $ 79,200

Weighted-
Weighted- Average
Shares Average Remaining Aggregate
Under Exercise Contractual Intrinsic
Option Price Life Value
Outstanding at January 1, 2019 2,238,000 $ 0.55 8 years 79,200
Granted 2,177,500 0.13
Forfeited and expired (2,072,500 ) 0.84

Outstanding at December 31, 2019 2,343,000 $ 0.13 9years $ 19,200

Exercisable at December 31, 2019 1,773,000 $ 0.20 9years $ 19,200

2021. The weighted-average grant date fair value of options granted during 2020 was $3.30. Stock-based compensation for options was $92,253 and $58,770, during the ~~twelve months~~years ended December 31, ~~2019 was $0.09. There were no grants~~2021 and 2020, respectively.

A summary of stock option activity during the ~~twelve months~~years ended December 31, ~~2018.~~2021 and 2020 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, 2021		145,360		$	5.61		9 years	$	19,200
Granted		-			-
Forfeited and expired		(500	)		6.50

Outstanding at December 31, 2021		144,860		$	5.61		8 years	$	19,200

Exercisable at December 31, 2021		66,060		$	7.35		8 years	$	19,200

						Weighted-
				Weighted-		Average
	Shares			Average		Remaining		Aggregate
	Under			Exercise		Contractual		Intrinsic
	Option			Price		Life		Value
Outstanding at January 1, 2020		46,860		$	9.02		9 years		19,200
Granted		99,000			4.00
Forfeited and expired		(500	)		6.50
Outstanding at December 31, 2020		145,360		$	5.61		9 years	$	19,200

Exercisable at December 31, 2020		39,160		$	9.51		8 years	$	19,200

As of December 31, ~~2019~~2021 and ~~2018,~~2020, there was ~~$56,012~~ $230,620 and ~~$185,754,~~$322,874, 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.~~three years. The total fair value of stock options that vested during the ~~twelve months~~years ended December 31, ~~2019~~2021, and ~~2018~~2020 was ~~$108,035~~ $91,913 and ~~$249,025,~~$16,650, respectively.

Issues of Stock-Based Compensation

The following represent grants of stock options, including the fair value recognized or to be recognized over the requisite service period:

Schedule of Grants of Stock Options Over Requisite Service Period

Grant date	Shares granted (canceled)			Exercise price		Date fully vested		Fair value

February 10, 2016		4,200		$	48.00		February 10, 2020	$	174,748
December 6, 2016		2,000			38.00		December 6, 2020		63,937
September 25, 2017		15,000			15.00		September 25, 2019		194,149
September 25, 2017		10,000			19.00		September 25, 2019		126,862
January 30, 2019		250			45.00		January 30, 2019		885
March 11, 2019		(33,200	)		-		-		-
March 11, 2019		33,200			6.50		December 6, 2020		24,898	(1)
March 11, 2019		10,100			6.50		March 11, 2023		44,591
September 2, 2020		99,000			4.00		September 2, 2024		327,181

~~14.~~

~~Concentrations~~(1)

Represents incremental fair value of replacement shares compared to canceled shares.

F-24

The weighted average estimated values of director and employee stock option grants, as well as the weighted average assumptions that were used in calculating such values during the years ended December 31, 2021 and 2020, were based on estimates at the date of grant as follows:

Schedule of Estimated Values of Stock Option Grants Valuation Assumptions

	April 30,			January 1,			February 10,
	2015 Grant			2016 Grant			2016 Grant
Risk-free interest rate		1.43	%		1.76	%		1.15	%
Weighted average expected term		5 years			5 years			5 years
Expected volatility		143.10	%		134.18	%		132.97	%
Expected dividend yield		0.00	%		0.00	%		0.00	%

	December 6,			September 25,			January 30,
	2016 Grant			2017 Grant			2019 Grant
Risk-free interest rate		1.84	%		1.85	%		2.54	%
Weighted average expected term		5 years			5 years			5 years
Expected volatility		123.82	%		130.79	%		115.80	%
Expected dividend yield		0.00	%		0.00	%		0.00	%

	March 11,			September 2,
	2019 Grant			2020 Grant
Risk-free interest rate		2.44	%		0.26	%
Weighted average expected term		5 years			5 years
Expected volatility		116.46	%		121.33	%
Expected dividend yield		0.00	%		0.00	%

F-25

15. Concentrations

Revenues from ~~the Company’s services to~~ a limited number of customers have accounted for a substantial percentage of ~~the Company’s~~our total revenues. ~~For~~During the ~~twelve months~~years ended December 31, ~~2019,~~2021 and 2020, our largest customer, the ~~Company’s two largest customers, Loffler, Inc. (including their acquisition~~State of ~~Laser Systems, Inc. (“LSI”)), a reseller, and Franklin County Board of Developmental Disabilities, a direct client,~~Michigan, accounted for ~~approximately 6%~~47% of our total revenues for each period, and 6%our second largest customer, Rocket Mortgage (formerly Quicken Loans), accounted for 9% and 8%, respectively, of ~~the Company’s revenues for that period.~~ our total revenues.

For the ~~twelve months~~years ended December 31, ~~2018, the Company’s three largest customers, Tiburon, Inc., a Reseller, Mid-Ohio Strategic Technologies, a reseller,~~2021, and ~~LSI, accounted for approximately 11%, 10%, and 10%, respectively, of the Company’s revenues for that period.~~

~~For the twelve months ended December 31, 2019 and 2018,~~2020, government contracts represented approximately ~~41%~~62% and ~~30%~~64% of ~~the Company’s~~our net revenues, respectively. A significant portion of ~~the Company’s~~our sales to ~~Resellers~~resellers represent ultimate sales to government agencies.

~~F-23~~

As of December 31, ~~2019,~~2021, accounts receivable concentrations from ~~the Company’s four~~our two largest customers were ~~25%, 25%, 16%~~65% and ~~12%~~7% of our gross accounts receivable, respectively by customer. Accounts receivable balances from our two largest customers at December 31, 2021 have been partially collected. As of December 31, 2020, accounts receivable concentrations from our two largest customers were 54% and 16% of gross accounts receivable, respectively by customer.

16. Provision For Income Taxes

We file income tax returns in the U.S. Federal jurisdiction and as of December 31, 2018, accounts receivable concentrations from the Company’s four largest customers were 22%, 16%, 14% and 14% of gross accounts receivable, respectively. Accounts receivable balances from the Company’s four largest customers at December 31, 2019 have been partially collected.

~~15.~~

~~Provision For Income Taxes~~

various state jurisdictions. For the ~~twelve months~~years ended December 31, ~~2019~~2021, and ~~2018,~~2020, we have recognized the minimum amount of state income tax as required by the states ~~that~~in which we are required to file ~~taxes in.~~taxes. We are not currently subject to further federal or state tax since we have incurred losses since our inception.

Income tax benefit consists of the following Federal, deferred components for the years ended December 31, 2021 and 2020:

Summary of Income Tax Benefits

		December 31, 2021		December 31, 2020
	December 31, 2021			December 31, 2020
Use of (benefit of) net operating losses	$	91,781		$	(72,541	)
Other timing differences		108,042			(91,770	)
Change in valuation allowance, including $188,000 reduction in valuation allowance due to purchased deferred tax liability in 2020		(199,823	)		(23,989	)
Tax benefit	$	-		$	(188,300	)

A reconciliation is provided below of the U.S. Federal income tax expense at a statutory rate of 21% for the years ended December 31, 2021 and 2020:

Summary of Reconciliation of Income Tax Expense

		December 31, 2021		December 31, 2020
	December 31, 2021			December 31, 2020
U.S. statutory rate		21	%		21	%
U.S. Federal income tax at statutory rate	$	285,170		$	(501,690	)
Increase (decrease) in income taxes due to:
Non-deductible earnout expense		25,909			299,040
Non-deductible goodwill amortization		39,958			33,390
Other differences		26,253			4,949
Non-taxable PPP loan and interest recovery		(177,467	)		-
Benefit of acquisition-date purchased deferred tax liability		-			(188,300	)
Other change in valuation allowance		-			164,311
Income tax benefit	$	-		$	(188,300	)

F-26

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities are presented below:

Summary of Deferred Tax Assets and Liabilities

		December 31, 2021		December 31, 2020
	December 31, 2021			December 31, 2020
Deferred tax assets
Reserves and accruals not currently deductible for tax purposes	$	50,558		$	51,906
Amortizable assets		32,615			72,893
Net operating loss carryforwards		3,942,488			4,017,875
Deferred tax assets		4,025,661			4,142,674
Deferred tax liabilities
Property and equipment		(225,484	)		(142,674	)
Net Deferred tax assets		3,800,177			4,000,000
Valuation allowance		(3,800,177	)		(4,000,000	)
Deferred tax assets and liabilities	$	-		$	-

As of December 31, ~~2019,~~2021 and 2020, we had federal ~~and state~~ net operating loss carry forwards of approximately ~~$18,430,000,~~$18,762,000 and $19,129,000, respectively, which can be used to offset future federal income tax. ~~The~~A portion of the federal and state net operating loss carry forwards expire at various dates through ~~2039. Deferred tax assets resulting from~~2040, and a portion of the net operating ~~losses are reduced by~~loss carry forwards have an indefinite carry forward period. We recorded a valuation allowance ~~when,~~against all of our deferred tax assets as of both December 31, 2021, and December 31, 2020. We intend to continue maintaining a full valuation allowance on our deferred tax assets until there is sufficient evidence to support the reversal of all or some portion of these allowances. Release of the valuation allowance would result in the recognition of certain deferred tax assets and a decrease to income tax expense for the period the release is recorded. However, the exact timing and amount of the valuation allowance release are subject to change on the basis of the level of profitability that we are able to actually achieve.

17. Certain Relationships and Related Transactions

Certain Relationships and Related Transactions

The following is a summary of the related person transactions that Intellinetics has participated in at any time during the reporting period.

Notes Payable – Related Parties

See Note 10 for a summary of notes issued to related parties and the subsequent conversion of such related party notes into shares of our common stock on March 2, 2020.

2020 Private Placement

The following related persons participated as investors a private placement of our securities, on the same terms as all other investors participating in the offering. We issued and sold (i) shares of common stock, at a price of $4.00 per share and (ii) units, with each unit consisting of $1,000 in 12% subordinated notes and 40 shares. The principal amount of the 12% subordinated notes, together with any accrued and unpaid interest thereon, become due and payable on February 28, 2023.

Schedule of Related Party Transactions

Name of Investor	Relationship to Intellinetics	Number of Shares Purchased		Date of Transaction
Michael N. Taglich	Beneficially owns more than 5% of the common stock of Intellinetics.		148,750		03/02/2020
Robert F. Taglich	Beneficially owns more than 5% of the Common Stock of Intellinetics.		118,750		03/02/2020
Robert C. Schroeder	Former Director and Former Chairman of the Board of Intellinetics		5,000		03/02/2020
James F. DeSocio	President and Chief Executive Officer; Director of Intellinetics		7,500		03/02/2020
Joseph D. Spain	Chief Financial Officer of Intellinetics		2,000		03/02/2020

Promoters and Certain Control Persons

William M. Cooke, a director of Intellinetics, is the Vice President of Investment Banking at Taglich Brothers, Inc. Robert F. Taglich and Michael N. Taglich, each beneficial owners of more than 5% of our common stock, are also both principals of Taglich Brothers, Inc.

F-27

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 Graphic Sciences. Pursuant to an Engagement Agreement, dated April 15, 2019, we paid Taglich Brothers, Inc. a success fee of $300,000 as a result of the successful completion of the acquisition of Graphic Sciences, Inc.

We retained Taglich Brothers, Inc., as the exclusive placement agent for the 2020 private placement, as described above, pursuant to a Placement Agent Agreement. In connection with the 2020 private placement, we paid Taglich Brothers, Inc. $440,000, which represented an 8% commission based upon the gross proceeds of the 2020 private placement. In addition, for its services in the 2020 private placement, Taglich Brothers, Inc. was issued warrants to purchase 95,500 shares of common stock, which amount is equal to 10% of the shares and unit shares sold in the 2020 private placement, which have an exercise price of $4.00 per share of common stock, are exercisable for a period of five years, contain customary cashless exercise and anti-dilution protection rights and are entitled to piggy-back registration rights.

We retained Taglich Brothers, Inc. as the exclusive placement agent for the 2020 note conversion, as described above in Note 10 (Notes Payable – Related Parties), pursuant to the Placement Agent Agreement. In connection with the 2020 note conversion, we issued 35,250 shares of common stock to Taglich Brothers, Inc., which, based on the conversion price of $4.00 per share, was equal to 3% of the original principal amount of the converted notes.

18. Subsequent Events

Issuance of Restricted Common Stock to Directors

On January 6, 2022, we issued 8,097 new Shares of restricted common stock to our directors in accordance with our director compensation policy. Stock compensation of $57,500 was recorded on the issuance of the common stock.

F-28

INTELLINETICS, INC. and SUBSIDIARIES

CondensedConsolidated Balance Sheets

	(unaudited)
	March 31, 2022			December 31, 2021
ASSETS
Current assets:
Cash	$	2,172,758		$	1,752,630
Accounts receivable, net		898,399			1,176,059
Accounts receivable, unbilled		473,986			444,782
Parts and supplies, net		65,713			76,691
Other contract assets		86,603			78,556
Prepaid expenses and other current assets		211,087			155,550
Total current assets		3,908,546			3,684,268

Property and equipment, net		1,087,832			1,091,780
Right of use assets		3,687,107			3,841,612
Intangible assets, net		914,377			968,496
Goodwill		2,322,887			2,322,887
Other assets		79,293			53,089
Total assets	$	12,000,042		$	11,962,132

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:
Accounts payable	$	330,270		$	181,521
Accrued compensation		287,044			343,576
Accrued expenses, other		155,384			161,862
Lease liabilities - current		635,423			616,070
Deferred revenues		1,136,066			1,194,649
Deferred compensation		80,662			100,828
Earnout liabilities - current		994,527			958,818
Notes payable - current		1,807,128			-
Total current liabilities		5,426,504			3,557,324

Long-term liabilities:
Notes payable - net of current portion		-			1,754,527
Lease liabilities - net of current portion		3,151,110			3,316,682
Earnout liabilities - net of current portion		700,358			671,863
Total long-term liabilities		3,851,468			5,743,072
Total liabilities		9,277,972			9,300,396

Stockholders’ equity:
Common stock, $0.001 par value, 25,000,000 shares authorized; 2,831,169 and 2,823,072 shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively		2,831			2,823
Additional paid-in capital		24,377,681			24,297,229
Accumulated deficit		(21,658,442	)		(21,638,316	)
Total stockholders’ equity		2,722,070			2,661,736
Total liabilities and stockholders’ equity	$	12,000,042		$	11,962,132

See Notes to these condensed consolidated financial statements

F-29

INTELLINETICS, INC. and SUBSIDIARIES

Condensed Consolidated Statements of Operations

(Unaudited)

	2022			2021
	For the Three Months Ended March 31,
	2022			2021

Revenues:
Sale of software	$	64,491		$	9,594
Software as a service		431,221			323,726
Software maintenance services		336,602			340,446
Professional services		1,587,948			1,652,463
Storage and retrieval services		283,250			308,990
Total revenues		2,703,512			2,635,219

Cost of revenues:
Sale of software		26,193			4,237
Software as a service		91,249			76,340
Software maintenance services		18,300			24,388
Professional services		848,167			834,238
Storage and retrieval services		87,766			91,112
Total cost of revenues		1,071,675			1,030,315

Gross profit		1,631,837			1,604,904

Operating expenses:
General and administrative		938,883			1,039,026
Change in fair value of earnout liabilities		64,204			69,950
Transaction costs		70,051			-
Sales and marketing		352,114			290,311
Depreciation and amortization		114,110			94,884

Total operating expenses		1,539,362			1,494,171

Income from operations		92,475			110,733

Other income (expense)
Gain on extinguishment of debt		-			845,083
Interest expense, net		(112,601	)		(113,044	)

Total other (expense) income		(112,601	)		732,039

(Loss) income before income taxes		(20,126	)		842,772

Income tax benefit		-			-

Net (loss) income	$	(20,126	)	$	842,772

Basic net (loss) income per share:	$	(0.01	)	$	0.30
Diluted net (loss) income per share:	$	(0.01	)	$	0.27

Weighted average number of common shares outstanding - basic		2,830,899			2,822,665
Weighted average number of common shares outstanding - diluted		2,830,899			3,106,885

See Notes to these condensed consolidated financial statements

F-30

INTELLINETICS, INC. and SUBSIDIARIES

Condensed Consolidated Statement of Stockholders’ Equity

For the Three Months Ended March 31, 2022 and 2021

(Unaudited)

	Shares		Amount		Capital		Deficit			Total
	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		-		-		23,098		-			23,098

Net Income		-		-		-		842,772			842,772

Balance, March 31, 2021		2,823,072	$	2,823	$	24,228,074	$	(22,153,495	)	$	2,077,402

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		-		-		22,960		-			22,960

Net Loss		-		-		-		(20,126	)		(20,126	)
Net income (Loss)		-		-		-		(20,126	)		(20,126	)

Balance, March 31, 2022		2,831,169	$	2,831	$	24,377,681	$	(21,658,442	)	$	2,722,070

See Notes to these condensed consolidated financial statements

F-31

INTELLINETICS, INC. and SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(Unaudited)

	2022			2021
	For the Three Months Ended March 31,
	2022			2021

Cash flows from operating activities:
Net (loss) income	$	(20,126	)	$	842,772
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization		114,110			94,884
Bad debt (recovery) expense		(2,097	)		(2,634	)
Parts and supplies reserve change		-			4,500
Amortization of deferred financing costs		25,935			25,935
Amortization of debt discount		26,666			26,666
Amortization of right of use asset		154,505			129,560
Stock issued for services		57,500			57,500
Stock options compensation		22,960			23,098
Gain on extinguishment of debt		-			(845,083	)
Change in fair value of earnout liabilities		64,204			69,950
Changes in operating assets and liabilities:
Accounts receivable		279,757			(260,009	)
Accounts receivable, unbilled		(29,204	)		177,371
Parts and supplies		10,978			(593	)
Prepaid expenses and other current assets		(89,788	)		(65,309	)
Accounts payable and accrued expenses		85,739			227,897
Lease liabilities, current and long-term		(146,219	)		(129,759	)
Deferred compensation		(20,166	)		-
Accrued interest, current and long-term		-			442
Deferred revenues		(58,583	)		(50,319	)
Total adjustments		496,297			(515,903	)
Net cash provided by operating activities		476,171			326,869

Cash flows from investing activities:
Purchases of property and equipment		(56,043	)		(231,699	)
Net cash used in investing activities		(56,043	)		(231,699	)

Net increase in cash		420,128			95,170
Cash - beginning of period		1,752,630			1,907,882
Cash - end of period	$	2,172,758		$	2,003,052

Supplemental disclosure of cash flow information:
Cash paid during the period for interest	$	60,000		$	60,000
Cash paid during the period for income taxes	$	1,303		$	913

See Notes to these condensed consolidated financial statements

F-32

INTELLINETICS, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1.Business Organization and Nature of Operations

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 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.

2.Basis of Presentation

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 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 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 ~~opinion, utilization~~Annual Report on Form 10-K for the fiscal year ended December 31, 2021 filed with the SEC filed on March 24, 2022.

3. Summary of Significant Accounting Policies

Principles of Consolidation

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 50% of the outstanding voting stock of an investee, except when control is not ~~reasonably assured.~~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.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions. Such estimates and assumptions affect the reported amounts of assets 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 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.

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 fair value deferred taxes and related valuation allowances. Our management monitors these risks and assesses our business and financial risks on a quarterly basis.

F-33

Revenue Recognition

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. 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 filed with the SEC filed on March 24, 2022.

Contract balances

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 tables present changes in our contract assets during the three months ended March 31, 2022 and 2021:

Schedule of Changes in Contract Assets and Liabilities

	Balance at Beginning of Period		Revenue Recognized in Advance of Billings		Billings			Balance at End of Period
Three months ended March 31, 2022
Accounts receivable, unbilled	$	444,782	$	700,869	$	(671,665	)	$	473,986

Three months ended March 31, 2021
Accounts receivable, unbilled	$	523,522	$	466,310	$	(643,681	)	$	346,151

	Balance at Beginning of Period		Commissions Paid		Commissions Recognized			Balance at End of Period
Three months ended March 31, 2022
Other contract assets	$	78,556	$	22,136	$	(14,089	)	$	86,603

Three months ended March 31, 2021
Other contract assets	$	31,283	$	10,064	$	(9,225	)	$	32,122

Deferred revenue

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.

F-34

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 97% of the remaining performance obligations over the next 12 months, with the remainder recognized thereafter. As of March 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 $33,547. As of December 31, ~~2019,~~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. 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 three months ended March 31, 2022 and 2021:

	Balance at Beginning of Period		Billings		Recognized Revenue			Balance at End of Period
Three months ended March 31, 2022
Contract liabilities: Deferred revenue	$	1,194,649	$	984,117	$	(1,042,700	)	$	1,136,066

Three months ended March 31, 2021
Contract liabilities: Deferred revenue	$	996,131	$	684,140	$	(734,459	)	$	945,812

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. The Company recorded an allowance of $24,000 at March 31, 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.

F-35

Goodwill

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.

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 0impairment of long-lived assets in the three 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. 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.

Stock-Based Compensation

We account for stock-based payments to employees in accordance with ASC 718, “Compensation - Stock Compensation.” 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.

F-36

We account for stock-based payments to non-employees in accordance with ASC 718, “Compensation - Stock Compensation,” which requires that such equity instruments be measured at their fair values on the grant date.

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. No such costs were capitalized during the 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 $29,397 were capitalized during the first quarter 2022. No such costs were capitalized during the first quarter 2021. Such 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 March 31, 2022 and December 31, 2020, our condensed consolidated balance sheets included $64,509 and $38,305, respectively, in other long-term assets.

For the three months ended March 31, 2022 and 2021, our expensed software development costs were $62,751 and $102,195, respectively.

Recently Issued Accounting Pronouncements Not Yet Effective

Financial Instruments – Credit Losses

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326), which requires entities to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. This replaces the existing incurred loss model and is applicable to 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.

F-37

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

Advertising

We expense the cost of advertising as incurred. Advertising expense for the three months ended March 31, 2022 and 2021 amounted to $448 and $675, respectively.

(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 months ended March 31, 2022 reported a net loss, while the three months ended March 31, 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 three months ended March 31, 2022 because to do so would be anti-dilutive. As such, 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 ~~asset, primarily related~~assets to ~~our net operating losses, was approximately $3,809,000.~~the amount expected to be realized. A ~~100 %~~100% valuation allowance has been established on deferred tax assets at March 31, 2022 and December 31, ~~2019 and 2018,~~2021, 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 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 no 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.

F-38

Information by operating segment is as follows:

Schedule of Segment Information

	Three months ended March 31, 2022		Three months ended March 31, 2021
Revenues
Document Management	$	914,950	$	735,818
Document Conversion		1,788,562		1,899,401
Total revenues	$	2,703,512	$	2,635,219

Gross profit
Document Management	$	734,906	$	587,500
Document Conversion		896,931		1,017,404
Total gross profit	$	1,631,837	$	1,604,904

Capital additions, net
Document Management	$	1,687	$	38,117
Document Conversion		54,356		193,582
Total capital additions, net	$	56,043	$	231,699

	March 31, 2022		December 31, 2021
Goodwill
Document Management	$	522,711	$	522,711
Document Conversion		1,800,176		1,800,176
Total goodwill	$	2,322,887	$	2,322,887

	March 31, 2022		December 31, 2021
Total assets
Document Management	$	2,303,195	$	2,233,419
Document Conversion		9,686,847		9,728,713
Total assets	$	12,000,042	$	11,962,132

Statement of Cash Flows

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

4. Intangible Assets, Net

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

Schedule of Intangible Assets

	Estimated			Accumulated
	Useful Life	Costs		Amortization			Net
Trade names	10 years	$	119,000	$	(24,792	)	$	94,208
Customer contracts	5-8 years		1,242,000		(421,831	)		820,169
		$	1,361,000	$	(446,623	)	$	914,377

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 contracts	5-8 years		1,242,000		(370,687	)		871,313
		$	1,361,000	$	(392,504	)	$	968,496

~~16.~~

~~Subsequent Events~~F-39

~~Issuance~~

Amortization expense for the three months ended March 31, 2022 and 2021 amounted to $54,119. The following table represents future amortization expense for intangible assets subject to amortization.

Schedule of ~~Restricted Common Stock~~Amortization Expense for Intangible Assets

For the Twelve Months Ending March 31, Amount
2023 $ 216,475
2024 216,475
2025 216,475
2026 179,292
2027 32,275
Thereafter 53,385
Intangible assets $ 914,377
5. Fair Value Measurements
Under GAAP, fair value is defined as the price that would be received to ~~Directors~~sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value hierarchy consists of the following three levels. Level 1 inputs are quoted prices in active markets for identical assets or liabilities. Level 2 inputs consist 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 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 earnout liabilities related to our two 2020 acquisitions which are 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 considered to be Level 3 inputs due to the lack of relevant market activity and significant management judgment. Key unobservable inputs include 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 months ended March 31, 2022 and 2021:
Summary of Changes in Fair Value of Earnout Liabilities
March 31, 2022
Fair value at December 31, 2021 $ 1,630,681
Change in fair value 64,204
Fair value at March 31, 2022 $ 1,694,885
March 31, 2021
Fair value at December 31, 2020 $ 2,444,000
Change in fair value 69,950
Fair value at March 31, 2021 $ 2,513,950
The fair values of amounts owed are recorded in the current and long-term portions of earnout liabilities in our condensed consolidated balance sheets. Changes in fair value are recorded in change in fair value of earnout liabilities in our condensed consolidated statements of operations.
6. Property and Equipment
Property and equipment are comprised of the following:
Schedule of Property and Equipment
March 31, 2022 December 31, 2021
Computer hardware and purchased software $ 1,510,080 $ 1,494,918
Leasehold improvements
336,111
295,230
Furniture and fixtures 71,325 71,325
Property and equipment, gross
1,917,516
1,861,473
Less: accumulated depreciation (829,684 ) (769,693 )
Property and equipment, net $ 1,087,832 $ 1,091,780
Total depreciation expense on our property and equipment for the three months ended March 31, 2022 and 2021 amounted to $59,991 and $40,765, respectively.
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7. Notes Payable
Summary of Notes Payable to Unrelated Parties
The table below summarizes all notes payable at March 31, 2022 and December 31, 2021, respectively.
Schedule of Notes Payable to Unrelated Parties
March 31, 2022 December 31, 2021
Notes payable – “2020 Notes” $ 2,000,000 $ 2,000,000
Less unamortized debt issuance costs (95,094 ) (121,029 )
Less unamortized debt discount (97,778 ) (124,444
Less current portion (1,807,128 ) -
Long-term portion of notes payable $ - $ 1,754,527
Future minimum principal payments of the 2020 Notes are as follows:
Schedule of Future Minimum Principal Payments of Notes Payable
As of March 31, Amount
2023 $ 2,000,000
Total $ 2,000,000
As of March 31, 2022 and December 31, 2021, accrued interest for these notes payable was $0. As of March 31, 2022, unamortized deferred financing costs and unamortized debt discount were reflected within short term liabilities on the condensed consolidated balance sheets. As of December 31, 2021, unamortized deferred financing costs and unamortized debt discount were reflected within long term liabilities on the condensed consolidated balance sheets.
With respect to all notes outstanding, for the three months ended March 31, 2022 and 2021, interest expense, including the amortization of debt issuance costs and debt discount, was $112,601 and $113,044, respectively.
2020 Notes
On ~~January~~March 2, 2020, ~~the Company issued 16,428 new Shares~~we sold 2,000 units, at an offering price of ~~restricted~~$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, ~~to directors~~for aggregate gross proceeds of the Company in accordance with the Company’s director compensation policy. Stock compensation of $57,500 will be recorded over the requisite service period of the twelve months ending December 31, 2020 on the issuance of the common stock.
~~Reverse Stock Split~~
~~Effective February 27, 2020, upon recommendation~~$2,000,000. The entire outstanding principal and ~~authorization by the Board of Directors, stockholders holding a majority in~~accrued interest of the 2020 Notes are due and payable on February 28, 2023. Interest on the 2020 Notes accrues at the rate of 12% per annum, payable quarterly in cash, beginning on June 30, 2020. 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 $26,666and $26,667, respectively, for the three months ended March 31, 2022 and 2021.
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 $845,083 for the three months ended March 31, 2021.
8. Deferred Compensation
Pursuant to an employment agreement, we have accrued incentive cash compensation for one of our founders totaling $80,662 as of March 31, 2022 and $100,828 as of December 31, 2021. During the three months ended March 31, 2022, we paid $20,166 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 three months ended March 31, 2021.
9. 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 March 31, 2022.
F-41
Operating Leases
On January 1, 2010, we entered into an agreement to lease 6,000 rentable square feet of office space in Columbus, Ohio. 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 $4,638, with gradually higher annual increases each January up to $5,850 for the final year.
Our subsidiary, Graphic Sciences, uses 36,000 square feet of leased space in Madison Heights, Michigan as its main facility. Graphic Sciences uses about 20,000 square feet for its records storage services, with the remainder of the space used for production, sales, and administration. The monthly rental payment is $41,508, 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 also leases and uses a separate 37,000 square foot building in Sterling Heights, Michigan for document storage, except approximately 5,000 square feet for production, and a satellite office in Traverse City, Michigan for production. The monthly Sterling Heights rental payment is $20,452, 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. The monthly Traverse City rental payment is $4,500, with a lease term continuing until January 31, 2024. Graphic Sciences also leases and uses four leased vehicles for logistics. The monthly rental payments for these vehicles total $2,618, with lease terms continuing until October 31, 2024.
Graphic Sciences also leases and uses an additional temporary storage space in Madison Heights, 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 leases:
Schedule of Future Rental Payments for Operating Leases
For the Three Months Ending March 31, Amount
2023 $ 935,024
2024 924,598
2025 875,314
2026 885,260
2027 578,184
Thereafter 435,103
Total $ 4,633,483
Lease costs charged to operations for the three months ended March 31, 2022 and 2021 amounted to $243,301 and $238,075, respectively. Included in the lease costs for the three months ended March 31, 2022 and 2021 were short-term lease costs of $4,814 and $39,105, respectively. The following table sets forth additional information pertaining to our leases:
Schedule of Operating Lease Costs
For the Three Months Ending March 31, 2022:
Operating cash flows from operating leases $ 151,032
Weighted average remaining lease term – operating leases 5.1 years
Weighted average discount rate – operating leases 7.01 %
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.
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10. Stockholders’ Equity
Common Stock
As of March 31, 2022, 2,831,169shares of common stock ~~acting by written consent, adopted an amendment to the Company’s Articles of Incorporation to (i) effectuate the reverse split at a ratio of one-for-fifty (1-for-50)~~were issued and ~~(ii) reduce the number of authorized~~ outstanding, 131,700 shares of common stock of the Company as of the effective date of such amendment to 25,000,000 shares. On March 3, 2020, the Company filed the amendment, which became effective on March 20, 2020. On March 1, 2020, upon recommendation and authorization by the Board of Directors, stockholders holding a majority in interest of the issued and outstanding shares of common stock of the Company, acting by written consent, adopted an amendment to the Company’s Articles of Incorporation to increase the authorized number of shares of common stock to 3,200,000 shares (representing 160,000,000 on a pre-split basis) from 1,500,000 shares (representing 75,000,000 on a pre-split basis), in order to facilitate the GSI Acquisition, the Offering, and the 2020 note conversion. On March 2, 2020, the Company filed the Shares Increase Amendment, which was effective immediately upon filing.
~~The reverse stock split did not cause an adjustment to par value of the common stock. As a result of the reverse stock split, the Company also adjusted the share amounts for shares~~were reserved for issuance upon the exercise of outstanding warrants, ~~outstanding~~and 497,330 shares of common stock ~~options, and shares~~were reserved for ~~the~~issuance under our 2015 ~~Plan. All disclosures of common shares and per share data in the accompanying financial statements related notes have been adjusted to reflect the reverse stock split for all periods presented.~~Equity Incentive Plan, as amended (the “2015 Plan”).
~~Note Conversion~~
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 ~~Company entered into amendments~~private placement offering, we paid the placement agent $440,000 in cash, equal to ~~all~~8% of ~~its currently~~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. For the three months ended March 31, 2022 and 2021, interest expense of $25,935 was recorded as amortization of the debt issuance costs for this private placement offering.
Warrants
The following sets forth the warrants to purchase our common stock that were outstanding ~~Convertible Promissory Notes, which~~as of March 31, 2022:
● Warrants to purchase 3,000 shares of common stock at an exercise price of $15.00 per share exercisable until September 21, 2022, 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 between November 17, 2022 and November 30, 2022, 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 between September 20, 2023 and September 26, 2023, 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 2, 2025, issued to the placement agent in connection with private placements of our convertible promissory notes.
No warrants were issued during the three months ended March 31, 2022 or 2021.
F-43
11. Stock-Based Compensation
From time to time, we issue stock options and restricted stock as compensation for services rendered by ~~the Company to various investors in 2016, 2017,~~our directors and ~~2018. The Note Amendments permit the Company, in the event the Company offers its~~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 ~~investors~~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 the issuance of the common stock for the three months ended March 31, 2022 and 2021.
Stock Options
We did not make any stock option grants during the three months ended March 31, 2022 or 2021. Stock-based compensation for options was $22,960 and $23,098 during the three months ended March 31, 2022 and 2021, respectively.
A summary of stock option activity during the three months ended March 31, 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

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
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 March 31, 2021 145,360 $ 5.61 9 years $ 19,200

Exercisable at March 31, 2021 41,560 $ 9.34 8 years $ 19,200
F-44
As of March 31, 2022 and December 31, 2021, there was $207,660 and $230,620, 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 three months ended March 31, 2022 and 2021 was $10,238 and $10,800, respectively.
12. Concentrations
Revenues from a limited number of customers have accounted for a substantial percentage of our total revenues. During the three months ended March 31, 2022 and 2021, our two largest customers, the State of Michigan, and Rocket Mortgage, both direct clients, accounted for 40% and 10%, and 46% and 11%, respectively, of our total revenues.
For the three months ended March 31, 2022 and 2021, government contracts represented approximately 60% and 64% of our net revenues, respectively. A significant portion of our sales to resellers represent ultimate sales to government agencies.
As of March 31, 2022, accounts receivable concentrations from our three largest customers were 43%, 10%, and 9% of our gross accounts receivable, respectively by customer. As of March 31, 2021, accounts receivable concentrations from our two largest customers were 40% and 17% of gross accounts receivable, respectively by customer. Accounts receivable balances from our two largest customers at March 31, 2022 have been partially collected.
13. Certain Relationships and Related Transactions
We did not participate in any ~~private placement~~related person transactions during the three-month period ended March 31, 2022 or 2021.
14. Provision For Income Taxes
The Company files income tax returns in the U.S. Federal jurisdiction and various state jurisdictions. For the three months ended March 31, 2022 and 2021, we have recognized the minimum amount of ~~securities,~~state income tax as required by the states in which we are required to ~~convert~~file taxes. We are not currently subject to further federal or state tax since we have incurred losses since our inception.
A reconciliation is provided below of the U.S. Federal income tax expense at a statutory rate of 21% for the three months ended March 31, 2022 and 2021:
Summary of Reconciliation of Income Tax Expense
March 31, 2022 March 31, 2021
U.S. statutory rate 21 % 21 %
U.S. Federal income tax at statutory rate $ (4,226 ) $ 177,030 )
Increase (decrease) in income taxes due to:
Non-taxable PPP loan and accrued interest recovery - (176,190 )
Non-deductible earnout expense 11,220 14,700
Non-deductible goodwill amortization 9,989 10,080
Other differences 93 1,380
Other change in valuation allowance (17,076 ) (27,000 )
Income tax benefit $ - $ -
The approximate tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities are presented below:
Summary of Deferred Tax Assets and Liabilities
March 31, 2022 December 31, 2021
Deferred tax assets
Reserves and accruals not currently deductible for tax purposes $ 47,622 $ 50,558
Amortizable assets 33,950 32,615
Net operating loss carryforwards 3,926,322 3,942,488
Deferred tax assets 4,007,894 4,025,661
Deferred tax liabilities
Property and equipment (224,792 ) (225,484 )
Net Deferred tax assets 3,783,102 3,800,177
Valuation allowance (3,783,102 ) (3,800,177 )
Deferred tax assets and liabilities $ - $ -
As of March 31, 2022 and December 31, 2021, we had federal net operating loss carry forwards of approximately $18,685,000 and $18,762,000, respectively, which can be used to offset future federal income tax. A portion of the federal and state net operating loss carry forwards expire at various dates through 2040, and a portion of the net operating loss carry forwards have an indefinite carry forward period. We recorded a valuation allowance against all of our deferred tax assets as of both December 31, 2021, and December 31, 2020. We intend to continue maintaining a full valuation allowance on our deferred tax assets until there is sufficient evidence to support the ~~then-outstanding principal and accrued and unpaid interest payable with respect to the 2016-2018 Notes into shares~~reversal of ~~common stock upon the same terms as such private placement. Pursuant to the Note Amendments, on March 2, 2020, the Company converted~~ all or some portion of these allowances. Release of the ~~then-outstanding principal~~valuation allowance would result in the recognition of certain deferred tax assets and ~~accrued~~a decrease to income tax expense for the period the release is recorded. However, the exact timing and ~~unpaid interest payable with respect to the 2016-2018 Notes and $350,000~~amount of the ~~2019 Related Notes into~~valuation allowance release are subject to change on the basis of the level of profitability that we are able to actually achieve.
F-45
15. Subsequent Events
Incentive Stock Option Issuance
On April 14, 2022, we issued incentive stock option awards to purchase an aggregate ~~amount~~ of ~~1,433,739~~ 220,587 shares, ~~of common stock at a conversion~~with an exercise price of ~~$4.00~~ $6.08 per ~~share. Taglich Brothers, Inc. acted as~~share, to seven members of our executive and management teams, subject to three-year vesting and in accordance with the ~~exclusive placement agent for~~terms and conditions of our 2015 Equity Incentive Plan. Stock compensation of approximately $1.2 millionwill be recorded over the ~~Note Conversion, and earned fees in the form of 35,250 shares of common stock.~~vesting period.
Private Securities Offering

On ~~March 2, 2020, the Company~~April 1, 2022, we entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”) with certain accredited investors, pursuant to which ~~the Company~~we issued and sold (i) ~~875,000~~ 1,242,588shares of the Company’s ~~common stock,~~Common Stock, at a price of ~~$4.00~~$4.62 per share, for aggregate gross proceeds of ~~$3,500,000~~$ 5,740,756 and (ii) ~~2,000 units (“Units”), with each Unit consisting of $1,000~~$2,964,500 in 12% Subordinated Notes ~~and 40 shares,~~(“Notes”), for aggregate gross proceeds of ~~$2,000,000 in Units and $5,500,000~~$8,705,256 for the combined private placement pursuant to the Securities Purchase Agreement (the “Offering”). ~~After full subscription of the Offering, the Company will have issued 955,000 new shares of common stock. The Company~~We used a portion of the net proceeds of the Offering to finance the acquisition of ~~Graphic Sciences~~Yellow Folder described ~~in Item 2.01 of this Report,~~below, and ~~intends~~intend to use the remaining net proceeds for working capital and general corporate purposes, including potentially debt reduction and other future acquisitions.
The principal amount of the Notes, together with any accrued and unpaid interest thereon, become due and payable on ~~February 28, 2023.~~March 30, 2025. Interest on the Notes will accrue at the rate of ~~12%~~12% per annum, payable quarterly in cash, beginning on June 30, ~~2020~~2022 and the entire outstanding principal and accrued but unpaid interest due on the Notes is payable on the ~~Maturity Date.~~maturity date. Any accrued but unpaid quarterly installment of interest shall accrue interest at the rate of ~~14.0%~~14.0% per annum. Any overdue principal and accrued and unpaid interest at the Maturity Date shall accrue a mandatory default penalty of ~~20%~~20% of the outstanding principal balance and an interest rate of ~~14%~~14% per annum from the ~~Maturity Date~~maturity date until paid in full.
The Company retained Taglich Brothers, Inc. as the exclusive placement agent for the private placement offering of the Securities Purchase Agreement. In compensation, the Company paid the placement agent a cash payment of 8%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 ~~March 2, 2020,~~April 1, 2022, the Company paid the placement agent cash in the amount of ~~$440,000~~$696,420 and issued the placement agent warrants to purchase ~~95,500~~124,258 shares at an exercise price at ~~$4.00~~$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.
Acquisition of ~~Graphic Sciences, Inc.~~Yellow Folder, LLC
On ~~March 2, 2020,~~April 1, 2022, the Company acquired ~~100%~~substantially all of the ~~Graphic Sciences capital stock, pursuant to~~assets of Yellow Folder, LLC, a ~~Stock Purchase Agreement, dated as of March 2, 2020 (the “Purchase Agreement”~~Texas limited liability company (“Yellow Folder”). Located in ~~Madison Heights, Michigan, Graphic Sciences~~Dallas, Yellow Folder is a document ~~management~~solutions company that ~~provides indexing and scanning services, as well as physical document storage and retrieval services. Multi-year state and local government contracts account for~~specializes in the majority of Graphic Sciences’ sales. Graphic Sciences provides services to the State of Michigan pursuant to the State of Michigan’s Standard Contract Terms, dated June 1, 2018 and expiring on May 30, 2023, unless earlier terminated in accordance with its terms (the “Michigan Contract”). Pursuant to the Michigan Contract, the various subdivisions, agencies, and municipalities within the State of Michigan may procure document management services from Graphic Sciences at a fixed price during the term of the Michigan Contract.K-12 education market.
The acquisition was consummated pursuant to ~~a Stock~~an Asset Purchase Agreement, dated as of ~~March 2, 2020~~April 1, 2022 (the “Purchase Agreement”)~~, by and among the Company, Graphic Sciences, and four individual sellers (“Sellers”)~~. The ~~initial~~ purchase price for ~~Graphic Sciences~~Yellow Folder consisted of approximately ~~$3.5~~$6.5 million in cash, on a cash-free, debt-free basis, ~~and~~with a preliminary working capital negative adjustment of $116,731, which remains subject to a post-closing net working capital true-up adjustment. The positive net working capital at the time of closing consisted of approximately $1.0 million in accounts receivable and other current assets and approximately $0.3 million in trade payables and other obligations relating to Graphic Sciences’ ongoing business and contracts. In addition to the initial purchase price, three annual potential earnout payments of up to an aggregate of $2.5 million will be payable to the Sellers over three years if certain gross profit levels are achieved. The Company retained Taglich Brothers, Inc. on an exclusive basis to render financial advisory and investment banking services to the Company in connection with the acquisition of Graphic Sciences, for a success fee of $300,000, plus reasonable expenses not exceeding $5,000.
The Company incurred ~~$84,982~~$70,051 of related acquisition costs in the ~~twelve~~three months ended ~~December~~March 31, ~~2019~~2022 which are reflected in ~~general and administrative~~transaction costs in the Condensed Consolidated Statement of Operations. The Company expects to report ~~Graphic Sciences~~Yellow Folder as ~~a separate~~part of its Document Management segment during fiscal year ~~2020.~~2022. The acquisition qualifies as a business combination and will be accounted for using the acquisition method of accounting.
As a result of limited access to ~~Graphic Sciences~~Yellow Folder information required to prepare initial accounting, together with the limited time since the acquisition date and the effort required to conform the financial statements to the Company’s practices and policies, the initial accounting for the business combination is incomplete at the time of this filing. As a result, the Company is unable to provide the amounts recognized as of the ~~GSI Acquisition~~Yellow Folder acquisition date for the major classes of assets acquired and liabilities assumed, pre-acquisition contingencies and goodwill. Also, the Company is unable to provide proforma revenues and earnings of the combined entity. This information will be included in the Company’s Quarterly Report on Form 10-Q for the quarter ended ~~March 31, 2020.~~June 30, 2022.
~~Impact of Coronavirus~~
In December 2019, a novel strain of coronavirus (COVID-19) was reported in Wuhan, China. The COVID-19 pandemic has continued to spread and has already caused severe global disruptions. The extent of COVID-19’s effect on our operational and financial performance will depend on future developments, including the duration, spread and intensity of the pandemic, all of which are uncertain and difficult to predict considering the rapidly evolving landscape. For example, the impact of COVID-19 on any of our channel partners or customers may negatively affect our revenues. Additionally, if we are forced to scale back hours of operations or close our document services or storage facilities in response to the pandemic, we expect our business, financial condition and results of operations would be materially adversely affected. In addition, our growth strategy to expand our operations may be impeded. We may also be impacted by decreased customer demand and/or subscription terminations as a result of a reduction in customer spending or as a result of government-imposed restrictions on businesses, shelter-in place orders and temporary restaurant, retail and grocery store closures. If the pandemic continues to evolve into a severe worldwide health crisis, the disease could have a material adverse effect on our business, results of operations, financial condition and cash flows.
~~F-24~~ F-46

~~2,519,490~~1,366,846 Shares of Common Stock
INTELLINETICS, INC.
PROSPECTUS

PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth the costs and expenses that are payable by the Registrant in connection with the offering described in the prospectus that is part of this Registration Statement. All amounts, other than the SEC Registration Fee, are estimates. Although the Registrant will not receive any of the proceeds from the sale of the shares of our common stock being registered in this Registration Statement, the Registrant agreed to bear the costs and expenses of the registration of such shares.
SEC registration fee $ 981 $ 553.71
Printing fees and expenses 2,000 2,000
Accounting fees and expenses 12,000 12,000
Legal fees and expenses 25,000 25,000
Total $ 39,981 $
39,553.71

Item 14. Indemnification of Directors and Officers.
The Nevada General Corporation Law, our Articles of Incorporation, and our bylaws provide for the indemnification of directors, officers and certain other persons in the circumstances outlined below.
Actions other than by the Registrant
The Registrant may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, except an action by or in the right of the Registrant, by reason of the fact that such person is or was a director, officer, employee or agent of the Registrant, or is or was serving at the request of the Registrant as a director, officer, employee or agent of another corporation or other entity, against expenses, including attorneys’ fees, judgments, fines and amounts paid in settlement, actually and reasonably incurred by such person in connection with the action, suit or proceeding if (i) such person is not liable for a breach of fiduciary duty involving intentional misconduct, fraud or a knowing violation of the law, or (ii) such person acted in good faith and in a manner which such person reasonably believed to be in or not opposed to the best interests of the Registrant, and, with respect to any criminal action or proceeding, had no reasonable cause to believe that his or her conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, does not, of itself, create a presumption that the person (i) was liable for a breach of fiduciary duty involving intentional misconduct, fraud or a knowing violation of the law, or (ii) did not act in good faith and in a manner which such person reasonably believed to be in or not opposed to the best interests of the Registrant, and that, with respect to any criminal action or proceeding, such person had reasonable cause to believe that his or her conduct was unlawful.
Actions by the Registrant
The Registrant may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Registrant to procure a judgment in its favor by reason of the fact that such person is or was a director, officer, employee or agent of the Registrant, or is or was serving at the request of the Registrant as a director, officer, employee or agent of another corporation or other entity, against expenses, including amounts paid in settlement and attorneys’ fees actually and reasonably incurred by such person in connection with the defense or settlement of the action or suit if (i) such person is not liable for a breach of fiduciary duty involving intentional misconduct, fraud or a knowing violation of the law, or (ii) such person acted in good faith and in a manner which such person reasonably believed to be in or not opposed to the best interests of the Registrant. Indemnification may not be made for any claim, issue or matter as to which such person has been adjudged by a court of competent jurisdiction to be liable to the Registrant or for amounts paid in settlement to the Registrant, unless and only to the extent that the court in which the action or suit was brought or other court of competent jurisdiction determines upon application that in view of all the circumstances of the case, the person is fairly and reasonably entitled to indemnity for such expenses as the court deems proper.
II-1

Successful Defense
To the extent that a director, officer, employee or agent of the Registrant has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to above, or in defense of any claim, issue or matter therein, he or she must be indemnified by the Registrant against expenses, including attorneys’ fees, actually and reasonably incurred by such person in connection with the defense.
Required Approval
Any discretionary indemnification, unless ordered by a court, must be made by the Registrant only as authorized in the specific case upon a determination that indemnification of a director, officer, employee or agent is proper in the circumstances. The determination must be made by (i) the stockholders, (ii) by the Board of Directors by a majority vote of a quorum consisting of directors who were not parties to the action, suit or proceeding, (iii) if a majority of a quorum consisting of directors who were not parties to the action, suit or proceeding so orders, by independent legal counsel in a written opinion, or (iv) if a quorum consisting of directors who were not parties to the action, suit or proceeding cannot be obtained, by independent legal counsel in a written opinion.
Advance of Expenses
The articles of incorporation, the bylaws, or an agreement made by the Registrant may provide that the expenses of officers and directors incurred in defending a civil or criminal action, suit or proceeding must be paid by the Registrant as they are incurred and in advance of the final disposition of the action, suit or proceeding, upon receipt of an undertaking by or on behalf of the officer or director to repay the amount if it is ultimately determined by a court of competent jurisdiction that he or she is not entitled to be indemnified by the Registrant.
Other Rights
The indemnification provisions above and the advancement of expenses (i) do not exclude any other rights to which a person seeking indemnification or advancement of expenses may be entitled for either an action in his or her official capacity or an action in another capacity while holding office, except that indemnification, unless ordered by a court or for the advancement of expenses, may not be made to or on behalf of any director or officer if a final adjudication establishes that his or her acts or omissions involved intentional misconduct, fraud or a knowing violation of the law and were material to the cause of the action, and (ii) continue for a person who has ceased to be a director, officer, employee or agent and inures to the benefit of the heirs, executors and administrators of such person.
Registrant has obtained liability insurance for its directors and officers covering, subject to exceptions, any actual or alleged negligent act, error, omission, misstatement, misleading statement, neglect or breach of duty by such directors or officers, individually or collectively, in the discharge of their duties in their capacities as directors and officers of the Registrant.
~~II-2~~
Item 15. Recent Sales of Unregistered Securities
The offers, sales, and issuances of the securities described below were exempt from the registration requirements under the Securities Act, in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933, including Regulation D promulgated thereunder, regarding transactions by an issuer not involving a public offering. All purchasers of securities in the following transactions represented that they were accredited investors and were acquiring the securities for investment purposes only and not with a view to, or for sale in connection with, any distribution thereof and that they could bear the risks of the investment and could hold the securities for an indefinite period of time. The purchasers received written disclosures that the securities had not been registered under the Securities Act and that any resale must be made pursuant to a registration statement or an available exemption from the registration under the Securities Act. All certificates representing the securities in the transactions described in this Item 15 included appropriate legends setting forth that the securities had not been offered or sold pursuant to a registration statement and describing the applicable restrictions on transfer of the securities.
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~~2016 Private Placement~~
On November 30, 2016, December 30, 2016, January 6, 2017, and January 31, 2017, the Registrant issued to certain accredited investors an aggregate principal amount of $1,250,000 in 12% subordinated convertible notes, convertible into shares of common stock at a conversion price of $32.50 per share. The Registrant retained Taglich Brothers, Inc. as the exclusive placement agent, and paid the placement agent a cash payment of $100,000, which represented an 8% commission of the gross proceeds received in this closing. The Registrant also reimbursed the placement agent for reasonable out of pocket expenses, Financial Industry Regulatory Authority (FINRA) filing fees and related legal fees in an amount of up to $30,000. In addition, the placement agent earned warrants to purchase 3,076 shares of common stock, which represented 8% of the shares of common stock into which the notes sold in the 2016 private placement are convertible, which have an exercise price of $37.50 per share.
~~2017 Private Placement~~
On September 21, 2017, November 17, 2017, and November 29, 2017, the Registrant issued to certain accredited investors an aggregate principal amount of $2,150,000 in 8% Secured Convertible Notes, convertible into shares of common stock at a conversion price of $10.00 per share. The Registrant retained Taglich Brothers, Inc. as the exclusive placement agent, and paid the placement agent a cash payment of $172,000, which represented an 8% commission of the gross proceeds received in this closing. The Registrant also reimbursed the placement agent for reasonable out of pocket expenses, FINRA filing fees and related legal fees in an amount of up to $35,000. In addition, the Placement Agent earned warrants to purchase 17,200 shares of common stock, which represented 8% of the shares of common stock into which the notes sold in the 2017 private placement are convertible, which have an exercise price of $12.50 per share.
~~2018 Private Placement~~
On September 20, 2018 and September 26, 2018, the Registrant issued to certain accredited investors an aggregate principal amount of $1,300,000 in 8% Subordinated Convertible Notes, convertible into shares of common stock at a conversion price of $6.50 per share. The Registrant retained Taglich Brothers, Inc. as the exclusive placement agent, and paid the placement agent a cash payment of $104,000, which represented an 8% commission of the gross proceeds received in this closing. The Registrant also reimbursed the placement agent for reasonable out of pocket expenses, FINRA filing fees and related legal fees in an amount of up to $20,000. In addition, the Placement Agent earned warrants to purchase 16,000 shares of common stock, which represented 8% of the shares of common stock into which the notes sold in the 2018 private placement are convertible, which have an exercise price of $9 per share.
2019 Convertible Bridge Notes
On November 15, 2019, the Registrant issued the 2019 Bridge Notes to certain accredited investors as described above, with an aggregate principal balance of $397,728. The terms provided for an original issue discount of 12% and maturity on May 15, 2020. Each note holder had a right, in their sole discretion, to convert the notes into securities to be issued by the Registrant in a private placement of equity, equity equivalent, convertible debt or debt financing. The noteholders converted the non-OID portion of the 2019 Bridge Notes into shares of common stock as part of the 2020 private placement, described below.
2020 Private Placement
On March 2, 2020, the Registrant completed the 2020 private placement with certain accredited investors, pursuant to which the Registrant issued and sold (i) 875,000 shares of the Registrant’s common stock, at a price of $4.00 per Share, for aggregate gross proceeds of $3,500,000 and (ii) 2,000 Units, with each Unit consisting of $1,000 in 12% subordinated notes and 40 shares of Registrant’s common stock, for aggregate gross proceeds of $2,000,000 and $5,500,000 for the combined private placement.The principal amount of the 12% subordinated notes, together with any accrued and unpaid interest thereon, will become due and payable on February 28, 2023. The Registrant retained Taglich Brothers, Inc. as the exclusive placement agent, and paid Taglich Brothers, Inc. a cash payment of $440,000, which represented an 8% commission of the gross proceeds received in this closing. In addition, Taglich Brothers, Inc. earned warrants to purchase 95,500 shares of common stock, which represented 8% of the shares of common stock sold, which have an exercise price of $4 per share.
~~II-3~~
2020 Note Conversion
On March 2, 2020, the Registrant entered into amendments to all of its currently outstanding convertible promissory notes, which were issued by the Registrant to various investors in 2016, 2017, and 2018. As amended, the 2016-2018 Notes permitted the Registrant to convert all of the then-outstanding principal and accrued and unpaid interest payable with respect to the notes into shares of common stock upon the same terms as those offered to investors in any concurrent private placement of securities. In accordance with the amended terms, the Registrant converted all of the then-outstanding principal and accrued and unpaid interest payable with respect to the 2016-2018 Notes into shares of common stock at a conversion price of $4.00 per share. The Registrant retained Taglich Brothers, Inc. as the exclusive placement agent for the 2020 note conversion. In connection with the 2020 note conversion, the Registrant issued 35,250 shares of common stock to Taglich Brothers, Inc., which, based on the conversion price of $4.00 per share, was equal to 3% of the original principal amount of the converted notes.
2022 Private Placement
On April 1, 2022, the Registrant completed the 2022 private placement with certain accredited investors, pursuant to which the Registrant issued and sold (i) 1,242,588 shares of the Registrant’s common stock, at a price of $4.62 per share, for 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 offering. The principal amount of the 12% subordinated notes, together with any accrued and unpaid interest thereon, will become due and payable on March 30, 2025. The Registrant retained Taglich Brothers, Inc. as the exclusive placement agent, and paid Taglich Brothers, Inc. a cash payment of $696,420, which represented an 8% commission of the gross proceeds received in this closing. In connection with the offering, Taglich Brothers, Inc. earned warrants to purchase 124,258 shares of common stock, which represented 8% of the shares of common stock sold, which have an exercise price of $4.62 per share. 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.
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Stock-Based Compensation
In accordance with the Intellinetics, Inc. 2015 Equity Incentive Plan, the Registrant issued the following stock-based compensation in the previous three fiscal years:
The following Incentive Stock Options to purchase common stock of the Registrant were issued to employees and consultants of the Registrant, all subject to vesting requirements:
Grant Date Exercise
Price Number of
Options Expiration Date Exercise
Price Number of
Options Expiration Date
03/15/2017 $ 42.50 2,000 March 14, 2027
09/25/2017 $ 15.00 15,000 September 24, 2027
09/25/2017 $ 19.00 10,000 September 24, 2027
01/30/2019 $ 45.00 250 December 31, 2025 $ 45.00 250 December 31, 2025
03/11/2019 $ 6.50 33,200 Varies, see note* $ 6.50 33,200 Varies, see note*
03/11/2019 $ 6.50 10,100 March 10, 2029 $ 6.50 10,100 March 10, 2029
09/02/2020 $ 4.00 99,000 September 1, 2030
04/14/2022 $ 4.62 220,587 April 13, 2032
* On March 11, 2019, the Registrant canceled previously granted stock options to employees in the following amounts: 3,000 shares at an exercise price of $45.00 per share; 3,200 shares at an exercise price of $48.00 per share; 2,000 shares at an exercise price of $38.00 per share; 15,000 shares at an exercise price of $15.00 per share; and 10,000 shares at an exercise price of $19.00 per share. On the same day, the Registrant replaced those canceled stock options exercisable for a total of 33,200 shares with virtually identical stock options terms in accordance with the 2015 Plan, but at an exercise price of $6.50 per share. Each replaced stock option retained its original expiration date.
On January 7, 2019, the Company issued 5,454 new shares of restricted common stock to an employee of the Company in lieu of cash for a portion of that employee’s base salary.
The following grants of common stock of the Registrant were issued to directors of the Registrant, in accordance with the Registrant’s outside director compensation policy:
Grant Date Number of

Shares
~~01/03/2017~~ ~~1,222~~
~~03/22/2017~~ 59
01/05/2018 6,052
01/07/2019 10,454
01/02/2020 16,428
~~II-4~~01/04/2021 12,207
01/06/2022 8,097
Item 16. Exhibits and Financial Statement Schedules
A list of exhibits included as part of this Registration Statement is set forth in the Exhibit Index which follows the signature page to this Registration Statement and is incorporated herein by reference. All schedules have been omitted because the information required to be set forth in the schedules is either not applicable or is shown in the financial statements or notes thereto.
Item 17. Undertakings
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the Securities Act;
(ii)
To reflect in the prospectus any facts or events arising after the effective date of the Registration Statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the Registration Statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the SEC pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20 percent change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective Registration Statement; and;
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(iii)
~~(iii)~~ To include any material information with respect to the plan of distribution not previously disclosed in the Registration Statement or any material change to such information in the Registration Statement.
Provided, however, that paragraphs (1)(i), (1)(ii), and (1)(iii) of this section do not apply if the Registration Statement is on Form S-1, Form S-3, Form SF-3, or Form F-3, and the information required to be included in a post-effective amendment by those paragraphs is contained in periodic reports filed with or furnished to the SEC by the Registrant pursuant to Section 13 or Section 15(d) of the Exchange Act that are incorporated by reference in the Registration Statement.
(2) That, for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new Registration Statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.
(4) That for the purpose of determining liability under the Securities Act to any purchaser:
(A) Each prospectus filed by the registrant pursuant to Rule 424(b)(3) shall be deemed to be part of the registration statement as of the date the filed prospectus was deemed part of and included in the registration statement; and
(B) Each prospectus required to be filed pursuant to Rule 424(b)(2), (b)(5), or (b)(7) as part of a registration statement in reliance on Rule 430B relating to an offering made pursuant to Rule 415(a)(1)(i), (vii) or (x) for the purpose of providing the information required by section 10(a) of the Securities Act shall be deemed to be part of and included in the registration statement as of the earlier of the date such form of prospectus is first used after effectiveness or the date of the first contract of sale of securities in the offering described in the prospectus. As provided in Rule 430B, for liability purposes of the issuer and any person that is at that date an underwriter, such date shall be deemed to be a new effective date of the registration statement relating to the securities in the registration statement to which that prospectus relates, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof;provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such effective date, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such effective date.
(5) Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been informed that in the opinion of the SEC such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
(6) The undersigned Registrant hereby undertakes that, for purposes of determining any liability under the Securities Act, each filing of the Registrant’s annual report pursuant to Section 13(a) or Section 15(d) of the Exchange Act (and, where applicable, each filing of an employee benefit plan’s annual report pursuant to Section 15(d) of the Exchange Act) that is incorporated by reference in the Registration Statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized in the City of Columbus, State of Ohio, on the date indicated below.
INTELLINETICS, INC
Date: ~~April 27, 2020~~May 16, 2022 By: /s/ James F. DeSocio
James F. DeSocio
President and Chief Executive Officer
(Principal Executive Officer)
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints James F. DeSocio and Joseph D. Spain, jointly and severally, with full power to act without the joinder of others, as his or her attorneys-in-fact and agents, with full power of substitution and resubstitution in each, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments to this Registration Statement on Form S-1, including, without limitation, any post-effective amendments hereto, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that each of said attorneys-in-fact, or his or her substitute or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons in the capacities indicated on ~~April 27, 2020.~~May 16, 2022.
Signature Title
/s/ James F. DeSocio President, Chief Executive Officer,
James F. DeSocio and Director~~(Principal~~ (Principal Executive Officer)
/s/ Matthew L. Chretien Chief Strategy Officer,
Matthew L. Chretien Chief Technology Officer, Secretary, and Director
(Principal Executive Officer for prior period)
/s/ Joseph D. Spain Chief Financial Officer, Treasurer
Joseph D. Spain (Principal Financial Officer; Principal Accounting Officer)
/s/ Rye D’Orazio Director
Rye D’Orazio
/s/ ~~Robert Schroeder~~William Cooke Director, Chairman of the Board
~~Robert Schroeder~~William Cooke
/s/ Sophie Pibouin Director
Sophie Pibouin
/s/ Roger Kahn Director
Roger Kahn
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INTELLINETICS, INC.
Form S-1
EXHIBIT INDEX
The following exhibits are filed herewith or incorporated herein by reference.
Exhibit
No.
Description Incorporation by Reference Description Incorporation by Reference
Form Exhibit Filing Date Form Exhibit Filing Date

2.1
Stock Purchase Agreement, dated as of March 2, 2020, by and among Intellinetics, Inc., Graphic Sciences, Inc., and Thomas M. Liebold, Gregory P. Colton, Fredrick M. Kamienny, and Frederick L. Erlich
8-K 2.1 03-04-2020
Stock Purchase Agreement, dated as of March 2, 2020, by and among Intellinetics, Inc., Graphic Sciences, Inc., and Thomas M. Liebold, Gregory P. Colton, Fredrick M. Kamienny, and Frederick L. Erlich
8-K 2.1 03-04-2020

2.2 Asset Purchase Agreement, dated April 21, 2020, by and among Intellinetics, Inc., CEO Imaging Systems, Inc., and Bradley R. Lahr 8-K
2.1

04-24-2020
Asset Purchase Agreement, dated April 21, 2020, by and among Intellinetics, Inc., CEO Imaging Systems, Inc., and Bradley R. Lahr 8-K
2.1

04-24-2020

2.3 Asset Purchase Agreement, dated as of April 1, 2022, by and among Intellinetics, Inc., 16^th Fairway, LLC, TAG 2103 Investment Trust, Elderly Moose, LLC, and Double Wolves, Inc. 8-K 2.1 04-05-2022

3.1.1 Articles of Incorporation of Intellinetics, Inc. 10-SB 3.1 10-02-2000 Articles of Incorporation of Intellinetics, Inc. 10-SB 3.1 10-02-2000

3.1.2 Certificate of Correction, effective May 22, 2007 8-K 3.1 06-15-2007 Certificate of Correction, effective May 22, 2007 8-K 3.1 06-15-2007

3.1.3 Certificate of Amendment to Articles of Incorporation of Intellinetics, Inc. 8-K 99.1 09-03-2014 Certificate of Amendment to Articles of Incorporation of Intellinetics, Inc. 8-K 99.1 09-03-2014

3.1.4
Certificate of Amendment to Articles of Incorporation of Intellinetics, Inc., dated March 2, 2020
8-K 3.1 03-04-2020
Certificate of Amendment to Articles of Incorporation of Intellinetics, Inc., dated March 2, 2020
8-K 3.1 03-04-2020

3.1.5

Certificate of Amendment to Articles of Incorporation of Intellinetics, Inc., dated March 3, 2020
8-K 3.2 03-04-2020
Certificate of Amendment to Articles of Incorporation of Intellinetics, Inc., dated March 3, 2020
8-K 3.2 03-04-2020

3.2.1 Bylaws of Intellinetics, Inc. 10-SB 3.3 10-02-2000 Bylaws of Intellinetics, Inc. 10-SB 3.3 10-02-2000

3.2.2 Amendment No. 1 to the Bylaws of Intellinetics, Inc. 8-K 3.4 03-01-2012 Amendment No. 1 to the Bylaws of Intellinetics, Inc. 8-K 3.4 03-01-2012

3.2.2 Amendment No. 2 to the Bylaws of Intellinetics, Inc. 8-K 3.3 03-04-2020 Amendment No. 2 to the Bylaws of Intellinetics, Inc. 8-K 3.3 03-04-2020

4.1 Form of Stock Certificate 10-K 4.1 03-30-2020 Form of Stock Certificate 10-K 4.1 03-30-2020

4.2 Form of Warrants dated November 30, 2016 8-K 10.2 12-06-2016

4.3 Form of Placement Agent Warrants, dated January 31, 2017 8-K 10.3 01-06-2017

4.4 Form of Warrant to Purchase Common Stock, issued October 22, 2017 8-K 10.2 10-26-2017 Form of Warrant to Purchase Common Stock, issued October 22, 2017 8-K 10.2 10-26-2017

4.5 Form of Placement Agent Warrants 8-K 10.5 11-24-2017 Form of Placement Agent Warrants 8-K 10.5 11-24-2017

4.6 Form of Placement Agent Warrants 8-K 10.3 09-26-18 Form of Placement Agent Warrants 8-K 10.3 09-26-18

4.7
Form of 12% Subordinated Notes, dated March 2, 2020
8-K 10.2 03-04-2020
Form of 12% Subordinated Notes, dated March 2, 2020
8-K 10.2 03-04-2020

4.8
Form of Placement Agent Warrants, dated March 2, 2020
8-K 4.4 03-04-2020
Form of Placement Agent Warrants, dated March 2, 2020
8-K 4.4 03-04-2020

4.9 Paycheck Protection Program Term Note + Form of Placement Agent Warrants, dated April 1, 2022 8-K 4.1 04-05-2022

4.10 Form of 12% Subordinated Notes, dated April 1, 2022 8-K 10.2 04-05-2022

5.1 Opinion of McDonald Carano LLP + Opinion of McDonald Carano LLP +

10.1 Amended Employment Agreement of Matthew L. Chretien, dated September 16, 2011 8-K 10.37 02-13-2012

10.2 Amended Offer of Employment of Matthew L. Chretien, dated September 16, 2011 8-K 10.38 02-13-2012

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10.3 Employment Agreement of Joseph D. Spain dated December 2, 2016 8-K 10.3 12-06-2016

10.4 Lease Renewal Agreement by and between Intellinetics, Inc. and Dividend Drive LLC, dated as of August 9, 2016 10-K 10.6 03-30-2017

10.5 Intellinetics, Inc. 2015 Equity Incentive Plan 8-K 10.3 04-30-2015

10.6 First Amendment to Intellinetics, Inc. 2015 Equity Incentive Plan, dated September 25, 2017 8-K 10.2 09-26-2017

10.7 Second Amendment to Intellinetics, Inc. 2015 Equity Incentive Plan, dated February 19, 2018 8-K 10.2 02-23-2018

10.8 Form of Non-Qualified Stock Option Agreement under Company’s 2015 Equity Incentive Plan 10-K 10.9 03-28-2016

10.9 Form of Incentive Stock Option Agreement under Company’s 2015 Equity Incentive Plan 8-K 10.6 01-05-2016

10.10 Offer Letter, dated September 25, 2017, between Intellinetics, Inc. and James F. DeSocio 8-K 10.1 09-26-2017

10.11 Intellinetics, Inc. 2018 Executive Incentive Compensation Plan 8-K 10.3 02-23-2018

10.12 Amendment, dated February 19, 2018, between Intellinetics, Inc. and Joseph D. Spain 8-K 10.1 02-23-2018

10.13
State of Michigan Enterprise Procurement Notice of Contract No 171 180000000749, between the State of Michigan and Graphic Sciences, Inc., with Standard Contract Terms, dated June 1, 2018
8-K 10.4 03-04-2020

10.14
Form of Securities Purchase Agreement, dated March 2, 2020
8-K 10.1 03-04-2020

10.15
Form of Registration Rights Agreement, dated March 2, 2020
8-K 10.3 03-04-2020

21.1 List of Subsidiaries of Intellinetics, Inc. +

23.1 Consent of Independent Registered Public Accounting Firm +
10.1 Amended Employment Agreement of Matthew L. Chretien, dated September 16, 2011 8-K 10.37 02-13-2012

10.2 Amended Offer of Employment of Matthew L. Chretien, dated September 16, 2011 8-K 10.38 02-13-2012
10.3 Employment Agreement of Joseph D. Spain dated December 2, 2016 8-K 10.3 12-06-2016

10.4 Lease Renewal Agreement by and between Intellinetics, Inc. and Dividend Drive LLC, dated as of August 9, 2016 10-K 10.6 03-30-2017

10.5 Intellinetics, Inc. 2015 Equity Incentive Plan 8-K 10.3 04-30-2015

10.6 First Amendment to Intellinetics, Inc. 2015 Equity Incentive Plan, dated September 25, 2017 8-K 10.2 09-26-2017

10.7 Second Amendment to Intellinetics, Inc. 2015 Equity Incentive Plan, dated February 19, 2018 8-K 10.2 02-23-2018

10.8 Form of Non-Qualified Stock Option Agreement under Company’s 2015 Equity Incentive Plan 10-K 10.9 03-28-2016

10.9 Form of Incentive Stock Option Agreement under Company’s 2015 Equity Incentive Plan 8-K 10.6 01-05-2016

10.10 Offer Letter, dated September 25, 2017, between Intellinetics, Inc. and James F. DeSocio 8-K 10.1 09-26-2017

10.11 Intellinetics, Inc. 2018 Executive Incentive Compensation Plan 8-K 10.3 02-23-2018

10.12 Amendment, dated February 19, 2018, between Intellinetics, Inc. and Joseph D. Spain 8-K 10.1 02-23-2018

10.13
State of Michigan Enterprise Procurement Notice of Contract No 171 180000000749, between the State of Michigan and Graphic Sciences, Inc., with Standard Contract Terms, dated June 1, 2018
8-K 10.4 03-04-2020

10.14
Form of Securities Purchase Agreement, dated March 2, 2020
8-K 10.1 03-04-2020

10.15
Form of Registration Rights Agreement, dated March 2, 2020
8-K 10.3 03-04-2020

10.16 Form of Securities Purchase Agreement, dated April 1, 2022 8-K 10.1 04-05-2022

10.17 Form of Registration Rights Agreement, dated April 1, 2022 8-K 10.3 04-05-2022

21.1 List of Subsidiaries of Intellinetics, Inc. +

23.1 Consent of Independent Registered Public Accounting Firm +

107 Filing Fee +
+ Filed herewith:
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Nevada		7373		87-0613716
(State or other jurisdiction of incorporation or organization)		(Primary Standard Industrial Classification Code Number)		(I.R.S. Employer Identification Number)

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

Title of Each Class of Securities to be Registered		Amount To be Registered				Proposed Maximum Offering Price Per Share				Proposed Maximum Aggregate Offering Price				Amount of Registration Fee
Common Stock, par value $.001 per share			2,519,490	(1)		$	3.00	(2)		$	7,558,470			$	981.09	(2)(3)

~~(1)~~	This Registration Statement registers for resale 2,519,490 shares of the Registrant’s common stock, par value $0.001 per share, by the selling stockholders identified in this prospectus, consisting of (a) 955,000 shares of common stock, issued to investors in a private placement of securities completed on March 2, 2020, (b) 1,433,740 shares of common stock, issued upon conversion of all the outstanding principal and interest payable by the Registrant pursuant to convertible notes held by noteholders; (c) 35,250 shares of common stock, issued to the placement agent; and (d) up to 95,500 shares of our common stock, issuable upon the exercise of warrants issued to the placement agent. In accordance with Rule 416(a) of the Securities Act, there also are being registered hereunder an indeterminate number of shares that may be issuable with respect to the shares registered hereunder as the result of stock splits, stock dividends or similar transactions.

~~(2)~~	Estimated pursuant to Rule 457(c) of the Securities Act solely for the purpose of computing the amount of the registration fee based on the average of the high and low prices of the common stock as reported on the OTCQB on April 13, 2020.

~~(3)~~	~~The filing fee that was payable upon initial filing of this registration statement was previously paid on April 14, 2020.~~

	Page
Prospectus Summary		3
Risk Factors		6
Forward-Looking Statements		2018
Use of Proceeds		2120
Market Information Regarding Common Stock and Dividends		2120
Management’s Discussion and Analysis of Financial Condition		2220
Our Business		3238
Management		3743
Corporate Governance		3845
Executive Compensation		4753
Security Ownership of Certain Beneficial Owners and Management		5053
Certain Relationships and Related Party Transactions		5158
Selling Stockholders		5762
Plan of Distribution		5967
Description of Securities		6170
Shares Eligible for Future Sale		6271
Experts		6371
Legal Matters		6371
Available Information		6371
Index to Financial Statements		F-1

	●	~~955,000~~1,242,588 shares of our common stock, issued to investors in a private placement of securities completed on ~~March 2, 2020~~April 1, 2022 (which we refer to as our ~~“2020~~“2022 private placement”); and

	●	1,433,740 shares of our common stock, issued to noteholders upon conversion of all the outstanding principal and interest payable pursuant to our convertible notes held by such noteholders (which we refer to as the “2020 note conversion”);

	●	~~35,250 shares of our common stock, issued to the placement agent in connection with the 2020 note conversion; and~~

	●	up to ~~95,500~~124,258 shares of our common stock, issuable upon the exercise of warrants issued to the placement agent in connection with the ~~2020~~2022 private placement.

	·●	the terms “Intellinetics,” “Company,” “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 the Company, and
	·●	“Graphic Sciences” refers to Graphic Sciences, Inc., a Michigan corporation and a wholly-owned subsidiary of the Company.

Common stock offered by selling stockholders	Up to ~~2,519,490~~1,366,846 shares

Common stock to be outstanding after the offering	~~2,906,340~~4,198,015 shares, assuming full exercise of all warrants held by selling stockholders

Use of proceeds	The selling stockholders will receive all of the proceeds from the sale of shares of our common stock. We will not receive any proceeds from the sale of the common stock. To the extent that the selling Stockholders exercise for cash all of the warrants covering the ~~95,500~~124,258 shares of common stock issuable upon exercise of all the warrants held by such selling stockholders, we may receive a maximum of ~~$382,000~~$574,072 from such exercises. We intend to use any such proceeds for general corporate and working capital purposes. See “Use of Proceeds” for a complete description.

OTCQB Symbol	INLX

Risk Factors	The purchase of our common stock involves a high degree of risk. You should carefully review and consider the “Risk Factors” beginning on page 6.

	●	~~955,000~~1,242,588 shares of our common stock, issued to investors in the ~~2020~~2022 private placement;

	●	~~1,433,740 shares of our common stock, issued to noteholders in the 2020 note conversion;~~

	●	~~35,250 shares of our common stock, issued to the placement agent in connection with the 2020 note conversion; and~~

	●	up to ~~95,500~~124,258 shares of our common stock, issuable upon the exercise of warrants issued to the placement agent in connection with the ~~2020~~2022 private placement.

●	~~67,330~~497,330 shares of our common stock reserved for issuance under the 2015 Intellinetics Inc. Equity Incentive Plan

●	~~230,032~~255,958 shares of our common stock, issuable upon exercise of warrants outstanding as of ~~April~~May 13, ~~2020,~~2022, all of which are immediately exercisable and consist of the following:

	○	five-year warrants to purchase 32,500 shares of our common stock at an exercise price of $32.50 per share, issued to investors on December 29, 2015, December 31, 2015, and January 25, 2016 in connection with a private placement;

	○	five-year warrants to purchase 43,878 shares of our common stock at an exercise price of $32.50 per share, issued to investors on December 31, 2015, and January 6, 2016, in connection with an exchange of convertible notes;

	○	five-year warrants to purchase 17,752 shares of our common stock at an exercise price of $35.75 per share, issued to the placement agent in connection with both the 2015 private placement and the 2015 note exchange;

	○	~~five-year warrants to purchase 1,125 shares of our common stock at an exercise price of $34 per share, issued to investors in connection with bridge financing prior to a private placement in 2016;~~

	○	five-year warrants to purchase 3,076 shares of our common stock at an exercise price of $37.50 per share, issued to the placement agent in connection with a private placement with investors on December 30, 2016, January 6, 2017, and January 31, 2017;

	○	five-year warrants to purchase 3,000 shares of our common stock at an exercise price of $15.00 per share, issued to investors in connection with bridge financing prior to a private placement in 2017;

	○	five-year warrants to purchase 17,200 shares of our common stock at an exercise price of $12.50 per share, issued to the placement agent in connection with a private placement with investors on November 17, 2017, and November 29, 2017;

	○	five-year warrants to purchase 16,000 shares of our common stock at an exercise price of $9.00 per share, issued to the placement agent in connection with a private placement with investors on September 20, 2018, and September 26, 2018; and

	○	five-year warrants to purchase 95,500 shares of our common stock at an exercise price of $4.00 per share, issued to the placement agent in connection with the 2020 private placement.

	○	five-year warrants to purchase 124,258 shares of our common stock at an exercise price of $4.62 per share, issued to the placement agent in connection with the 2022 private placement.

	Three Months Ended March 31,						Year Ended December 31,
	(Unaudited)						Audited
	2022			2021			2021			2020
Statement of Operations Data:

Revenues	$	2,703,512		$	2,635,219		$	11,460,265		$	8,253,391
Cost of Revenues		1,071,675			1,030,315			4,517,283			3,262,653
Gross Profit		1,631,837			1,604,904			6,942,982			4,990,738
Operating expenses:
General and administrative		938,883			1,039,026			4,044,296			3,499,440
Change in fair value of earnout liabilities		64,204			69,950			141,414			1,554,800
Significant Transaction Costs		70,051			-			-			636,440
Sales and marketing		352,114			290,311			1,378,352			1,041,367
Depreciation and amortization		114,110			94,884			413,932			296,935
Total operating expenses		1,539,362			1,494,171			5,977,994			7,028,982
Income from operations		92,475			110,733
Other income (expenses):
Gain on extinguishment of debt		-			845,083			845,083			287,426
Interest expense, net		(112,601	)		(113,044	)		(452,120	)		(637,683	)

Income (loss) before income taxes	$	(20,126	)	$	842,772		$	1,357,951		$	(2,388,501	)

Income tax benefit		-			-			-			188,300

Net income (loss)	$	(20,126	)	$	842,772		$	1,357,951		$	(2,200,201	)

Balance Sheet Data:

Current assets	$	3,908,546					$	3,684,268		$	3,465,734
Working capital (deficit)		(1,517,958)						126,944			(159,254	)
Total assets		12,000,042						11,962,132			10,344,633
Long-term liabilities		3,851,468						5,743,072			5,565,613
Total stockholders’ equity		2,722,070						2,661,736			1,154,032

	Year Ended December 31,
	Audited
	2019			2018
Statement of Operations Data:

Revenues	$	2,535,955		$	2,381,427
Cost of Revenues		567,843			742,405
Gross Profit		1,968,112			1,639,022
Operating expenses:
General and administrative		2,131,385			2,106,851
Sales and marketing		981,618			997,910
Depreciation		7,701			9,040
Total operating expenses		3,120,704			3,113,801
Other income (expenses):
Interest expense, net		(980,689	)		(865,501	)

Net loss	$	(2,133,281	)	$	(2,340,280	)

Balance Sheet Data:

Current assets	$	872,132		$	1,386,864
Working capital (deficit)		(6,437,382	)		143,151
Total assets		986,574			1,406,279
Long-term liabilities		53,318			4,693,158
Total stockholders’ deficit		(20,796,066	)		(18,662,785	)

	●	difficulties in assimilating and integrating the operations, personnel, systems, technologies, finance and accounting functions, internal controls, business policies, and products and services of the acquired business;

	●	technologies, products or businesses that we acquire may not achieve expected levels of revenue, profitability, benefits or productivity;

	●	we may not be able to achieve the expected synergies from an acquisition, or it may take longer than expected to achieve those synergies;

	●	unexpected costs and liabilities and unknown risks associated with the acquisition;

	●	diversion of management’s time and resources away from our daily operations;

	●	risks of entering markets in which we have no or limited direct prior experience;

	●	potential need for restructuring operations or reductions in workforce, which may result in substantial charges to our operations;

	●	incurring future impairment charges related to diminished fair value of businesses acquired as compared to the price we paid for them; and

	●	issuing potentially dilutive equity securities, or incurring debt or contingent liabilities, which could harm our financial condition.

	●	~~difficulties in assimilating and integrating the operations, personnel, systems, technologies, finance and accounting functions, and products and services of the acquired business;~~

	●	~~technologies, products or businesses that we acquire may not achieve expected levels of revenue, profitability, benefits or productivity;~~

	●	~~we may not be able to achieve the expected synergies from an acquisition, or it may take longer than expected to achieve those synergies;~~

	●	~~unexpected costs and liabilities and unknown risks associated with the acquisition;~~

	●	~~difficulties and inefficiencies in managing and operating businesses in multiple locations or businesses in which we have limited or no direct experience;~~

	●	~~difficulties in retaining, training, motivating and integrating key personnel;~~

	●	~~diversion of management’s time and resources away from our daily operations;~~

	●	~~difficulties in successfully incorporating licensed or acquired technology and rights into our product and service offerings;~~

	●	~~difficulties in maintaining uniform standards, controls, procedures and policies within the combined organizations;~~

	●	~~difficulties in managing, maintaining and enhancing relationships with customers and suppliers of the acquired business;~~

	●	~~risks of entering markets in which we have no or limited direct prior experience;~~

	●	~~difficulties in integrating accounting and financial reporting systems;~~

	●	~~potential disruptions to our ongoing businesses;~~

	●	~~potential need for restructuring operations or reductions in workforce, which may result in substantial changes to our operations;~~

	●	difficulties in implementing controls, procedures and policies, including disclosure controls and procedures and internal controls over financial reporting, appropriate for a larger public company at companies that, prior to their acquisition, lacked such controls, procedures and policies, which may result in ineffective disclosure controls and procedures or material weaknesses in internal controls over financial reporting;

	●	~~incurring future impairment charges related to diminished fair value of businesses acquired as compared to the price we paid for them; and~~

	●	~~issuing potentially dilutive equity securities, or incurring debt or contingent liabilities, which could harm our financial condition.~~

	●	Variations in operating results;
	●	Announcements of technological innovations, new products or product enhancements, strategic alliances, or significant agreements by us or by competitors;
	●	Recruitment or departure of key personnel;
	●	Litigation, legislation, regulation, or technological developments that adversely affect our business; and
	●	Market conditions in our industry, the industries of our customers, and the economy as a whole.

	●	our prospects, including our future business, 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 effects of inflation and the current 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 markets, including our market position and our market share;

	●	our ability to integrate our three 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;

	●	the impact of the novel coronavirus disease (COVID-19) and related governmental actions and orders and economic effects upon our business, operations, customers, revenues, financial results and prospects;,

	●	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 of ~~borrowings under our~~ 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;~~

	●	~~business acquisitions, combinations, sales, alliances, ventures and other similar business transactions and relationships; and~~

	●	~~the effects on our business, financial condition and results of operations of litigation, warranty claims and other claims and proceedings that arise from time to time.~~markets.

	●	~~Our~~With respect to our Document Management segment, including the solutions recently acquired from CEO Image, our current strategy is to focus on cloud-based delivery of our software products. Historically, our revenues have mostly resulted from premise-based software licensing revenue and professional services revenue. Our observation of industry trends leads us to anticipate that cloud-based delivery will become our principal software business and a primary source of revenues for us, and we are seeing our customers migrate to cloud-based services. ~~Accordingly, when~~When we evaluate our results, we assess whether our cloud-based software revenues are increasing, relative to prior periods and relative to other sources of revenue.

	●	With respect to our Document Conversion segment, our strategy is to maintain and grow our core document conversion, storage, and retrieval business, while simultaneously leveraging our software products and services to provide more attractive total digital transformation solutions for the customers of our Document Conversion segment. Accordingly, when we evaluate our results for Document Conversion, we will assess whether our revenues increase with respect to the segment’s services, relative to prior periods, but we will also be assessing whether Document Conversion customers begin to make purchases of other products or services.

	●	We are focused upon sales of our document services and software ~~products~~solutions through resellers and directly to our customers, with a further focus on select vertical markets. We assess whether our sales resulting from relationships with resellers are increasing, relative to prior periods and relative to direct sales to customers, and whether reseller or direct efforts offer the best opportunities for growth in our targeted vertical markets.

	●	Our customer engagements often involve the development and licensing of customer-specific ~~software~~document solutions and related consulting and software maintenance ~~services.~~services or tailoring a document conversion program to meet customer requirements. When analyzing whether to undertake a particular customer engagement, we often consider the following factors as part of our overall strategy to grow the business: (i) the profit margins the project may yield, and (ii) whether the project would help to develop new product and service features that we could integrate into our suite of products, resulting in an overall product portfolio that better aligns with the needs of our target customers.

	●	Our software sales cycle averages 1-2 months; however, large projects can be longer, lasting 3-6 months. ~~Even when~~When a software project begins, we ~~often~~generally perform pre-installation assessment, project scoping, and implementation consulting. On the other hand, our document conversion services typically contain a very short sales cycle, but we can have a backlog of work orders not yet processed. Therefore, when we plan our business and evaluate our results, we consider the revenue we expect to recognize from projects in our late-stage ~~pipeline.~~software pipeline and in our document conversion services backlog queue.

	●	Our research and development efforts and expenses to create new software products are critical to our success. When developing new products or product enhancements, our developers collaborate with our own employees across a wide variety of job functions. We also gather in-depth feedback from our customers and resellers. We evaluate new products and services to determine their likelihood of market success and their potential profitability.

	●	We monitor our costs and capital needs to ensure efficiency as well as an adequate level of support for our business plan.

	●	While we are constantly focused on organic growth, we also continually monitor potential acquisitions of complementary solutions and expertise that are consistent with our core business. We look for acquisitions that can add value for our customers and are expected to be accretive to our financial performance.

●	~~Revenues were $2,535,955, representing revenue growth of 6% year over year.~~

●	~~Cost of revenues was $567,843.~~

●	~~Operating expenses (excluding cost of revenues) were $3,120,704.~~

●	~~Loss from operations was $1,152,592.~~

●	~~Net loss was $2,133,281, with a basic and diluted net loss per share of $5.76.~~

●	~~Operating cash flow was $(982,169).~~

●	~~Capital expenditures were $5,489.~~

●	~~Number of employees was 18 as of December 31, 2019, including two part-time.~~

●	Revenues were $11,460,265, representing revenue growth of 39% year over year.

●	Cost of revenues was $4,517,283.

●	Operating expenses (excluding cost of revenues) were $5,977,994.

●	Income from operations was $964,988.

●	Net income was $1,357,951 with basic and diluted net income per share of $0.48 and $0.44, respectively, including $845,083 gain on PPP loan forgiveness.

●	Operating cash flow was $1,389,966.

●	Capital expenditures were $590,485.

●	As of December 31, 2021, we had 114 employees, including 13 part-time employees.

	●	Revenues were $2,703,512, representing revenue growth of 3% year over year.

	●	Cost of revenues was $1,071,675, an increase of 4% year over year.

	●	Operating expenses (excluding cost of revenues) were $1,539,362, an increase of 3% year over year.

	●	Income from operations was $92,475, a decrease of 16% year over year.

	●	Net loss was $20,126 with basic and diluted net income per share of ($0.01), compared to net income of $842,772 in Q1 2021.

		●	Q1 2021 included other income of $845,083 for forgiveness of the PPP loan and interest.
		●	Q1 2022 included $70,051 of transaction costs.

	●	Operating cash flow was $476,171, compared to $326,869 in Q1 2021.

	●	Capital expenditures were $56,043, compared to $231,699 in Q1 2021.

	●	As of March 31, 2022, we had 107 employees, including 12 part-time employees, compared to 100 employees as of March 31, 2021.

	For the years ended December 31,
	2021		2020
Revenues
Document Management	$	3,089,669	$	2,816,848
Document Conversion		8,370,596		5,436,543
Total revenues	$	11,460,265	$	8,253,391

Gross profit
Document Management	$	2,542,135	$	2,160,807
Document Conversion		4,400,847		2,829,931
Total gross profit	$	6,942,982	$	4,990,738

	For the years ended December 31,
	2021		2020

Operating expenses:
General and administrative	$	4,044,296	$	3,499,440
Change in fair value of earnout liabilities		141,414		1,554,800
Significant transaction costs		-		636,440
Sales and marketing		1,378,352		1,041,367
Depreciation and amortization		413,932		296,935

Total operating expenses	$	5,977,994	$	7,028,982

	Three months ended March 31, 2022		Three months ended March 31, 2021
Revenues by segment
Document Management	$	914,950	$	735,818
Document Conversion		1,788,562		1,899,401
Total revenues	$	2,703,512	$	2,635,219

	Three months ended March 31, 2022		Three months ended March 31, 2021
Revenues by revenue source
Sale of software	$	64,491	$	9,594
Software as a service		431,221		323,726
Software maintenance services		336,602		340,446
Professional services		1,587,948		1,652,463
Storage and retrieval services		283,250		308,990
Total revenues	$	2,703,512	$	2,635,219

	Three months ended March 31, 2022		Three months ended March 31, 2021
Cost of revenues by segment
Document Management	$	180,044	$	148,318
Document Conversion		891,631		881,997
Total cost of revenues	$	1,071,675	$	1,030,315

	●	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 31, 2025, which we refer to as the 2022 notes (some of which was used to acquire Yellow Folder).

●	The 2016 Unrelated Notes and the 2016 Related Notes issued to accredited investors on December 30, 2016 and on January 5 and January 31, 2017, with an aggregate original principal balance of $1,250,000, a current principal balance of $1,250,000, and accrued interest of $474,497.

●	The 2017 Unrelated Notes and the 2017 Related Notes issued to accredited investors on November 17 and November 30, 2017, with an aggregate original principal balance of $2,150,000, a current principal balance of $2,150,000, and accrued interest of $579,723.

●	The 2018 Unrelated Notes and the 2018 Related Notes issued to accredited investors on September 20 and September 26, 2018, with an aggregate original principal balance of $1,300,000, a current principal balance of $1,300,000, and accrued interest of $158,278.

●	Promissory note held by accredited investors, dated November 15, 2019, with a principal balance of $397,728, current principal balance of $397,728, and an unamortized original issue discount of $35,796.

	●	~~Liquidity, Going Concern and Management’s Plans~~Revenue Recognition
	●	~~Revenue Recognition~~Business Acquisition, Goodwill and Intangibles, including Contingent Liability—Earnout
	●	~~Deferred Revenues~~Accounts Receivable, Unbilled
	●	~~Allowance for Doubt Accounts~~Deferred Revenues
	●	Accounting for Costs of Computer Software to be Sold, Leased or Marketed and Accounting for Internal Use Software
	●	Accounting Stock-Based Compensation

	●	Graphic Sciences, on March 2, 2020, and

	●	CEO Image, on April 21, 2020.