INLX 10-K & 10-Q changes, risk factors and insider trading

OurWe largesthave high customer awardsconcentration long-termwith contractsgovernment throughclients. a competitive bidding process that is open as of the date of this Report, and anyAny loss or volume reduction of thisour largest customer or any other major customer or the failure to collect a large account receivable could negatively affect our results of operations and financial condition.

OurWe have high customer concentration with our largest customercustomer, awards long-term contracts through a competitive bidding process thatwhich is opena asstate ofgovernment, the date of this Report. We believe we are well suited to continue to provide services to this client, but there can be no assurance that we will be awarded continuing contracts or that our work volumesand with thisgovernmental customercustomers generally. will continue at their current levels and/or pricing. Revenues from a limited number of customers have accounted for a substantial percentage of our total revenues. Our two largest clients account for approximately 40%39% and 4%, and 35%40% and 5%,4%, of our revenues for the years ended December 31, 20242025 and 2023, 2024, respectively. For the years ended December 31, 2024,2025 and 2023,2024, government contracts, including K-12 education, represented represented approximately 80%78% and 80%, respectively, of our net revenues in each period. Further, most governmental customer contracts may be cancelled or materially reduced at any time by the government counterparty. The loss or volume reduction of one of our clients or the loss of a meaningful percentage of government contracts could materially affect our business and operating results.

The markets for our products are intensely competitive, and are subject to rapid technological change and other pressures created by changes changes in our industry. The convergence of many technologies has resulted in unforeseen competitors arising from companies that were traditionally not viewed as threats to our marketplace, particularly with respect to artificial intelligence (AI). We expect competition to increase and intensify in the future as the pace of technological change and adaptation quickens, and as additional companies enter our markets, including those competitors who offer similar products and services to ours, but offer them through a different form of delivery. Numerous releases of competitive products have occurred in recent history and are expected to continue in the future. We may not be able to compete effectively with current competitors and potential entrants into our marketplace. We could lose market share if our current or prospective competitors: (i) introduce new competitive products, (ii) add new functionality to existing products, (iii) acquire competitive products, (iv) reduce prices, or (v) form strategic alliances with other companies. If other businesses were to engage in aggressive pricing policies with respect to competing products, or if the dynamics in our marketplace resulted in increased bargaining power by the consumers of our products and services, we would need to lower the prices we charge for the products and services we offer. This could result in lower revenues or reduced margins, either of which could materially and adversely affect our business and operating results. Additionally, if prospective consumers choose other methods of document solutions delivery, different from those that we offer, our business and operating results could also be materially and adversely affected.

The acquisitions of Yellow Folder, LLC (“Yellow Folder”), in 2022 and Graphic Sciences and CEO Imaging Systems, Inc.,Inc. (“CEO Image”), both in 2020, were our first strategic business acquisitions. As part of our growth strategy, we also expect to continue to evaluate and consider potential strategic transactions, including business combinations, acquisitions and strategic alliances, to enhance our existing businesses and to develop new products and services. At any given time, we may be engaged in discussions or negotiations with respect to one or more of these types of transactions, and any of these transactions could be material to our financial condition and results of operations. However, we do not know if we will be able to identify any future opportunities that we believe will be beneficial for us. Even if we are able to identify an appropriate business opportunity, we may not be able to successfully consummate the transaction, and even if we do consummate such a transaction we may be unable to obtain the benefits or avoid the difficulties and risks of such transaction.

OurWe ability to make scheduled payments on or to refinance any debt or contingent transaction obligations that we have or may incur depends on our financial condition and operating performance, which are subject to prevailing economic and competitive conditions and to certain financial, business, and other factors beyond our control. We currently have approximately $1.3 million in principal amount of debt maturing in December of 2025. In addition, prior to 2021, we operated with a history of losses. For 2024, we had net loss of approximately $0.5 million, including $1.4 million in total non-cash share-based compensation expense, an increase of $0.8 million from 2023. For 2023, we had net income of approximately $0.5 million. For 2022, we had a net income of approximately zero (break-even). For 2021, we had a net income of $1.4 million, including $0.8 million of PPP forgiveness income. For 2020, we had a net loss of $2.2 million, including a change in fair value of earnout liabilities of $1.6 million. We have an accumulated deficit of $21.6 $23.5 million as of December 31, 2024.2025. Our ability to meet our capital needs in the future will depend on many factors, including maintaining and enhancing our operating cash flow and successfully retaining and growing our client base in the midst of general economic uncertainty including an inflationary environment. We cannot ensure that we will maintain a level of cash flows from operating activities sufficient to permit us to pay the principal, premium, if any, and interest on any indebtedness.

We currently have no outstanding debt and an available line of credit of $1.0 million, which is a one-year term line of credit, renewable at the option of ourselves and the bank. If our cash flows and capital resources are at any time insufficient to fund our obligations, we may be forced to draw on our line of credit, or reduce or delay investments and capital expenditures, or to sell assets, seek additional capital, restructure or refinance our indebtedness, or reduce or cease operations. There can be no assurance that additional capital or debt financing will be available to us at any time. Even if additional capital is available, we may not be able to obtain debt or equity financing on terms favorable to us. In the absence of such operating results and resources, we could face substantial liquidity problems and might be required to reduce or curtail our operations.

The terms of our promissoryline notesof credit will restrict our financing flexibility.

The terms of promissoryour notescurrent weline issuedof in 2022credit contain standard negative covenants customary for transactions of this type. These negative covenants covenants may preclude or restrict our ability to obtain future debt and convertible debt financings without repaying any draw on the prior approvalline of holderscredit ofin the previous notes.full. The events of default are also customary for transactions of this type, including default in timely payment of principal or interest, failure to observe or perform any covenant or agreement contained in the convertible note and other transaction documents, documents, the commencement of bankruptcy or insolvency proceedings, and failure to timely file Exchange Act filings.

We are subject to the reporting requirements of federal securities laws, causing us to make significant compliance-related expenditures that may divert resources from other projects, thus impairing itsour ability to grow.

We may have to issue additional securities at prices which may result in substantial dilution to our stockholders.

IfTo the extent that we raise additional funds through the sale of equity equity(including our ATM Program) or convertible debt, our current stockholders’ percentage ownership will be reduced. In addition, these transactions may dilute the value of ordinary shares outstanding. We may have to issue securities that may have have rights, preferences, and privileges senior to our common stock. We cannot provide assurance that we will be able to raise additional funds on terms acceptable to us, if at all. If future financing is not available or is not available on acceptable terms, we may not be able to fund our future needs, which would have a material adverse effect on our business plans, prospects, results of operations, operations, and financial condition.

Our overall performance depends on economic conditions. The United States’ and world economies are currently recovering from recent inflation and higher interest rates, although uncertaintyUncertainty posed by the imposition and refunding of newtariffs, tariffs,the fluctuating valuations of AI companies, ongoing conflicts in the Middle East and Ukraine, global sanctions on Russia, and trade tensions between the US and China,several of its trading partners, may continue to adversely impact the business community and financial markets for some time. Moreover, instability in the global economy affects countries, including the United States, with varying levels of severity, which makes the impact on our business complex and unpredictable. As an example, our IntelliCloud Payables Automation Solution is currently targeted to industries such as home-building and construction, which may continues to be adversely affectedimpacted by thehigh impositioninterest ofrates, newlow demand, tariffs.and fluctuating raw materials costs due to tariffs and other factors. During adverse economic conditions, many customers delay or reduce technology purchases. Contract negotiations are likely to become more protracted, or conditions could result in reductions in sales of our products, longer sales cycles, pressure on our margins, difficulties in collection of accounts receivable or delayed payments, increased default risks associated with our accounts receivable, slower adoption of new technologies, and increased price competition. In addition, the current rise in interest rates in the United States and global credit markets could adversely impact our ability to complete sales of our products and services, including subscription renewals. Any of these prolonged events, events are likely to cause a curtailment in government or corporate spending and delay or decrease customer purchases, and adversely affect our business, financial condition, and results of operations.

The following management’s discussion and analysis of financial conditions and results of operations for the fiscal years ended December 31, 2024,2025 and 20232024, should be read in conjunction with our consolidated financial statements and the notes to those consolidated financial statements that are included elsewhere in this Annual Report on Form 10-K. In this Annual Report, we sometimes refer to the twelvetwelve-month period month ended December 31, 2025 as 2025, and to the twelve-month period ended December 31, 2024 as 2024, and to the twelve month period ended December 31, 2023 as 2023.2024.

Operating expenses for 20242025 increased 23.7%,10.2%, primarily driven by share-based compensation. In 2024, we recorded an incremental $805,955 expense related to our restricted stock awards to employees and an incremental $254,885 related to new stock option grants to employees and directors, bringing the grand total of share-based compensation to $1,496,774 in 2024 compared to $662,653 in 2023. The balance of our operating expenses (excluding cost of revenues) increased 14.0% year over year, primarily driven by intentional investments in sales and marketing to accelerate revenue growthgrowth, and plus investments in general and administrative to buildfurther structureimprove insecurity orderand compliance and to better scale, as well as expanding our development team to bring product enhancements to market more swiftly.

Our overall performance depends on economic conditions, and our continuing growth will be due in part to continued growth in the US economy and stability of state and local governmental spending in the US. We do not have direct risk exposure to federal spending levels, but we could face exposure indirectly if federal spending reductions have a corresponding effect on state and local budgets, particularly in the K-12 Education sector. Our performance will also continue to be affected by uncertaintyany with respect toincreased wage inflation, as well as wellmodest as slowing-to-modest globalGDP growth rates.

Volatility from increased trade protectionism is likely to have a minimal direct impact on us because we consume relatively little in raw materials. However, we have customers in industries that are likely to be affected, such as homebuilding and construction. Any industry-specific or macroeconomic downturn could affect our customers’ and potential customers’ budgets for technology procurement and stall our growth plans. However, absent economic disruptions, and based on the current trend of our business operations and our continued focus on strategic initiatives to grow our customer base, we believe in the strength of our brand and our focus on our strategic priorities.

Our total revenues in 20242025 increaseddecreased by $1,131,992,$1,434,927, or 6.7%,8.0%, overfrom 20232024 revenues, primarily driven by our Document Services professional services, due to a reduction in volume from our largest customer, more than offsetting growth of 11.3% in software as a service and our document conversion professional services, more than offsetting expected weakness in storage and retrieval, expected inactivity in software maintenance services sales, and volatility in sales of direct premise software and document management professional services.service.

We provide access to our software solutions as a service, accessible through the internet. Our customers typically enter into our software as a service agreement for periods of one year or more. Under these agreements, we generally provide access to the applicable software, data storage and related customer assistance and support. Revenues from the sale of software as a service, which are reported as part of our Document ManagementSoftware segment increased by $555,721,$642,231, or 10.8%11.3% in 20242025 compared to 2023.2024. This increase was primarily the result of new cloud-based solution sales, primarily our IntelliCloud Payables Automation Solution,Solutions. asThe wellpayables as expanded data storage, user seats, and hosting fees for existing customers. Thoseautomation growth areas werewas partially offset by weakness in our traditional content management solutions, particularly including YellowFolder in K-12, which was impactedrelatively byflat higheryear thanover normal churn rate in those customers.year.

Software maintenance services revenues consist of fees for post-contract customer support services provided to license (premise-based) holders through support and maintenance agreements. These agreements allow our customers to receive technical support, enhancements and upgrades to new versions of our software products when and if available. A substantial portion of these revenues were generated from renewals of maintenance agreements, which typically run on a year-to-year basis. Revenues from the sale of software maintenance services, which are reported as part of our Document ManagementSoftware segment, increaseddecreased by $3,323,$127,055, or 0.2%,9.0%, in 20242025 compared to 2023.2024. The small increase in these revenues in 2024 compared to 2023, consistent with previous years and expectation,decrease was driven by expansionslightly increased of services with existing customersattrition and some migrations to our SAAS solutions more than offsetting price increases being partially offset by normal attrition.increases.

Professional services revenues primarily consist of revenues from document scanning and conversion services, plus consulting, discovery, training, and advisory services to assist customers with document management needs. These revenues include arrangements that do not involve the sale of software. Of our total 2025 professional services revenues duringof 2024,$8,141,155, $9,593,423$7,742,507 was derived from our Document Services operations and $398,648 was derived from our Document Conversion operations and $391,605 was derived from our Document ManagementSoftware operations. Our overall professional services revenues increaseddecreased by $817,600, $1,876,819, or 8.9%,18.7%, in 20242025 compared to 2023.2024. This increasedecrease is the result of areduced significantscanning projectprojects in our Document ConversionServices segmentsegment, due to timing of projects, which experienced an unusually low ebb in backlog that corresponded with duringthe expiry of our prior contract with our largest customer, prior to the year,renewal alongon withJune realized1, price2025. increasesWe have since taken orders to refill the backlog and have experienced the ramp up in late 2023, more than offsetting fewer projectsproduction in ourQ4 Document Management segment,2025, which canwas bejust more1.8% volatilebelow withQ4 its significantly smaller volumes. Our largest customer awards long-term professional services contracts through a competitive bidding process that is open as of the date of this Report. We believe we are well suited to continue to provide services to this client, but there can be no assurance that we will be awarded continuing contracts or that our work volumes with this customer will continue at their current levels and/or pricing. Any reduction in contract volume or pricing could have a significant adverse impact on our future professional services revenues as well as our overall revenues, margins, net income and cash flows next year.2024.

We provide document storage and retrieval services to customers, primarily in Michigan. Revenues from storage and retrieval services, which are reported as part of our Document ConversionServices segment, decreased by $177,338,$73,284, or 16.4%,8.1%, during 20242025 compared to 2023.2024. This decrease was was the result of a reduction in volume of work from our largest storage and retrieval customer, Rocket Mortgage, due to reduced document destruction as well as the continued impact of the slowdown in the home mortgage and refinancing industry.

Our total cost of revenues during 20242025 increaseddecreased by $171,021$1,019,127 or 2.7%,15.3%, overfrom 2023.2024. Our cost of revenues for our Document ManagementSoftware segment increased decreased by $186,872,$108,945, or 16.0%,11.1%, impacted by the reducedincreased volume in sales of software and professional services in that segment, as well as some efficiencies from scale.segment. Our cost of revenues for our Document ConversionServices segment increaseddecreased by $357,893,$1,128,072, or 6.9%,19.9%, in 20242025 compared to 2023,2024, corresponding with the increasereduction in revenues.

Cost of software as a service, or SaaS, consists primarily of technical support personnel, hosting services, and related costs. Cost of software as a service decreasedincreased by $32,361,$86,111, or 3.6%,10.1%, from 2023.2024. Cost of software as a service is impacted by increasing our implementations team and support desk, as well as periodic improvements to infrastructure, which occurred in 2024 and 2025 but was more than offset by a reduction in support calls. As a result, in 2024,2025, our gross margin increased slightly to 85.1% from 84.9% from 82.7% in 2023.2024.

Cost of software maintenance services consists primarily of technical support personnel and related costs. Cost of software maintenance services decreased by $1,706,$2,829, or 2.9%,4.9%, in 20242025 from 2023,2024, which is consistentin line with the relatively flatreduced sales volume for this revenue line. As a result, our gross margin for software maintenance services wasdecreased consistentslightly atto 95.7% in 2025 compared to 95.9% in 2024 compared to 95.8% in 2023.2024.

Cost of professional services consists primarily of compensation for employees performing the document conversion services, compensation of our software engineers and implementation consultants and related third-party costs. Cost of professional services increaseddecreased in 20242025 by $229,691,$1,031,479, or 4.6%,19.1%, overfrom 2023,2024, slightly laggingexceeding the increasedecrease in revenues of 18.7% for the year. Consolidated, our gross margin for professional services increased to 47.7%46.5% during 20242025 compared to 45.5%46.2% in 2023.2024. In our Document ConversionServices segment, towardsas the end of the year, as inbound document conversion project volume dipped, we adjusted our workforce accordingly, reducing temporary workers first, wherever possible. Due to the manual nature of the prepping and scanning work required to convert documents from paper to digital, thewe business hashave staffedmaintained staff to the levels of the work available. As a result,result of our ability to match costs with revenues, our gross profit margin percent for professional services servicesremained stable despite the reduction in ourvolume, Documentat Conversion segment increased to 46.1% during 202444.9% compared to 43.6%44.5% in 2023.2024. In our much smaller Document ManagementSoftware segment, our professional services cost of professional services decreasedincreased more significantly than the sales revenue, due to the nature of the projects completed, resulting in gross profit margin percentages for professional services in our Document ManagementSoftware segment increasingdecreasing to 85.9%77.6% duringin 2024 2025 compared to 71.0%85.0% induring 2023. 2024. 2024 was a strong margin year, as 2023 was 71.0%. Gross margins may vary in professional services, depending on the type of project, such as paper scanning, micrographics, or consulting services, as well as depending upon the nature of each project and the amount of labor required to complete that project.

Cost of storage and retrieval services consists primarily of compensation for employees performing the document storage and retrieval services, including logistics, provided primarily by our Michigan operations and to a much lesser extent, our K-12 customers in Texas. Cost of storage and retrieval services were relatively flat, decreasingdecreased by $7,353,$70,930, or 2.1%,20.4%, during 20242025 compared to 2023.2024. The decrease was less greater than the revenue decrease decreaseof 8.1% due to ana increasesignificant decrease in document destruction, which carries a higher cost than other components of storage and and retrieval. Document destruction was unusually high in 2024. Gross margins for our storage and retrieval services, which exclude the cost of facilities rental, maintenance, and related overheads, decreasedincreased to 66.5% during 2025 compared to 61.4% during 2024 compared to 67.0% in 2023.2024.

General and administrative expenses increased in 20242025 by 1,711,479,$680,590, or 26.5%,8.5%, over 2023.2024. TheShare-based primary driver of the increase is the share-based compensation expense continues to be a significant portion of general and administrative expense, amounting to $1,287,242 in 2025 compared to $1,496,774 in 2024 compared to $662,653 in 2023.2024. The share-based compensation expense components for 20242025 and 2023 2024 are described in the following table:

Excluding the share-based compensation expense, total general and administrative expenses increased by $877,358,$890,122, or 13.6%13.7% in 20242025 over 2023,2024, related to investments made in order to scale, suchincluding asexpanding development,our finance,development and service delivery teams, enhancing our IT systems monitoring, and our SOC2 accreditation process, as well as wage increases.

Sales and marketing expenses increased by $376,380,$401,647, or 18.6%,16.7%, duringin 20242025 over 2023.2024. The increases were primarily driven by the expansion of our our sales teamand marketing teams as part of our investments intended to accelerate our sales. Additionally, we increased in our spending on lead generation, both internally andprimarily through an outsourced service, on consolidating our customer relationship management tools, and on select campaigns and increased travel and trade show materials and attendance.

Depreciation and amortization increased by $154,086,$117,027, or 15.8%,10.4%, in 20242025 over 2023,2024, driven by both increased amortization on capitalizable software, which has increased in recent quarters as we bring new functionality to our payables automation solution, and by purchases of server hardware in 2025 and 2024 to update our infrastructure.

We have financed our operations primarily through a combination of cash on hand, cash generated from operations, borrowings from third parties and related parties, and proceeds from private sales of equity. Since 2012, we have raised a net total of approximately $21.6$23.1 million in cash through issuances of equity securities and a further $5.0 million in cash through issuances of debt securities, of which all but approximately $1.3 million hashave been repaid.repaid as of June 18, 2025.

At December 31, 2024,2025, we had $2.5 million in cash and cash equivalents, net working capital deficit of $1.1$0.2 million, of which the largest liabilities includeincludes $3.4 million in deferred revenues and short-term debt relating to our notes payable of approximately $1.3 million due December 31, 2025.revenues. Based on our current plans and assumptions, we believe our capital resources, including our cash and cash equivalents, along along with funds expected to be generated from our operations and potential financing options, will be sufficient to meet our anticipated cash cash flow needs for at least the next 12 months, including to satisfy our expected working capital needs and our capital and debt service commitments over that period.

Our future cash resources and capital requirements may vary materially from those now planned. For example, from time to time we evaluate evaluate opportunities to expand our current offerings or to develop new products and services and technology or to acquire or invest in complementary businesses, which could increase our capital needs. Our ability to meet our capital needs in the short term will depend on many factors, including maintaining and enhancing our operating cash flow and successfully retaining and growing our client base in the midst of continuing uncertainty regarding inflation and economic growth, the impact of contractAI renegotiations withdisruption in our largest customer,markets, the timing of sales, the success of our new business partners expanding our product and service lines, the mix of products and services, unanticipated events over which we have no control increasing our operating costs or reducing our revenues beyond our current expectations, and other factors discussed in this Annual Report.

We believe we could seek additional debt or equity financing on acceptable terms. While we are confident in our ability to satisfy our current debt requirements, we also believe that our capital resources, business operations and financial results would allow us to seek a full or partial refinancing or other appropriate modification of the current notes payable, such as an extension or conversion to equity, if we deem necessary or desirable. However, our ability to obtain additional capital, or to modify our existing debt arrangements, when needed or desired, will depend on many factors, including general economic and market conditions, our operating performance and investor and lender sentiment, and thus cannot be assured.

We anticipate capital expenditures in the range of $350,000$750,000 to $450,000$1 million for 2025,2026, although there were no material commitments for capital expenditures at December 31, 2024.2025. This is slightly higher than recent years as we continue to enhancerefresh aging servers and evaluate a project to expand our securitystorage environment.and retrieval offering.

Net cash provided by operating activities during 2025 was $933,871, primarily attributable to the net loss adjusted for non-cash expenses of $2,758,386, a decrease in operating assets of 203,257 and a decrease in operating liabilities of $154,877. Net cash provided by operating activities during 2024 was $3,858,160, primarily attributable to the net loss adjusted for non-cash expenses of $2,840,747, a decrease in operating assets of $812,924 and an increase in operating liabilities of $750,704. Net cash provided by operating activities during 2023 was $784,659, primarily attributable to the net income adjusted for non-cash expenses of $1,955,715, an increase in operating assets of $1,669,780 and a decrease in operating liabilities of $20,542.

Net cash used in investing activities in 20242025 was $827,773,$823,980, including purchases of property and equipment of $439,203,$354,378, which included server serverand laptop upgrades, and $388,570$469,602 in capitalized internal use software. Net cash used in investing activities in 20232024 was $548,077,$827,773, including primarilypurchases $436,837of property and equipment of $439,203, which included server upgrades, and $388,570 in capitalized internal use software.

Cash Used in Provided by and Financing Activities.

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

Business Acquisition, Goodwill and Intangibles Assets, including Contingent Liability—EarnoutAssets

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 $388,570$469,602 were capitalized during 2024.2025. Such costs in the amount of $436,837$388,570 were capitalized during 2023.2024.

We maintain three stock-based compensation plans. We account for stock-based payments to employees and directors in accordance with ASC ASC 718, “Compensation - Stock Compensation.” Stock-based payments to employees include grants of stock that are recognized in in the consolidated statements of income based on their fair values at the date of grant. 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 value on the grant date. The Company issues common stock under its share-based payment plans from authorized and unissued shares.

The following discussion and analysis of our financial conditionscondition and results of operations should be read together with our condensed consolidated consolidated financial statements and notes thereto included in Part I, Item 1, “Financial Statements,” of this Quarterly Report on Form 10-Q, and with the condensed consolidated financial statements and notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2025. Historical results and percentage relationships among any amounts in the financial statements are not necessarily indicative of trends in operating results for any future periods. Any forward-looking statements in this discussion and analysis should be read in conjunction with the information set forth in “Cautionary Note Regarding Forward-Looking Statements” elsewhere herein. In this Quarterly Report, we sometimes refer to the three monthand periodsix-month periods ended MarchJune 31, 30, 2026 as the firstsecond quarter 2026,2026 and the six-month period 2026 respectively, and to the three monthand periodsix-month periods ended MarchJune 30, 31, 2025 as the firstsecond quarter 2025 and the six-month period 2025.

Our customers use our software by one of two methods: purchasing our software and installing it onto their own equipment, which we refer to as an “on-premise” model, or licensing and accessing our platform via the Internet, which we refer to as a “software as a service” or “SaaS” model and also as a “cloud-based” model. LicensingWe ofbelieve our software through ourSaaS SaaS model has become increasingly popular among our customers, especially in light of the increased deployment of remote workforce policies, and is aan keyimportant ingredientpart inof our revenue growth strategy. Our SaaS products are hosted with leading third-party cloud infrastructure providers, including Amazon Web Services and other U.S.-based data center providers, delivering reliable hosting services consistent with industry best practices in data security and performance.

There has been no material change during the firstsix-month quarterperiod 2026 to the major qualitative and quantitative factors we consider in the evaluation of our operating results as set forth in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations — How We Evaluate our Business Performance and Opportunities” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2025.

FirstOur quarter 2026 results reflected continuing challenges onin multiple, unrelated fronts. Ourour Document Services segmentsegment, which faced a continued reduction in volume, plus an unfavorable unfavorableproject and pricing mix shift from first quarter 2025. Our Software segment grew modestly in Q2 and was flat for the six-month period 2026 over 2025. Our SaaS revenues grew 4.2% in the quarter, maintained strong margins, and we experienced improved bookings and order intake relative to firstthe quartersix-month period 2025. However, GAAP revenue from these orders will primarily begin to be recognized in second quarterhalf of 2026 and beyond. Our margins reduceddecreased slightly overall, driven by a reduction in Professional Services in our Document Services segment.

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

Our operating results have fluctuated significantly in the past and are expected to continue to fluctuate in the future due to a variety of factors, in addition to economic conditions, that are discussed in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Uncertainties, Trends, and Risks that can cause Fluctuations in our Operating Results” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2025. Due to all these factors and the other risks discussed in Part I, Item 1A, “Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2025, our past results of operations should not be relied upon as an indication of our future performance. Comparisons of our operating results with prior periods isare not necessarily meaningful or indicative of future performance.

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

OurRevenues totalwere revenuesdown for the second quarter and six-month period 2026 by $64,336, or 1.6%, and $402,499, or 4.9%, respectively, primarily driven by a reduction in theprofessional firstservices quarter 2026 decreased by $338,163, or 8.0%, fromin our firstdocument quarterservices 2025segment. revenues,Professional drivenservices primarilywere negatively impacted by project timing in our professional services revenues, which decreased 14.3% year over year for the first quarter 2026.timing. Software as a service revenues grew 0.1%4.2% and Storage and retrieval grew 3.4%,8.8%, while erosion in revenues for Software maintenance services of 11.6%11.7% exacerbated the impact of the professional services decrease.

We provide access to our software solutions as a service, accessible through the internet. Our customers typically enter into our software as a service agreement for periods of one year or more. Under these agreements, we generally provide access to the applicable software, data storage and related customer assistance and support. Revenues from the sale of software as a service, which are reported as part of our Software segment increased by $1,678,$66,312, or 0.1%4.2%, in the firstsecond quarter 2026 compared to the second quarter 2025 and increased by $67,990, or 2.2% in the six-month period 2026 compared to the six-month period 2025. HigherThis thanincrease usualwas customerprimarily churnthe nearlyresult offset normal growth, across both YellowFolder and IntelliCloud solutions, including an individually significant IntelliCloud customer who implemented aof new ERPpayables systemautomation and no longer required our solution.customers.

Professional services revenues primarily consist of revenues from document scanning and conversion services, plus consulting, discovery, training, training, and advisory services to assist customers with Softwaredocument management needs. These revenues include arrangements that do not involve the sale of software. Of our $1,850,163 in professional services revenues during the firstsecond quarter 2026 and six-month period 2026, $1,645,566 $1,815,522and was$3,461,088, respectively, were derived from our Document Services operations and $34,641$144,202 wasand $178,843, respectively, were derived from our Software operations. Our overall professional services revenues decreased by $308,152,$109,851, or 14.3%, 5.8%, in the first second quarter 2026 compared to the second quarter 2025 and decreased by $418,003, or 10.3%, in the six-month period 2026 compared to the six-month period 2025. This decrease iswas theprimarily resultattributable of continuedto reduced scanning projectsproject activity in our Document Services Servicessegment, segment.reflecting the timing of customer projects and a lower backlog during the period. We have since taken orders to refill our project backlog.

The following tablestable sets forth our cost of revenuesrevenues, by revenue source and segmentsegment, for the periods indicated:

Our total cost of revenues during the firstsecond quarter 2026 increased by $6,978,$43,234, or 0.5%,3.4%, from second quarter 2025 and increased by $50,212, or 1.9%, during the six-month period 2026 from the six-month period 2025. Our cost of revenues for our Software segment increased by $16,696,$31,625, or 6.5%,10.9%, in the second quarter 2026 compared to the second quarter 2025 and increased $48,321, or 8.8%, in the six-month period 2026 compared to the six-month period 2025, primarily due to expanded payables automation efforts, as well as increased hosting costs. Our cost of revenues for our Document Services segment decreasedincreased by $9,718,$11,609, or 0.8%,1.2%, in the firstsecond quarter 2026 compared to the 2025.second quarter 2025 and increased by $1,891, or 0.1%, during the six-month period 2026 compared to the six-month period 2025, despite decreased work volume, due to the nature of the projects.

Our overall gross profit decreased to 63.5%66.4% in the firstsecond quarter 2026 from 66.6%68.0% in the second quarter 2025 and decreased to 64.9% during the six-month period 2026 from 67.3% for the six-month period 2025. The increase in storage and retrieval, driven by reduced low-margin destruction work, was not sufficient to offset the decrease in professional services, driven by a product mix and pricing shift in document scanning and conversion projects.

Cost of software as a service, or SaaS, consists primarily of technical support personnel, hosting services, and related costs. Cost of software as a service during the firstsecond quarter 2026 increased by $41,827,$30,563, or 19.4%,12.4%, from the firstsecond quarter 2025 and increased by $72,390, or 15.7%, during the six-month period 2026 from the six-month period 2025. Cost of software as a service is impacted by increasing our implementations team and support desk staff, hosting costs, the volume of support calls, and periodic improvements to infrastructure, of which, the implementation costs and hosting costs increased in the first quartersix 2026,months exacerbated2026 by a tough comparison to a high margin quarter inover 2025. OurGross gross marginprofit in the firstsecond quarter 2026 decreased to 83.4%83.1% compared to 84.3% in the second quarter 2025 and decreased to 83.2% during the six-month period 2026 compared to 86.1%85.2% induring the firstsix-month period quarter 2025.

Cost of professional services consists primarily of compensation for employees performing the Document Services divisiondocument conversion services, as well as compensation of our software engineers and implementation consultants,consultants and related third-party costs. Cost of professional services during the second quarter 2026 increased by $10,913, or 1.1%, from the second quarter 2025 and increased in the firstsix-month quarterperiod 2026 by $29,443,$40,356, or 2.7% 2.0%, over 2025,the duesix-month toperiod 2025. The increase in cost of sales, despite lower revenues, was driven by our Document Services segment where lower margin projects requiringrequired more labor. Further, while there were fewer Software division projects in the first quarter 2026 than 2025, the impact was not material to the overall cost of revenues. On a consolidated basis, our gross margin for professional services decreased to 39.9% during the first quarter 2026 compared to 49.9% in 2025. Gross margins related to consulting services in Software and digital transformation services in Document Services (ranging from scanning to micrographics conversion) may vary widely, depending upon the nature of the project and the amount of labor required to complete a project.project, and declined in the periods reported. Our gross margins in professional services decreased to 45.5% in the second quarter 2026 compared to 49.2% in the second quarter 2025 and decreased to 42.7% during the six-month period 2026 compared to 49.6% in the six-month period 2025.

Sales and marketing expenses during the firstsecond quarter 2026 decreased by $80,325,$77,261, or 13.7%,13.9%, from the firstsecond quarter 2025,2025 primarilyand duedecreased toby $157,586, or 13.8%, during the six-month period 2026 over the six-month period 2025. The decreases are driven by timing of variable compensation.expenses and trade show participation, as well as open positions.

Interest Income (Expense),Expense, Net

Interest income was $4,699$3,921 and $8,620 during the firstsecond quarter and six-month period 2026, respectively, as compared with $43,006$59,112 and $102,118 of interest expense, net, during the firstsecond quarter and six-month period 2025, representing a change of $47,705 or 110.9%.respectively. The reduced interest expense resulted from early principal repayments of the 2022 Notes on June 18, 2025.

We have historically financed our operations primarily through a combination of cash on hand, cash generated from operations, borrowings from third parties and related parties, and proceeds from sales of equity. Since 2012, we have raised a net total of approximately $23.1 million in cash through issuances of equity securities and a further $5.0 million in cash through issuances of debt securities, of which all have been repaid as of June 18, 2025.

At MarchJune 31,30, 2026, we had $2.1$1.7 million in cash and cash equivalents, net working capital deficit of $0.5$1.3 million, which includes $2.9 million in deferred revenues. Based on our current plans and assumptions, we believe our capital resources, including our cash and cash equivalents, along with funds expected to be generated from our operations and potential financing options, will be sufficient to meet our anticipated cash flow needs for at least the next 12 months, including to satisfy our expected working capital needs and our capital and debt service commitments over that period.

We maintain an effective registration statement covering up to $12.9 million of common stock, warrants, and units. The registration statement includes a prospectus covering the offer, issuance and sale of up to $10.0 million in our common stock from time to time in “at-the-market offerings” pursuant to an At the Market Agreement (the “ATM Program”) with Lucid Capital Markets, LLC as our sales agent. We sold no shares during the firstsix-month quarterperiod 2026 orand 139,945 shares during the six-month period 2025. We have sold 145,938 shares of our common stock pursuant to the ATM Program during the full year 2025, and received aggregate net proceeds totaling $1,621,325. As of the filing date of this Quarterly Report, approximately $8.2 million remained available under the ATM Program.

As of MarchJune 31,30, 2026, we have no outstanding indebtedness.

There were no material commitments for capital expenditures at MarchJune 31,30, 2026.

Cash Used in and Provided by Operating Activities

Net cash used in operating activities during the firstsix-month quarterperiod 2026 was $228,433,$186,094, primarily attributable to the net loss adjusted for non-cash expenses of $604,870,$1,550,628, a decrease in operating assets of $44,793$574,148 and ana increasedecrease in operating liabilities of $299,757.$46,879. Net cash cashprovided used inby operating activities during the firstsix-month quarterperiod 2025 was $27,053,$112,521, primarily attributable to the net loss adjusted for non-cash expenses of $907,979,$1,698,350, ana increasedecrease in operating assets of $29,841$424,943 and a decrease in operating liabilities of $177,626. $715,617.

Net cash used in investing activities in the firstsix-month quarterperiod 2026 was $203,665,$352,925, including $178,700$277,254 related toin capitalized internalsoftware. use software. Net cash used in investing activities in the firstsix-month quarterperiod 2025 was $223,934,$471,904, including $102,854$209,171 related toin capitalized internal use software.

Our critical accounting policies and estimates are set forth in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and Estimates” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2025. There were no material changes to our critical accounting policies and estimates during the firstsecond quarter 2026.