GlobeNewswire Inc | Aug 14, 2020 08:30AM EDT

August 14, 2020

Stabilizing Cash

COLUMBUS, OH, Aug. 14, 2020 (GLOBE NEWSWIRE) -- Intellinetics, Inc. (OTCQB: INLX), a cloud-based document solutions provider, announced financial results for the three and six months ended June 30, 2020.

2020 Second Quarter Financial Highlights

-- Total Revenue increased 187% from the same period in 2019. -- Software as a Service Revenue increased 8% from the same period in 2019. -- Net Loss of $282,356 decreased from the same period in 2019. -- Adjusted EBITDA of $103,974, an improvement of $267,694 compared to an adjusted EBITDA loss of $163,720 from the same period in 2019.

2020 Six Month Financial Highlights

-- Total Revenue increased 164% from the same period in 2019. -- Software as a Service Revenue increased 11% from the same period in 2019. -- Net Loss of $928,567 decreased from the same period in 2019. -- Adjusted EBITDA of $384,264, an improvement of $839,158 compared to an adjusted EBITDA loss of $454,894 from the same period in 2019.

Summary 2020 Second Quarter Results Revenues for the three months ended June 30, 2020 were $1,836,182 as compared with $640,608 for the same period in 2019. The increase in our professional services and storage and retrieval services revenues is primarily due to the addition of revenues from our subsidiary, Graphic Sciences, Inc., acquired March 2, 2020, and the increase in software maintenance services is primarily due to the addition of revenues from the acquisition of the assets of CEO Imaging Systems, Inc. on April 24, 2020. Intellinetics reported a net loss of $282,356 and $473,662 for the three months ended June 30, 2020 and 2019, respectively, representing a decrease in net loss of $191,306. The decreased net loss was primarily the result of improved operating results as well as lower interest expense, although those improved results were offset to some extent by transaction costs of $175,673 related to our recent acquisitions. Net loss per share for the three months ended June 30, 2020 and 2019 was ($0.10) and ($1.28), respectively.

Summary 2020 Six Month Results Revenues for the six months ended June 30, 2020 were $3,049,846 as compared with $1,155,993 for the same period in 2019. The increase in our professional services and storage and retrieval services revenues is primarily due to the addition of revenues from our recently-acquired subsidiary, Graphic Sciences, Inc., and the increase in software maintenance services is primarily due to the addition of revenues from the acquisition of the assets of CEO Imaging Systems, Inc. Intellinetics reported a net loss of $928,567 and $1,143,515 for the six months ended June 30, 2020 and 2019, respectively, representing a decrease in net loss of $214,948. The decreased net loss was primarily the result of a gain on extinguishment of debt of $287,426, income tax benefit of $188,300, and improved operating income contribution, offset by acquisition-related transaction costs of $636,440. Net loss per share for the six months ended June 30, 2020 and 2019 was ($0.46) and ($3.09), respectively.

2020 Highlights

-- Positive adjusted EBITDA for three and six months ended June 30, 2020. -- Integration of acquisitions of Graphic Sciences (March 2, 2020) and CEO Imaging Systems, Inc. (April 24, 2020) progressing at or ahead of schedule despite pandemic challenges. -- Maintaining benefits for employees furloughed due to state stay-at-home orders, supported by increased revenue and stronger operating results of the consolidated entity, as well as management salary reductions and other cost savings measures.

James F. DeSocio, President & CEO of Intellinetics, stated, I was pleased to see how fast our operations in Michigan could return to full steam after the stay-at-home order was lifted. We were able to ramp up quickly by continuing benefits for furloughed employees and offering all of them their roles back when the state lifted the stay order, and the majority of our experienced employees came back to work. This team then augmented their resilience and tenacity with creative solutions to ensure our customers and employees remain safe and still get our work done in timely fashion. For example, work that was previously not possible to do remotely has been modified so that certain elements can now be processed from home.

Similarly, our new employees from CEO Imaging Systems, Inc. have hit the ground running. They have continued to serve their existing customers, while learning our IntelliCloudTM flagship product and supporting cross training on their own CEO Image ExecutiveTM solutions. Meanwhile, all teams have worked tirelessly to ensure that communication channels remain open and have kept integration distractions to a minimum. Further, these accomplishments occurred with virtually no travel due to the ongoing pandemic.

I am most enthusiastic about our synergies with the consolidated entity and the opportunities to bring new conversations to our customers. We hit a very important milestone in 2020 by achieving positive Adjusted EBITDA, and Im proud of the team for their incredible efforts. Our goal is to have continued positive Adjusted EBITDA for the remainder of 2020. With the foundation set in the second quarter, including delivering above-expected sales, my optimism is growing for our future sales prospects and our ability to generate cash. Our second quarter results were impacted by COVID-19, but based on our current plans and estimates, we anticipate that our revenues for each of the third and fourth quarters of 2020 will surpass our second quarter results.

Conference CallIntellinetics is holding a conference call to discuss these results on Friday, August 14, 2020, at 9:30 a.m. Eastern Time. The conference call can be accessed by dialing + 19292056099 and providing passcode 85468060721#. If you are unable to participate during the live call, a replay of the conference call will be available approximately two hours after the completion of the call through August 31, 2020. To listen to the replay, the call will be archived on the company's website at https://www.intellinetics.com/company-news/.

About Intellinetics, Inc.Intellinetics, Inc., located in Columbus, Ohio, is a cloud-based document services software provider. Its IntelliCloud suite of solutions serve a mission-critical role for organizations in highly regulated, risk and compliance-intensive markets in Healthcare, K-12, Public Safety, Public Sector, Risk Management, Financial Services and beyond. IntelliCloud solutions make content secure, compliant, and process-ready to drive innovation, efficiencies and growth. Through its Image Technology Group and production scanning department, hundreds of millions of images have been converted from paper to digital, paper to microfilm, and microfiche to microfilm for business and federal, county, and municipal governments. Its operations in Madison Heights, Michigan, also provides its clients with long-term paper and microfilm storage and retrieval options. For additional information, please visit www.intellinetics.com.

Cautionary StatementStatements in this press release which are not purely historical, including statements regarding future business and growth, new revenues, cash flow and other synergies associated with our recent acquisition of Graphic Sciences and CEO Imaging and the success of our integration efforts, our other product and service offerings and partnerships mentioned in this release, and in any other industry, market, initiative, service or innovation; cross-selling opportunities Intellinetics future revenues, revenue consistency, growth and long-term value, including trends in revenue growth and mix; growth of software as a service, professional services, and maintenance revenue; market penetration; execution of Intellinetics business plan, strategy, direction and focus; and other intentions, beliefs, expectations, representations, projections, plans or strategies regarding future growth, financial results, and other future events are forward-looking statements. The forward-looking statements involve risks and uncertainties including, but not limited to, the risks associated with the effect of changing economic conditions, the impact of COVID-19 and related governmental actions and orders on customers, suppliers, employees and the economy and our industry, Intellinetics ability to execute on its business plan and strategy, customary risks attendant to acquisitions, trends in the products markets, variations in Intellinetics cash flow or adequacy of capital resources, market acceptance risks, the success of Intellinetics solutions providers, including human services, health care, and education, technical development risks, and other risks, uncertainties and other factors discussed from time to time in its reports filed with or furnished to the Securities and Exchange Commission, including in Intellinetics most recent annual report on Form 10-K as well as subsequently filed reports on Form 8-K. Intellinetics cautions investors not to place undue reliance on the forward-looking statements contained in this press release. Intellinetics disclaims any obligation and does not undertake to update or revise any forward-looking statements in this press release. Expanded and historical information is made available to the public by Intellinetics on its website atwww.intellinetics.com or at www.sec.gov.

CONTACT:Joe Spain, CFOIntellinetics, Inc. 614.921.8170 investors@intellinetics.com

Non-GAAP Financial MeasureIntellinetics uses non-GAAP Adjusted EBITDA as a supplemental measure of our performance that is not required by, or presented in accordance with, accounting principles generally accepted in the United States (GAAP).

A non-GAAP financial measure is a numerical measure of a company's financial performance that excludes or includes amounts so as to be different from the most directly comparable measure calculated and presented in accordance with GAAP in the statement of income, balance sheet or statement of cash flows of a company.Adjusted EBITDA is not a measurement of financial performance under GAAP and should not be considered as an alternative to net income, operating income, or any other performance measure derived in accordance with GAAP, or as an alternative to cash flow from operating activities or a measure of our liquidity.Intellinetics urges investors to review the reconciliation of non-GAAP Adjusted EBITDA to the comparable GAAP Net Loss, which is included in this press release, and not to rely on any single financial measure to evaluate Intellinetics financial performance.

We believe that Adjusted EBITDA is a useful performance measure and is used by us to facilitate a comparison of our operating performance on a consistent basis from period-to-period and to provide for a more complete understanding of factors and trends affecting our business than measures under GAAP can provide alone. We define Adjusted EBITDA as earnings before interest expense, any income taxes, depreciation and amortization expense, stock-based compensation, note conversion and note or equity offer warrant or stock expense, gain or loss on debt extinguishment, and significant transaction costs.

Reconciliation of Net Loss to Adjusted EBITDA

For the Three Months Ended June 30, 2020 2019 Net loss - GAAP $ (282,356 ) $ (473,662 )Significant transaction costs 175,673 - Interest expense, net 116,796 239,347 Depreciation and amortization 86,751 2,099 Stock-based compensation 7,110 68,496 Adjusted EBITDA $ 103,974 $ (163,720 )

For the Six Months Ended June 30, 2020 2019 Net loss - GAAP $ (928,567 ) $ (1,143,515 )Significant transaction costs 636,440 - Interest expense, net 583,331 472,494 Income tax benefit, net (188,300 ) - Depreciation and amortization 114,842 4,007 Stock-based compensation 76,183 212,120 Stock and warrant issue expense 377,761 - Gain on extinguishment of debt (287,426 ) - Adjusted EBITDA $ 384,264 $ (454,894 )

INTELLINETICS, INC. and SUBSIDIARYCondensed Consolidated Statements of Operations(Unaudited)

For the Three Months Ended June For the Six Months Ended June 30, 30, 2020 2019 2020 2019 Revenues: Sale of $ 9,674 $ 7,102 $ 103,774 $ 8,852 softwareSoftware as a 248,693 229,982 474,687 429,165 serviceSoftwaremaintenance 314,111 252,713 575,354 505,349 servicesProfessional 1,045,679 150,811 1,605,709 212,627 servicesStorage andretrieval 218,025 - 290,322 - servicesTotal revenues 1,836,182 640,608 3,049,846 1,155,993 Cost of revenues:Sale of 5,357 1,164 43,659 3,010 softwareSoftware as a 71,281 60,579 143,796 128,268 serviceSoftwaremaintenance 31,569 20,541 78,085 49,919 servicesProfessional 514,036 47,820 811,132 91,372 servicesStorage andretrieval 42,546 - 56,537 - servicesTotal cost of 664,789 130,104 1,133,209 272,569 revenues Gross profit 1,171,393 510,504 1,916,637 883,424 Operating expenses:General and 844,657 521,057 1,688,860 1,060,018 administrativeSignificanttransaction 175,673 - 636,440 - costsSales and 229,873 221,663 473,562 490,420 marketingDepreciationand 86,750 2,099 114,842 4,007 amortization Totaloperating 1,336,953 744,819 2,913,704 1,554,445 expenses Loss from ) ) ) (671,021 )operations (165,560 (234,315 (997,067 Other income (expense)Gain onextinguishment - - 287,426 - of debtIncome tax - - - benefit 188,300Interest ) ) ) (472,494 )expense, net (116,796 (239,347 (407,226 Total other income (116,796 ) (239,347 ) 68,500 (472,494 )(expense) Net loss $ ) $ ) $ ) $ ) (282,356 (473,662 (928,567 (1,143,515 Basic anddiluted net $ (0.10 ) $ (1.28 ) $ (0.46 ) $ (3.09 )loss pershare: Weightedaverage numberof commonshares 2,810,865 370,497 1,998,356 370,055 outstanding -basic anddiluted

INTELLINETICS, INC. and SUBSIDIARY

Condensed Consolidated Balance Sheets

(Unaudited) June 30, December 31, 2020 2019 ASSETS Current assets: Cash $ 1,876,816 $ 404,165 Accounts receivable, net 602,729 329,571 Accounts receivable, unbilled 450,240 23,371 Parts and supplies, net 87,904 4,184 Prepaid expenses and other current 234,811 110,841 assetsTotal current assets 3,252,500 872,132 Property and equipment, net 717,681 6,919 Right of use assets 2,822,567 97,239 Intangible assets, net 1,293,208 - Goodwill 2,319,676 - Other assets 18,784 10,284 Total assets $ 10,424,416 $ 986,574 LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities: Accounts payable $ 253,842 $ 160,911 Accrued compensation 243,444 70,027 Accrued expenses, other 295,728 140,079 Lease liabilities - current 496,264 47,397 Deferred revenues 911,798 754,073 Deferred compensation 100,828 117,166 Earnout liabilities - current 287,390 - Accrued interest payable - current 2,236 1,212,498 Notes payable - current 542,756 3,339,963 Notes payable - related party - - 1,467,400 currentTotal current liabilities 3,134,286 7,309,514 Long-term liabilities: Notes payable 1,904,863 - Lease liabilities - net of current 2,397,878 53,318 portionEarnout liabilities - net of current 601,810 - portionTotal long-term liabilities 4,904,551 53,318 Total liabilities 8,038,837 7,362,832 Stockholders' equity (deficit): Common stock, $0.001 par value,25,000,000 shares authorized;2,810,840 and 370,497 shares issued 2,811 371 and outstanding at June 30, 2020 andDecember 31, 2019, respectivelyAdditional paid-in capital 24,107,401 14,419,437 Accumulated deficit (21,724,633 ) 20,796,066 )Total stockholders' equity (deficit) 2,385,579 (6,376,258 )Total liabilities and stockholders' $ 10,424,416 $ 986,574 equity (deficit)

INTELLINETICS, INC. and SUBSIDIARY

Condensed Consolidated Statements of Cash Flows(Unaudited)

For the Six Months Ended June 30, 2020 2019 Cash flows from operating activities: Net loss $ ) $ ) (928,567 (1,143,515Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 114,842 4,007 Bad debt expense 44,705 4,121 Loss on disposal of fixed assets 0 - Parts and supplies reserve 6,000 - Amortization of deferred financing 65,222 91,925 costs Amortization of beneficial 11,786 35,360 conversion option Amortization of debt discount 35,555 - Amortization of right of use asset 160,290 20,655 Stock issued for services 57,500 87,500 Stock options compensation 18,683 124,620 Note conversion stock issue expense 141,000 - Warrant issue expense 236,761 - Interest on converted debt 176,105 - Gain on extinguishment of debt (287,426 ) - Amortization of original issue 18,296 - discount on notesChanges in operating assets and liabilities: Accounts receivable 804,874 (42,280 ) Accounts receivable, unbilled (150,846 ) 19,812 Parts and supplies, net 1,676 1,533 Prepaid expenses and other current (53,400 ) (2,421 ) assets Right of use assets 0 ) (138,549 Accounts payable and accrued (399,261 ) (16,048 ) expenses Lease liabilities, current and (154,257 ) 122,238 long-term Deferred compensation (16,338 ) (24,000 ) Accrued interest, current and 2,236 342,567 long-term Deferred interest expense 0 - Deferred revenues (37,723 ) ) (135,649 Total adjustments 796,280 495,391 Net cash provided by/(used in) (132,287 ) ) operating activities (648,124 Cash flows from investing activities: Cash paid to acquire business, net (4,017,816 ) - of cash acquired Purchases of property and equipment (21,927 ) (5,489 ) Net cash used in investing (4,039,743 ) (5,489 ) activities Cash flows from financing activities: Proceeds from issuance of common 3,167,500 - stock Offering costs paid on issuance of (307,867 ) - common stock Payment of deferred financing costs (175,924 ) - Proceeds from notes payable 3,008,700 - Repayment of notes payable - related (47,728 ) (22,793 ) parties Net cash provided by/(used in) 5,644,681 (22,793 ) financing activities Net increase (decrease) in cash 1,472,651 ) (676,406Cash - beginning of period 404,165 1,088,630Cash - end of period $ $ 412,224 1,876,816 Supplemental disclosure of cash flow information: Cash paid during the period for $ 85,949 $ 4,405 interest and taxes Supplemental disclosure of non-cash financing activities: Accrued interest notes payable $ 796,074 $ - converted to equity Accrued interest notes payable 238,883 - related parties converted to equity Discount on notes payable for 320,000 - beneficial conversion feature Discount on notes payable for 135,292 - warrants Notes payable converted to equity - 3,421,063 Notes payable converted to equity - - related parties 1,465,515 Supplemental disclosure of non-cashinvesting activities relating to business acquisitions: Cash $ 17,269 $ - Accounts receivable - 1,122,737 Accounts receivable, unbilled 266,403 - Parts and supplies 91,396 - Prepaid expenses 73,116 - Other current assets 5,954 - Right of use assets - 2,885,618 Property and equipment 735,885 - Intangible assets - 1,361,000 Accounts payable ) - (169,289 Accrued expenses ) - (163,168 Lease liabilities ) - (2,947,684 Federal and state taxes payable ) - (168,900 Deferred revenues ) - (195,448 Deferred tax liabilities, net ) - (149,900 Net assets acquired in acquisition - 2,774,609 Total goodwill acquired in - acquisition 2,319,676 Total purchase price of acquisition - 5,094,285 Purchase price of business acquisition financed with earnout (889,200 ) - liabilities Purchase price of business acquisition financed with (170,000 ) - installment payments Cash used in business acquisition $ $ - 4,035,085