Business Context and Reporting Period
Globalwise Investments, Inc. (OTC: GWIV), the legal registrant, reports results for the fiscal year ended December 31, 2012; its wholly owned operating subsidiary, Intellinetics, develops and sells enterprise content management software and related services. The February 2012 acquisition of Intellinetics was accounted for as a reverse merger and recapitalization. This is an annual report, not a standalone fourth-quarter filing, so fourth-quarter financial results are not clearly provided.
Financial Results and Position
| Metric | 2012 | 2011 |
|---|---|---|
| Revenue | $2.735 million | $1.726 million |
| Gross profit / margin | $1.753 million / 64% | $0.901 million / 52% |
| Operating expenses | $3.425 million | $2.166 million |
| Operating loss | $1.671 million | $1.266 million |
| Net loss | $1.985 million | $1.440 million |
| Net loss per share, basic and diluted | $0.06 | $0.06 |
| Cash used in operating activities | $1.147 million | $0.925 million |
Revenue increased 58%, led by licenses with professional services (+71%) and consulting (+167%); SaaS revenue fell 25%. Gross margin improved 12 percentage points, while net loss widened 38%, as operating expenses rose 58% and net interest expense increased 71% to $299,000. Management attributed much of the expense increase to the share exchange and public-company costs, expanded sales and marketing, and additional personnel.
At December 31, 2012, cash was $46,236, working capital deficit was $2.077 million, total assets were $514,043, total liabilities were $4.797 million, and stockholders’ deficit was $4.283 million. Reported notes payable were approximately $2.180 million, including current and long-term amounts; related-party notes added approximately $464,000. The balance sheet also reports $309,740 of deferred compensation. Cash declined from $140,271 at year-end 2011. Investing cash outflow was $48,179 and financing provided $1.102 million during 2012.
Material Changes, Outlook, and Risks
- Liquidity and going concern: The auditor’s report and management disclosures state that recurring losses and negative operating cash flows raise substantial doubt about the Company’s ability to continue as a going concern. The filing says cash requirements exceeded internally available resources by about $95,000 per month and anticipated a need for external financing. The financial statements contain no adjustments for a possible failure to continue as a going concern.
- Subsequent financing: In February and March 2013, the Company sold 15 million shares for $2.65 million cash and exchanged $350,000 of notes for equity. Placement-agent commissions and expenses were approximately $296,000; the agent also received warrants for 1.5 million shares at $0.24. This financing materially diluted existing holders. The filing also reports conversion of $489,211 of debt to shares in February 2013 and deferrals of scheduled payments on both Ohio Development Authority loans through December 2013.
- Debt and covenant exposure: Ohio Development Authority loans totaled approximately $1.492 million at year-end, and the Company disclosed past covenant noncompliance. Covenants include Ohio employment requirements; violations may trigger higher interest or accelerated repayment. Debt maturities and payment terms were subsequently modified, as described in the filing.
- Growth plans: Management emphasized expanding its reseller channel, reporting 14 U.S. reselling partners and targeting approximately 35 by year-end 2013. It expected channel growth and packaged, cloud-delivered solutions to shorten sales cycles; the stated 30–120 day target contrasts with historical cycles of 18–24 months. These are expectations, not assured results.
- Concentration and operating risks: Two reseller customers represented approximately 28% of 2012 revenue (FormFast 16%; Tiburon 12%). Government contracts represented approximately 39% of 2012 revenue. The filing’s risk-factor discussion gives 57% for government revenue in 2011, while the business section and financial-statement note give 73%; the 2011 comparator is inconsistent in the filing.
- Controls and unusual items: Management concluded disclosure controls and internal control over financial reporting were effective at December 31, 2012. The auditor did not attest to internal-control effectiveness; the filing also recounts that a former auditor identified a material weakness in connection with earlier filings. A $15,470 derivative loss and share-based compensation of $240,550 were reported for 2012.
- The Company competes in a crowded ECM market and depends on channel partners, renewals, successful product development, customer collections, and access to additional capital. It reported no pending legal proceedings and does not anticipate paying dividends in the foreseeable future.
Important Facts for Investors to Verify
- Whether the 2013 financing proceeds and debt-payment deferrals provided adequate liquidity, and the Company’s subsequent cash burn and financing needs.
- Current debt balances, loan covenant compliance, revised Ohio loan schedules, and any remaining near-term maturities.
- The impact of the 15 million-share offering, debt conversions, warrants, and other issuances on fully diluted ownership.
- Whether reseller growth translated into recurring revenue, improved margins, shorter sales cycles, and reduced customer concentration.
- The inconsistent 2011 government-revenue percentages and the status of remediation of the previously identified internal-control weakness.