Inuvo(INUV) - 2019 Q1 - Quarterly Report

Part I - Financial Information Financial Statements This section presents the unaudited consolidated financial statements for Inuvo, Inc. for the quarterly period ended March 31, 2019, including balance sheets, statements of operations, cash flows, and detailed notes Consolidated Balance Sheets As of March 31, 2019, total assets slightly increased to $28.7 million, while rising liabilities to $20.0 million reduced stockholders' equity from $11.0 million to $8.7 million Consolidated Balance Sheet Highlights (Unaudited) | Account | March 31, 2019 | December 31, 2018 | | :--- | :--- | :--- | | Assets | | | | Total current assets | $6,672,396 | $7,212,017 | | Total assets | $28,686,088 | $28,665,882 | | Liabilities & Equity | | | | Total current liabilities | $14,582,477 | $14,099,228 | | Total long-term liabilities | $5,435,318 | $3,532,839 | | Total stockholders' equity | $8,668,293 | $11,033,815 | | Total liabilities and stockholders' equity | $28,686,088 | $28,665,882 | Consolidated Statements of Operations For Q1 2019, net loss increased to $2.46 million from $1.41 million in Q1 2018, driven by a 24.6% revenue decline to $15.5 million and a 25.1% gross profit decrease Q1 2019 vs Q1 2018 Statement of Operations (Unaudited) | Metric | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | | :--- | :--- | :--- | | Net revenue | $15,464,569 | $20,503,985 | | Gross profit | $8,783,941 | $11,725,391 | | Operating loss | ($1,945,685) | ($1,314,780) | | Net loss | ($2,462,393) | ($1,408,024) | | Net loss per share (Basic & Diluted) | ($0.08) | ($0.05) | Consolidated Statements of Cash Flows Q1 2019 saw $1.05 million net cash used in operations, a shift from $0.63 million provided in Q1 2018, with financing activities providing $1.38 million resulting in a net cash increase of $19,441 Q1 2019 vs Q1 2018 Cash Flow Summary (Unaudited) | Cash Flow Activity | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | ($1,047,835) | $629,096 | | Net cash used in investing activities | ($310,221) | ($514,065) | | Net cash provided by (used in) financing activities | $1,377,497 | ($53,839) | | Net change – cash | $19,441 | $61,192 | Notes to Consolidated Financial Statements Notes detail the pending merger with CPT, significant liquidity concerns raising going concern doubt, high revenue concentration with Yahoo! and Google, and the adoption of new lease accounting standards - The company entered into a merger agreement with ConversionPoint Technologies (CPT) on November 2, 2018; stockholders approved the merger on May 8, 2019[32][41] - Due to a 24.6% revenue decline in Q1 2019, a $2.5 million net loss, and reliance on credit facilities, there is substantial doubt about the Company's ability to continue as a going concern[43][44] Customer Revenue Concentration | Customer | Q1 2019 Revenue % | Q1 2018 Revenue % | | :--- | :--- | :--- | | Yahoo! | 73.6% | 70.5% | | Google | 11.7% | 9.5% | | Total | 85.3% | 80.0% | - In March 2019, the company sold $1,440,000 of Original Issue Discount Unsecured Subordinated Convertible Notes and received $1,200,000 in proceeds for working capital[63] Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes the 24.6% revenue decline to strategic shifts and lower monetization, while operating expenses decreased 17.7% despite merger costs, leading to significant going concern doubt Q1 2019 vs Q1 2018 Performance | Metric | 2019 | 2018 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Net Revenue | $15,464,569 | $20,503,985 | $(5,039,416) | (24.6%) | | Gross Profit | $8,783,941 | $11,725,391 | $(2,941,450) | (25.1%) | - The revenue decline was caused by a strategy to reduce focus on non-strategic publisher technologies and reduced monetization from largest Demand partners[103] - Compensation expense decreased 31.0% due to a reduction in headcount from 91 at March 31, 2018 to 66 at March 31, 2019[107] - Selling, general and administrative costs increased by 11.8%, which included $501,000 in costs related to the pending merger[107] - The company's financial condition has raised substantial doubt about its ability to continue as a going concern, necessitating reliance on financing and the successful closing of the merger[110] Quantitative and Qualitative Disclosures About Market Risk This section is not applicable as Inuvo, Inc. qualifies as a smaller reporting company - Disclosure is not applicable to a smaller reporting company[118] Controls and Procedures Management concluded disclosure controls and procedures were effective as of March 31, 2019, with no material changes to internal control over financial reporting during the quarter - As of March 31, 2019, the Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective[121] - No changes in internal control over financial reporting occurred during the period that have materially affected, or are reasonably likely to materially affect, internal controls[122] Part II - Other Information Legal Proceedings The company and its board faced putative class action lawsuits challenging merger disclosures, which the company believes are without merit and were mooted by an amended S-4 filing - Multiple putative class action lawsuits were filed by stockholders in December 2018 and January 2019, challenging the adequacy of disclosures related to the merger transactions[124][126][129] - The company believes the claims are without merit and that the allegations were mooted by the filing of an amended S-4 Registration Statement on March 15, 2019[127][130] Risk Factors Key risks include potential merger delays or failure, significant revenue concentration with Yahoo! and Google, and the risk of non-compliance with credit facility covenants impacting liquidity - The merger is subject to closing conditions that, if not satisfied, could delay or prevent its completion, potentially causing the stock price to decline and impacting business relationships[133] - The company relies on Yahoo! and Google for a significant portion of its revenue (85.3% combined in Q1 2019), and the loss of either would have a material adverse impact[134][135] - Failure to comply with covenants in the credit facility with Western Alliance Bank could result in a default, jeopardizing the company's ability to access capital and conduct business[136] Unregistered Sales of Equity Securities and Use of Proceeds None, except as previously disclosed in other reports - None, except as previously disclosed[137] Defaults upon Senior Securities The company reported no defaults upon senior securities - None[138] Mine Safety and Disclosures This item is not applicable to the company - Not applicable[139] Other Information None, except as previously reported - None, except as previously reported[140] Exhibits This section lists exhibits filed with the Form 10-Q, including corporate governance documents, financing agreements, and CEO/CFO certifications - Lists exhibits filed with the report, including financing agreements, corporate documents, and required certifications[142]