Inuvo(INUV) - 2023 Q2 - Quarterly Report

Part I - Financial Information This section details Inuvo, Inc.'s unaudited consolidated financial statements for Q2 and the first half of 2023, along with management's discussion and analysis Item 1. Financial Statements This section presents Inuvo, Inc.'s unaudited consolidated financial statements as of June 30, 2023, and for the three and six-month periods then ended Consolidated Balance Sheets As of June 30, 2023, total assets were $34.3 million, total liabilities $14.8 million, and stockholders' equity $19.5 million, with cash increasing to $5.0 million Key Balance Sheet Items (as of June 30, 2023 vs. Dec 31, 2022) | Metric | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Cash and cash equivalents | $5,045,112 | $2,931,415 | | Total Current Assets | $16,669,371 | $16,379,748 | | Total Assets | $34,284,799 | $35,557,310 | | Total Current Liabilities | $14,627,917 | $13,595,786 | | Total Liabilities | $14,782,147 | $13,807,994 | | Total Stockholders' Equity | $19,502,652 | $21,749,316 | Consolidated Statements of Operations and Comprehensive Loss Q2 2023 net revenue decreased 26.5% year-over-year to $16.7 million, but gross profit rose 6.8% to $14.3 million, resulting in a net loss of $3.4 million Q2 2023 vs Q2 2022 Performance | Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | | :--- | :--- | :--- | | Net Revenue | $16,651,405 | $22,651,305 | | Gross Profit | $14,282,865 | $13,377,716 | | Operating Loss | ($3,339,052) | ($2,837,820) | | Net Loss | ($3,377,238) | ($3,229,927) | | Net Loss Per Share | ($0.03) | ($0.03) | Six Months 2023 vs 2022 Performance | Metric | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--- | :--- | :--- | | Net Revenue | $28,498,845 | $41,260,672 | | Gross Profit | $22,939,742 | $23,325,577 | | Operating Loss | ($6,774,455) | ($4,943,786) | | Net Loss | ($6,817,343) | ($5,319,190) | | Net Loss Per Share | ($0.05) | ($0.04) | Consolidated Statements of Cash Flows For the six months ended June 30, 2023, operating activities used $2.8 million, investing activities provided $1.5 million, and financing activities provided $3.5 million, leading to a $2.1 million cash increase Cash Flow Summary (Six Months Ended June 30) | Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net cash used in operating activities | ($2,833,853) | ($2,568,984) | | Net cash provided by (used in) investing activities | $1,452,445 | ($1,355,652) | | Net cash provided by/(used in) financing activities | $3,495,105 | ($178,258) | | Net change in cash | $2,113,697 | ($4,102,894) | Consolidated Statements of Stockholders' Equity Stockholders' equity decreased to $19.5 million by June 30, 2023, primarily due to a $6.8 million net loss, partially offset by a $3.7 million capital raise - In Q2 2023, the company executed a capital raise, issuing 16,000,000 shares for net proceeds of $3,665,000[27] Notes to Consolidated Financial Statements These notes detail the company's business, liquidity, accounting policies, and significant customer concentration, with three customers accounting for 78.6% of Q2 2023 revenue - Inuvo is a technology company whose solutions, including the proprietary AI branded IntentKey, predictively identify and message online audiences for marketing and advertising[31][32] - The company has a history of recurring losses and cash outflows, with an accumulated deficit of $163.9 million as of June 30, 2023, relying on equity offerings and debt facilities for liquidity[35] - In May 2023, the company raised $4.0 million in gross proceeds through a registered direct offering of 16,000,000 shares of common stock[36] - For Q2 2023, three customers accounted for 78.6% of total revenue (at 54.0%, 16.9%, and 7.7% respectively), indicating significant customer concentration risk[41] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the 26.5% quarterly revenue decline due to a lost customer, improved gross margin to 85.8%, and liquidity reliance on a recent $4.0 million stock sale and credit facility Results of Operations Q2 2023 net revenue decreased 26.5% year-over-year due to a lost customer, while gross margin improved to 85.8% from a favorable revenue mix, despite rising operating expenses - The decline in revenue for Q2 and the first six months of 2023 was primarily attributable to the loss of a Direct Customer in the fourth quarter of 2022[80] - Gross margin improved significantly in Q2 2023 to 85.8% from 59.1% in Q2 2022, due to a change in revenue mix towards higher-margin Indirect Customers[81] - Marketing costs increased by 9.7% in Q2 2023 compared to Q2 2022, driven by higher revenue from Indirect Customers which require more traffic acquisition spending[81] Liquidity and Capital Resources As of June 30, 2023, the company had $5 million in cash and $2 million in net working capital, relying on equity offerings and a credit facility for operations - As of June 30, 2023, the company held approximately $5 million in cash and cash equivalents and had net working capital of about $2 million[87] - Principal sources of liquidity are sales of common stock and a credit facility, with the company raising $4.0 million in gross proceeds from a stock sale on May 30, 2023[88] - Management believes the current cash position and credit facility will be sufficient to sustain operations for at least the next twelve months from the filing date[92] Item 3. Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, Inuvo is exempt from providing quantitative and qualitative disclosures about market risk - Not applicable to a smaller reporting company[101] Item 4. Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of June 30, 2023, with no material changes in internal control over financial reporting - As of June 30, 2023, the Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective[104] - There were no changes in internal control over financial reporting during the quarter ended June 30, 2023, that have materially affected, or are reasonably likely to materially affect, internal controls[106] Part II - Other Information This section covers other required disclosures, including legal proceedings, updated risk factors, and various corporate exhibits and certifications Item 1. Legal Proceedings The company reported no material pending legal proceedings during the period - None[108] Item 1A. Risk Factors This section updates risk factors, emphasizing significant customer concentration, with three customers accounting for 54.0%, 16.9%, and 7.7% of Q2 2023 revenues - The company emphasizes its reliance on three customers for a significant portion of its revenue, which accounted for 54.0%, 16.9%, and 7.7% of revenues in Q2 2023[110] - The loss of any of these major customers or their failure to pay on time would likely cause a significant decline in revenue and materially harm business operations and financial condition[110] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities during the period - None[111] Item 3. Defaults upon Senior Securities The company reported no defaults upon senior securities during the period - None[112] Item 4. Mine Safety and Disclosures This item is not applicable to the company's operations - Not applicable[113] Item 5. Other Information The company reported no other information under this item - None[114] Item 6. Exhibits This section lists exhibits filed with the report, including corporate documents, service agreements, a securities purchase agreement, and officer certifications - Lists various corporate documents, amendments to service agreements with Google and Yahoo, a securities purchase agreement, and officer certifications required by the Sarbanes-Oxley Act[115][116] Signatures The report was duly signed and authorized by the Chief Executive Officer and Chief Financial Officer on August 10, 2023 - The report was signed on August 10, 2023, by Richard K. Howe (CEO) and Wallace D. Ruiz (CFO)[120]