inuv-20220630

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2022

☐ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______________________ to ______________________

Commission file number: 001-32442


Inuvo, Inc.
(Exact name of registrant as specified in its charter)


Nevada			87-0450450
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)

500 President Clinton Ave., Suite 300 Little Rock, AR			72201
(Address of principal executive offices)			(Zip Code)

(501) 205-8508

Registrant's telephone number, including area code

not applicable

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock	INUV	NYSE American

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to the filing requirements for at least the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
Emerging growth company	☐

If an emerging growth company, indicate by checkmark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards pursuant to Section 13(a) of the Exchange Act: ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.


Title of Class						August 12, 2022
Common Stock						120,134,884

TABLE OF CONTENTS


		Page No.
Part I

Item 1.	Financial Statements.	5
	Consolidated Balance Sheets	5
	Consolidated Statements of Operations and Comprehensive Loss	6
	Consolidated Statements of Cash Flows	7
	Consolidated Statements of Stockholders' Equity	8
	Notes to Consolidated Financial Statements	9
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations.	18
Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	22
Item 4.	Controls and Procedures.	22

Part II

Item 1.	Legal Proceedings.	23
Item 1A.	Risk Factors.	23
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	23
Item 3.	Defaults upon Senior Securities.	23
Item 4.	Mine Safety and Disclosures.	23
Item 5.	Other Information.	23
Item 6.	Exhibits.	24
Signatures		25

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements are subject to known and unknown risks, uncertainties and other factors which may cause actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “will,” “should,” “intend,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” or “continue,” or the negative of such terms or other comparable terminology. This report includes, among others, statements regarding our risks associated with:

•a decline in general economic conditions;

•decreased market demand for our products and services;

•customer revenue concentration;

•risks associated with customer collections;

•seasonality impacts on financial results and cash availability;

•dependence on advertising suppliers;

•the ability to acquire traffic in a profitable manner;

•failure to keep pace with technological changes;

•interruptions within our information technology infrastructure;

•dependence on key personnel;

•regulatory and legal uncertainties;

•failure to comply with privacy and data security laws and regulations;

•third party infringement claims;

•publishers who could fabricate fraudulent clicks;

•the ability to continue to meet the NYSE American listing standards;

•the impact of quarterly results on our common stock price;

•dilution to our stockholders upon the exercise of outstanding restricted stock unit grants and warrants;

•the on-going impact of the COVID-19 pandemic on our Company; and

•our ability to identify, finance, complete and successfully integrate future acquisitions.

These forward-looking statements were based on various factors and were derived utilizing numerous assumptions and other factors that could cause our actual results to differ materially from those in the forward-looking statements. Most of these factors are difficult to predict accurately and are generally beyond our control. You should consider the areas of risk described in connection with any forward-looking statements that may be made herein. Readers are cautioned not to place undue reliance on these forward-looking statements and readers should carefully review this report in its entirety, including the risks described in Part II, Item 1A. Risk Factors appearing in this report, together with those appearing in Item 1A. Risk Factors, in our Annual Report on Form 10-K for the year ended December 31, 2021 as filed with the Securities and Exchange Commission ("SEC") on March 17, 2022 and our subsequent filings with the SEC.

Except for our ongoing obligations to disclose material information under the Federal securities laws, we undertake no obligation to release publicly any revisions to any forward-looking statements, to report events or to report the occurrence of unanticipated events. These forward-looking statements speak only as of the date of this report, and you should not rely on these statements without also considering the risks and uncertainties associated with these statements and our business.

OTHER PERTINENT INFORMATION

Unless specifically set forth to the contrary, when used in this report the terms “Inuvo,” the “Company,” “we,” “us,” “our” and similar terms refer to Inuvo, Inc., a Nevada corporation, and its subsidiaries. When used in this report, “second quarter 2022” means for the three months ended June 30, 2022, “second quarter 2021” means for the three months ended June 30, 2021, “2021” means the fiscal year ended December 31, 2021 and “2022” means the fiscal year ending December 31, 2022. The information which appears on our corporate web site at www.inuvo.com and our various social media platforms are not part of this report.

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

INUVO, INC.

CONSOLIDATED BALANCE SHEETS

June 30, 2022 (Unaudited) and December 31, 2021


	June 30, 2022		December 31, 2021
Assets
Current assets
Cash and cash equivalents	$	6,373,070	$	10,475,964
Marketable securities - short term	2,044,601		1,927,979
Accounts receivable, net of allowance for doubtful accounts of $222,990 and $202,904, respectively.	13,094,811		9,265,813
Prepaid expenses and other current assets	1,074,366		1,408,186
Total current assets	22,586,848		23,077,942

Property and equipment, net	1,688,478		1,506,766
Other assets
Goodwill	9,853,342		9,853,342
Intangible assets, net of accumulated amortization	6,141,541		6,720,585
Referral and support services agreement advance	950,000		1,100,000
Marketable securities - long term	587,215		859,512
Right of use assets - operating lease	483,840		641,306
Right of use assets - finance lease	153,205		201,902
Other assets	35,720		35,719
Total other assets	18,204,863		19,412,366

Total assets	$	42,480,189	$	43,997,074

Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable	$	6,246,536	$	4,844,716
Accrued expenses and other current liabilities	6,961,653		5,374,391
Lease liability - operating lease	355,969		340,478
Lease liability - finance lease	104,781		102,954





Total current liabilities	13,668,939		10,662,539

Long-term liabilities
Deferred tax liability	107,000		107,000

Lease liability - operating lease	129,111		300,827
Lease liability - finance lease	53,847		105,411
Other long-term liabilities	14,937		13,302
Total long-term liabilities	304,895		526,540

Stockholders’ equity
Preferred stock, $0.001 par value:
Authorized shares 500,000, none issued and outstanding	—		—
Common stock, $0.001 par value:
Authorized shares 200,000,000; issued and outstanding shares 119,873,869 and 118,747,447, respectively.	119,874		118,748
Additional paid-in capital	177,825,362		176,586,529
Accumulated other comprehensive (loss) income	(168,672)		53,737
Accumulated deficit	(149,270,209)		(143,951,019)

Total stockholders' equity	28,506,355		32,807,995
Total liabilities and stockholders' equity	$	42,480,189	$	43,997,074

See accompanying notes to the consolidated financial statements.

INUVO, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(Unaudited)


	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2022		2021		2022		2021
Net revenue	$	22,651,305	$	12,635,583	$	41,260,672	$	23,253,392
Cost of revenue	9,273,589		2,264,020		17,935,095		3,708,079
Gross profit	13,377,716		10,371,563		23,325,577		19,545,313
Operating expenses
Marketing costs	10,988,409		8,213,140		18,157,858		15,518,924
Compensation	3,215,890		2,880,217		6,373,596		5,618,084
General and administrative	2,011,237		1,676,890		3,737,909		3,401,868
Total operating expenses	16,215,536		12,770,247		28,269,363		24,538,876
Operating loss	(2,837,820)		(2,398,684)		(4,943,786)		(4,993,563)


Interest income (expense), net	3,070		(7,991)		2,071		(30,380)
Other income (expense), net	(395,177)		24,548		(377,475)		494,548



Net loss	(3,229,927)		(2,382,127)		(5,319,190)		(4,529,395)
Other comprehensive income
Unrealized loss on marketable securities	(124,253)		—		(222,409)		$	—
Comprehensive loss	$	(3,354,180)	$	(2,382,127)	$	(5,541,599)	$	(4,529,395)

Per common share data
Basic and diluted:


Net loss	$	(0.03)	$	(0.02)	$	(0.04)	$	(0.04)

Weighted average shares
Basic	119,827,944		116,497,035		118,788,819		116,497,035
Diluted	119,827,944		116,497,035		118,788,819		116,497,035

See accompanying notes to the consolidated financial statements.

INUVO, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	For the Six Months Ended June 30,
	2022		2021
Operating activities:
Net loss	$	(5,319,190)	$	(4,529,395)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	1,308,776		1,552,386
Depreciation-Right of Use Assets	48,697		153,978
Stock based compensation	1,355,534		952,472
Stock warrant expense	12,945		—
Loss (gain) on marketable securities	377,475		(24,525)
Amortization of financing fees	2,500		5,000
Provision (recovery) of doubtful accounts	20,086		(69,667)
Derecognition of contingency and grant	(10,000)		(110,000)
Third party rights agreement termination	—		(420,000)
Change in operating assets and liabilities:

Accounts receivable	(3,849,084)		618,735
Prepaid expenses, unbilled revenue and other current assets	333,820		(100,888)
Referral and support services agreement advance	150,000		—
Accrued expenses and other liabilities	1,597,637		(2,002,231)
Accounts payable	1,401,820		2,421,700

Net cash used in operating activities	(2,568,984)		(1,552,435)
Investing activities:
Purchases of equipment and capitalized development costs	(911,443)		(788,670)
Purchase of marketable securities	(1,600,121)		(913,110)
Proceeds from the sale of marketable securities	1,155,912		—
Net cash used in investing activities	(1,355,652)		(1,701,780)
Financing activities:
Proceeds from sale of common stock, net	—		13,137,500

Proceeds from ValidClick licensing agreement	—		(149,900)



Payments on finance lease obligations	(49,737)		(117,363)

Proceeds from exercise of options	—		1,569

Net taxes paid on restricted stock unit grants exercised	(128,521)		(161,244)
Net cash (used in)/provided by financing activities	(178,258)		12,710,562

Net change – cash	(4,102,894)		9,456,347
Cash and cash equivalent, beginning of year	10,475,964		7,890,665
Cash and cash equivalent, end of period	$	6,373,070	$	17,347,012
Supplemental information:
Interest paid	$	12,625	$	32,972

Non cash investing and financing activities:



Assets purchased under finance lease obligations	$	—	$	10,724
Assets purchased under operating lease obligations	$	—	$	344,311

See accompanying notes to the consolidated financial statements.

INUVO, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(unaudited)

For the Six Months Ended June 30,


2022
	Common Stock			Additional Paid in Capital		Accumulated Deficit		Accumulated Other Comprehensive Income (Loss)		Total
	Shares	Stock
Balance as of December 31, 2021	118,747,447	$	118,748	$	176,586,529	$	(143,951,019)	$	53,737	$	32,807,995
Net loss						(2,089,263)				(2,089,263)
Unrealized loss on debt securities								(98,156)		(98,156)
Stock-based compensation				671,158						671,158
Stock issued for vested restricted stock awards	1,059,755	1,060		(1,060)						—
Shares withheld for taxes on vested restricted stock				(128,520)						(128,520)
Stock warrants issued for referral agreement				12,483						12,483
Balance as of March 31, 2022	119,807,202	$	119,808	$	177,140,590	$	(146,040,282)	$	(44,419)	$	31,175,697
Net loss						(3,229,927)				(3,229,927)
Unrealized loss on debt securities								(124,253)		(124,253)
Stock-based compensation				684,376						684,376
Stock issued for vested restricted stock awards	66,666	66		(66)						—
Stock warrants issued for referral agreement				462						462



Balance as of June 30, 2022	119,873,868	$	119,874	$	177,825,362	$	(149,270,209)	$	(168,672)	$	28,506,355


2021
	Common Stock			Additional Paid in Capital		Accumulated Deficit		Total
	Shares	Stock
Balance as of December 31, 2020	98,035,829	$	98,036	$	161,541,448	$	(136,350,370)	$	25,289,114
Net loss						(2,147,268)		(2,147,268)
Stock-based compensation				394,870				394,870
Stock issued for vested restricted stock awards	1,467,465	1,467		(1,467)				—
Shares withheld for taxes on vested restricted stock				(161,244)				(161,244)
Proceeds from exercise of options				1,569				1,569
Sale of common stock, net	19,015,151	19,016		13,118,484				13,137,500
Balance as of March 31, 2021	118,518,445	$	118,519	$	174,893,660	$	(138,497,638)	$	36,514,541
Net loss						(2,382,127)		(2,382,127)
Stock-based compensation				557,602				557,602





Balance as of June 30, 2021	118,518,445	$	118,519	$	175,451,262	$	(140,879,765)	$	34,690,016

Inuvo, Inc.

Notes to Consolidated Financial Statements

(Unaudited)

Note 1 – Organization and Business

Company Overview

Inuvo is a technology company that develops and sells information technology solutions for marketing and advertising. These solutions predictively identify and message online audiences for any product, service or brand across devices, formats, and channels including video, mobile, connected TV, linear TV, display, social, search and native. These solutions allow Inuvo’s clients to engage with their audiences in a manner that drives responsiveness. Inuvo facilitates the delivery of hundreds of millions of marketing messages to consumers every single month and counts among its clients numerous world-renowned names across industries.

The Inuvo solution incorporates a proprietary form of artificial intelligence, or AI, branded the IntentKey. This patented machine learning technology uses interactions with Internet content as a source of information from which to predict consumer intent. The AI can identify and advertise to the reasons why consumers are purchasing products and services not who those consumers are. In this regard, the technology is designed for a privacy conscious future and is focused on the components of the advertising value chain most responsible for return on advertising spend, the intelligence behind the advertising decision.

Inuvo technology can be consumed both as a managed service and software-as-a-service. For clients, Inuvo has also developed a collection of proprietary websites collectively branded as Bonfire Publishing where content is created specifically to attract qualified consumer traffic for clients through the publication of information across a wide range of topics including health, finance, travel, careers, auto, education and lifestyle. These sites also provide the means to market test various Inuvo advertising technologies. Further, Inuvo also provides Search and Social advertising services through a proprietary set of technologies branded as ValidClick.

There are many barriers to entry associated with the Inuvo business model, including a proficiency in large scale information processing, predictive software development, marketing data products, analytics, artificial intelligence, integration to the internet of things ("IOT"), and the relationships required to execute within the IOT. Inuvo’s intellectual property is protected by 17 issued and eight pending patents.

Liquidity

As of June 30, 2022, we have approximately $8.4 million in cash, cash equivalents and marketable securities. Our net working capital was $8.9 million. We have encountered recurring losses and cash outflows from operations, which historically we have funded through equity offerings and debt facilities. In addition, our investment in internally developed software consists primarily of labor costs which are of a fixed nature. Through June 30, 2022, our accumulated deficit was $149.3 million.

Our principal sources of liquidity are the sale of our common stock and our credit facility with Hitachi described in Note 6 to our Consolidated Financial Statements. On January 19, 2021, we raised $8.0 million in gross proceeds in a registered direct offering, before expenses, through the sale of an aggregate of 13,333,334 shares of our common stock, and on January 22, 2021, we raised an additional $6.25 million in gross proceeds in a registered direct offering, before expenses, through the sale of an aggregate of 5,681,817 shares of our common stock.

In March 2021, we contracted with an investment management company to manage our cash in excess of current operating

needs. We placed $2 million in cash equivalent accounts and $10 million in an interest-bearing account. At June 30, 2022,

our funds with the investment management company were approximately $5.4 million and were invested in cash equivalent accounts and marketable debt and equity securities. A detail of the activity is described in Note 3 to our Consolidated Financial Statements.

On May 28, 2021, we entered into a Sales Agreement (the “Sales Agreement”) with A.G.P./Alliance Global Partners, as sales agent (the “Sales Agent”), pursuant to which we may offer and sell through or to the Sales Agent shares of our common stock (the “ATM Program”) up to an aggregate amount of gross proceeds of $35,000,000. During the year ended December 31, 2021 and through June 30, 2022, we did not issue any shares of common stock or receive any aggregate proceeds under the ATM Program, and we did not pay any commissions to the Sales Agent. Any shares of common stock offered and sold in the ATM Program will be issued pursuant to our universal shelf registration statement on Form S-3 (the “Shelf Registration Statement”). The ATM Program will terminate upon (a) the election of the Sales Agent upon the occurrence of certain adverse events, (b) 10 days’ advance notice from one party to the other, or (c) the sale of the balance available under our Shelf Registration Statement.

Under the terms of the Sales Agreement, the Sales Agent is entitled to a commission at a fixed rate of 3.0% of the gross proceeds from each sale of shares under the Sales Agreement.

We have focused our resources behind a plan to market our collective multi-channel advertising capabilities differentiated by our AI technology, the IntentKey, where we have a technology advantage and higher margins. If we are successful in implementing our plan, we expect to return to a positive cash flow from operations. However, there is no assurance that we will be able to achieve this objective.

We believe our current cash position and credit facility will be sufficient to sustain operations for the next twelve

months. We may need to fund operations over the longer term through private or public sales of securities, debt financings or partnering/licensing transactions. There can be no assurances that financing will be available on acceptable terms, if at all, in the future.

Customer concentration

For the three month period ending June 30, 2022, our three largest customers by revenue accounted for 68.3% of our overall revenue at 27.4%, 27.2% and 13.6%, respectively and for the six month period ending June 30, 2022, 62.1% of our overall revenue at 25.0%, 23.2% and 14.0%, respectively. Those same three customers accounted for 53.4% of our gross accounts receivable balance as of June 30, 2022. As of December 31, 2021, the same customers accounted for 41.7% of our gross accounts receivable balance.

COVID-19

In March 2020, the World Health Organization classified the COVID-19 outbreak as a pandemic. The full impact of the COVID-19 outbreak continues to evolve as of the date of this report. We continue to monitor the pandemic and related government guidelines and regulations and their impact on our operations, financial condition and liquidity.

Note 2 – Summary of Significant Accounting Policies

Basis of presentation

The consolidated financial statements presented are for Inuvo and its subsidiaries. The accompanying unaudited consolidated financial statements have been prepared based upon SEC rules that permit reduced disclosure for interim periods. Certain information and footnote disclosures have been condensed or omitted in accordance with those rules and regulations. The accompanying consolidated balance sheet as of December 31, 2021, was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States ("GAAP"). In our opinion, these consolidated financial statements reflect all adjustments that are necessary for a fair presentation of results of operations and financial condition for the interim periods shown including normal recurring accruals and other items. The results for the interim periods are not necessarily indicative of results for the full year. For a more complete discussion of significant accounting policies and certain other information, this report should be read in conjunction with the consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the year ended December 31, 2021, which was filed with the SEC on March 17, 2022.

Use of estimates

The preparation of financial statements, in accordance with GAAP, requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, net revenues and expenses and disclosure of contingent assets and liabilities. The estimates and assumptions used in the accompanying consolidated financial statements are based upon management’s regular evaluation of the relevant facts and circumstances as of the date of the consolidated financial statements. We regularly evaluate estimates and assumptions related to capitalized labor, goodwill and purchased intangible asset valuations and income tax valuation allowance. Actual results may differ from the estimates and assumptions used in preparing the accompanying consolidated financial statements, and such differences could be material.

Revenue Recognition

Both of our platforms generate revenue from ad placements and clicks on advertisements on websites, some of which we own. We recognize revenue from ad placements and clicks in the period in which they occur. We also recognize revenue from serving impressions when we complete all or a part of an order from an advertiser. The revenue is recognized in the period that the impression is served. We subsequently settle these transactions with our business partners at which time adjustments for invalid traffic may impact the amount collected. Payments to publishers who display advertisements on our behalf and payments to ad exchanges are recognized as cost of revenue.

The below table is the proportion of revenue that is generated through advertisements on our ValidClick (Search and Social) and IntentKey (Programmatic) platforms:


	For the Three Months Ended June 30,								For the Six Months Ended June 30,
	2022				2021				2022				2021
ValidClick Platform	$	14,022,118	61.9	%	$	9,727,501	77.0	%	$	24,519,101	59.4	%	$	18,212,314	78.3	%
IntentKey Platform	8,629,187		38.1	%	2,908,082		23.0	%	16,741,571		40.6	%	$	5,041,078	21.7	%
Total	$	22,651,305	100.0	%	$	12,635,583	100.0	%	$	41,260,672	100.0	%	$	23,253,392	100.0	%

Recent Accounting Pronouncements Not Yet Adopted

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (ASU 2016-13), which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. ASU 2016-13 replaces the existing incurred loss impairment model with a forward-looking expected credit loss model which will result in earlier recognition of credit losses. On November 15, 2019, the FASB delayed the effective date for certain small public companies and other private companies. As amended, the effective date of ASC Topic 326 was delayed until fiscal years beginning after December 15, 2022 for SEC filers that are eligible to be smaller reporting companies under the SEC’s definition, as well as private companies and not-for-profit entities. We are currently evaluating the potential impact of this new standard to our consolidated financial statements.

Reclassification:

We have reclassified amounts pertaining to marketable securities on the statement of cash flows for the six months ended June 30, 2021 to conform to the current period's presentation.

Note 3 – Fair Value Measurements