inuv-20230930

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 September 30, 2023

☐ 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						November 6, 2023
Common Stock						137,981,678

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	10
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations.	20
Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	24
Item 4.	Controls and Procedures.	24

Part II

Item 1.	Legal Proceedings.	24
Item 1A.	Risk Factors.	25
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	25
Item 3.	Defaults upon Senior Securities.	25
Item 4.	Mine Safety and Disclosures.	25
Item 5.	Other Information.	25
Item 6.	Exhibits.	26
Signatures		27

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, 2022 as filed with the Securities and Exchange Commission ("SEC") on March 9, 2023 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, “third quarter 2023” means for the three months ended September 30, 2023, “third quarter 2022” means for the three months ended September 30, 2022, “2022” means the fiscal year ended December 31, 2022 and “2023” means the fiscal year ending December 31, 2023. 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

September 30, 2023 (Unaudited) and December 31, 2022


	September 30, 2023		December 31, 2022
Assets
Current assets
Cash and cash equivalents	$	6,978,481	$	2,931,415
Marketable securities - short term	—		1,529,464
Accounts receivable, net of allowance for doubtful accounts of $2,188,450 and $1,440,678, respectively.	10,159,727		11,119,892
Prepaid expenses and other current assets	959,037		798,977
Total current assets	18,097,245		16,379,748

Property and equipment, net	1,682,427		1,668,972
Other assets
Goodwill	9,853,342		9,853,342
Intangible assets, net of accumulated amortization	4,910,916		5,649,291
Referral and support services agreement advance	575,000		800,000
Marketable securities - long term	—		660,126
Right of use assets - operating lease	882,919		310,162
Right of use assets - finance lease	94,266		168,750
Other assets	79,539		66,919
Total other assets	16,395,982		17,508,590

Total assets	$	36,175,654	$	35,557,310

Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable	$	7,766,466	$	8,044,802
Accrued expenses and other current liabilities	8,440,764		5,162,458
Lease liability - operating lease	170,001		287,523
Lease liability - finance lease	63,219		101,003




Total current liabilities	16,440,450		13,595,786

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

Lease liability - operating lease	717,409		23,878
Lease liability - finance lease	24,243		70,597
Other long-term liabilities	17,874		10,733
Total long-term liabilities	866,526		212,208

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 137,983,918 and 120,137,124, respectively.	137,983		120,138
Additional paid-in capital	183,776,576		178,771,604
Accumulated other comprehensive loss	—		(84,868)
Accumulated deficit	(165,045,881)		(157,057,558)

Total stockholders' equity	18,868,678		21,749,316
Total liabilities and stockholders' equity	$	36,175,654	$	35,557,310

See accompanying notes to the consolidated financial statements.

INUVO, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(Unaudited)


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2023		2022		2023		2022
Net revenue	$	24,570,588	$	17,072,189	$	53,069,433	$	58,332,859
Cost of revenue	2,274,626		6,782,047		7,833,729		24,717,143
Gross profit	22,295,962		10,290,142		45,235,704		33,615,716
Operating expenses
Marketing costs	17,625,806		8,620,161		36,769,972		26,778,020
Compensation	3,525,943		3,237,414		10,202,200		9,611,011
General and administrative	2,335,295		2,206,119		6,229,069		5,944,027
Total operating expenses	23,487,044		14,063,694		53,201,241		42,333,058
Operating loss	(1,191,082)		(3,773,552)		(7,965,537)		(8,717,342)


Financing (expense), net of interest income	19,852		(13,149)		(37,454)		(11,078)
Other income (expense), net	250		(23,861)		14,668		(401,336)



Net loss	(1,170,980)		(3,810,562)		(7,988,323)		(9,129,756)
Other comprehensive income
Unrealized gain (loss) on marketable securities	—		36,170		84,868		$	(186,239)
Comprehensive loss	$	(1,170,980)	$	(3,774,392)	$	(7,903,455)	$	(9,315,995)

Per common share data
Basic and diluted:


Net loss	$	(0.01)	$	(0.03)	$	(0.06)	$	(0.08)

Weighted average shares
Basic	127,381,051		119,995,367		128,793,522		118,838,258
Diluted	127,381,051		119,995,367		128,793,522		118,838,258

See accompanying notes to the consolidated financial statements.

INUVO, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	For the Nine Months Ended September 30,
	2023		2022
Operating activities:
Net loss	$	(7,988,323)	$	(9,129,756)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	1,984,139		1,949,845
Depreciation-Right of Use Assets - Financing	77,790		73,313
Stock based compensation	1,471,683		1,890,991
Derecognition of contingency and grant	—		(10,000)
Amortization of financing fees	5,833		2,500
Provision (recovery) of doubtful accounts	747,772		259,576
Loss (gain) on marketable securities	(14,418)		401,336
Stock warrant expense	(8,130)		28,477

Change in operating assets and liabilities:

Accounts receivable	212,393		(550,866)
Referral and support services agreement advance	225,000		225,000
Prepaid expenses, other current assets and other assets	(172,679)		316,053
Accrued expenses and other liabilities	3,279,560		916,363
Accounts payable	(278,336)		806,824

Net cash used in operating activities	(457,716)		(2,820,344)
Investing activities:
Purchases of equipment and capitalized development costs	(1,259,217)		(1,311,315)
Purchase of marketable securities	—		(1,693,963)
Proceeds from the sale of marketable securities	2,288,873		1,403,282
Net cash provided by (used in) investing activities	1,029,656		(1,601,996)
Financing activities:




Gross proceeds from line of credit	592,868		—
Repayments on line of credit	(592,868)		—
Payments on finance lease obligations	(84,138)		(75,848)



Proceeds from at-the-market sales	61,136		—
Capital raise, net of issuance costs	3,665,000		—
Net taxes paid on restricted stock unit grants exercised	(166,872)		(196,894)
Net cash provided by/(used in) financing activities	3,475,126		(272,742)

Net change – cash	4,047,066		(4,695,082)
Cash and cash equivalent, beginning of year	2,931,415		10,475,964
Cash and cash equivalent, end of period	$	6,978,481	$	5,780,882
Supplemental information:
Interest paid	$	85,488	$	15,128
Acquisition of right of use asset for operating lease liability	$	1,105,148	—

See accompanying notes to the consolidated financial statements.

INUVO, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(unaudited)

For the Nine Months Ended September 30,


2023
	Common Stock				Additional Paid in Capital		Accumulated Deficit		Accumulated Other Comprehensive Income (Loss)		Total
	Shares		Stock
Balance as of December 31, 2022	120,137,124		$	120,138	$	178,771,604	$	(157,057,558)	$	(84,868)	$	21,749,316
Net loss							(3,440,105)				(3,440,105)
Unrealized gain on debt securities									84,868		84,868
Stock-based compensation					432,084						432,084
Stock issued for vested restricted stock awards	1,503,238		1,503		(1,503)						—
Shares withheld for taxes on vested restricted stock					(166,872)						(166,872)
Reversal of expense related to a change in warrant vesting					(9,874)						(9,874)
Balance as of March 31, 2023	121,640,362		$	121,641	$	179,025,439	$	(160,497,663)	$	—	$	18,649,417
Net loss							$	(3,377,238)			(3,377,238)
Unrealized loss on debt securities											—
Stock-based compensation					503,061						503,061
Stock issued for vested restricted stock awards	3,333		3		(3)						—
Stock warrants issued for referral agreement					1,276						1,276
Capital raise, net of issuance costs	16,000,000		16,000		3,649,000						3,665,000
AGP Closing at-the-market sale	173,558	1	174		60,962						61,136
Balance as of June 30, 2023	137,817,253		$	137,818	$	183,239,735	$	(163,874,901)	$	—	$	19,502,652
Net loss							$	(1,170,980)			(1,170,980)
Stock-based compensation					$	536,538					536,538
Stock issued for vested restricted stock awards	166,665		$	165	$	(165)					—
Stock warrants issued for referral agreement					468						468
Balance as of September 30, 2023	137,983,918		$	137,983	$	183,776,576	$	(165,045,881)	$	—	$	18,868,678


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	66,666	$	66	$	(66)						—
Stock warrants issued for referral				$	462						462
Balance as of June 30, 2022	119,873,868	$	119,874	$	177,825,362	$	(149,270,209)		$	(168,672)	$	28,506,355
Net Loss						$	(3,810,562)				(3,810,562)
Unrealized gain on debt securities									$	36,170	36,170
Stock-based compensation				535,458							535,458
Shares withhold for taxes on vest restricted stock				(68,372)							(68,372)
Stock issued for vested restricted stock awards	263,256	264		(264)							—
Stock warrants issued for referral				15,532							15,532
Balance as of September 30, 2022	120,137,124	$	120,138	$	178,307,716	$	(153,080,771)	—	$	(132,502)	$	25,214,581

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 client's numerous world-renowned brands across industries.

The Inuvo solution incorporates a proprietary form of artificial intelligence, or AI, branded the IntentKey. This patented technology is a model of the human language built from crawling public content on billions of webpages. The AI uses this model of the language to predict and action audiences based on the reasons why consumers are interested, not who the people are within those audiences. In this regard, the technology is designed for a consumer privacy conscious future while

addressing 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 certain clients, Inuvo has also developed proprietary digital properties collectively branded as Bonfire Publishing where content is created specifically to attack the audiences those clients are targeting. These online publications provide information across a wide range of topics including health, finance, travel, careers, auto, education and lifestyle. Collectively, these websites also provide the means to market test various Inuvo advertising technologies.

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 19 issued and eight pending patents.

Liquidity

As of September 30, 2023, we have approximately $7.0 million in cash and cash equivalents. Our net working capital was $1.7 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 September 30, 2023, our accumulated deficit was $165.0 million.

Our principal sources of liquidity are the sale of our common stock and our credit facility discussed in Note 6 - Bank Debt.

On May 30, 2023, we raised $4.0 million in gross proceeds in a registered direct offering, before expenses, through the sale of an aggregate of 16,000,000 shares of our common stock. The shares were offered pursuant to an effective shelf registration statement on Form S-3 (the “Shelf Registration Statement”) and a prospectus supplement relating to the offering was filed with the SEC on May 26, 2023.

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

needs. We placed $2.0 million in cash equivalent accounts and $10.0 million in an interest-bearing account. At September 30, 2023, our funds with the investment management company were approximately $68 thousand and were invested in cash and cash equivalent accounts. 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 $14,611,900. During the year ended December 31, 2021 and through March 31, 2023, 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. During the quarter ended June 30, 2023, we sold 173,558 shares for gross proceeds totaling $63,136 under the ATM Program and paid the Sales Agent a commission of $1,902. We did not issues any shares of common stock or receive any aggregate proceeds under the ATM during, and we did not pay any commissions to the Sales Agent during the quarter ended September 30, 2023. 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 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.

Management plans to support the Company’s future operations and capital expenditures primarily through cash raised through the sale of stock in May 2023, cash generated from future operations and borrowings from the credit facility until reaching profitability. The credit facility is due upon demand and therefore there can be no assurances that sufficient borrowings will be available to support future operations until profitability is reached. Our collection period is less than 30 days and can also be used to meet accrued obligations.We believe our current cash position and credit facility will be sufficient to sustain operations for at least the next twelve months from the date of this filing. If our plan to grow the IntentKey product is unsuccessful, we may need to fund operations through private or public sales of securities, debt financings or partnering/licensing transactions over the long term.

Customer concentration

For the three-month period ending September 30, 2023, three customers accounted for 87.2% of our overall revenue at 75.0%, 10.0% and 2.2% and for the nine-month period ended September 30, 2023, 79.8% of our overall revenue at 57.6%, 15.6% and 6.7%, respectively. Those same three customers accounted for 55.2% of our gross accounts receivable balance as of September 30, 2023. As of December 31, 2022, the same customers accounted for 23.9% of our gross accounts receivable balance.

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, 2022, 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, 2022, which was filed with the SEC on March 9, 2023.

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 allowance for doubtful accounts, 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

Revenue recognition - We generate revenue by identifying audiences and presenting advertisements on behalf of our customers.

We may contract directly with a brand, a Direct Customer or we may serve a brand through a contract with an agency, an

Indirect Customer. Revenue is recognized when services are provided to a customer in an amount that reflects the consideration

the Company expects to receive in exchange for those services. We charge our customers on a cents per thousand (CPM) basis,

cost per click ("CPC") basis, or as a specific dollar charge. Revenue billed as CPM is generally programmatic digital advertising and is performed under a contract known as an Insertion Order (“IO”). Programmatic digital advertising revenue is recognized in part or fully in the period the IO is partially or fully executed. Revenue earned from placing an ad or an impression on websites, some of which we own, may be on a CPM or CPC basis. We recognize revenue from ad placement and serving impressions in the period in which they occur. We settle ad placement and CPC transactions with our customers net of any adjustments for poor traffic quality. Payments to advertising exchanges that provide access to digital inventory and to a lesser extent, payments to website publishers and app developers that host advertisements we serve are recognized as cost of revenue.

The following table provides revenues for Direct Customers, Indirect Customers and Consulting during the periods presented.


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
		2023	2022			2023			2022
Direct Customers			$	2,981,145	12.1%	$	7,746,866	45.4%	$	10,207,707	19.2%	$	30,032,885	51.5%
Indirect Customers			21,567,138		87.8%	9,310,562		54.5%	$	42,798,227	80.6%	$	28,195,887	48.3%
Consulting			22,305		0.1%	14,761		0.1%	$	63,499	0.2%	$	104,087	0.2%
Total			$	24,570,588	100%	$	17,072,189	100%	$	53,069,433	100%	$	58,332,859	100%

Recently Adopted Accounting Pronouncements

On January 1, 2023, we adopted Accounting Standards Code (ASC) No. 326, Financial Instruments-Credit Losses. ASC 326 requires a financial asset (loans, debt securities, trade receivables, net investments in leases, off-balance sheet credit exposures, reinsurance receivables, and any other financials assets not excluded from scope) measured at amortized cost basis to be

presented at the net amount expected to be collected. The adoption of this new standard did not have a material impact on our consolidated financial statements.

Note 3 – Fair Value Measurements

The carrying amounts reported in the balance sheet for cash and cash equivalents, accounts receivable, accounts payable and accrued expenses approximate fair value based on the short-term nature of these items.

In accordance with accounting principles generally accepted in the United States, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A three-level hierarchy prioritizes the inputs used to measure fair value as follows:

Level 1 – Valuation is based on quoted prices in active markets for identical assets or liabilities. Level 1 assets and liabilities generally include debt and equity securities that are traded in an active exchange market. Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities.

Level 2 – Valuation is based on observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 – Valuation is based on unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation.

The following table summarizes our cash equivalents and marketable securities measured at fair value. Certain marketable

securities consist of investments in debt and equity securities. We classify our cash equivalents and marketable securities within Level 1 because we use observable inputs that reflect quoted market prices for identical assets in active markets to determine their fair value. We have classified debt securities as available for sale securities with unrealized gains and losses recorded as other comprehensive income. We have classified equity securities as trading and are marked to market with changes recorded as other income on the income statement. Any interest income or dividends are recorded within financing expense, net on the income statement.


	Investment Assets at Fair Value				Investment Assets at Fair Value
	As of September 30, 2023				As of December 31, 2022
	Level 1		Total		Level 1		Total

Debt securities	$	—	$	—	$	936,563	$	936,563
Equity securities	—		—		1,253,027		1,253,027
Cash equivalents	68,474		68,474		801		801
Total Investments at Fair Value	$	68,474	$	68,474	$	2,190,391	$	2,190,391

The cost, gross unrealized gains (losses) and fair value of marketable securities by major security type were as follows:


	As of December 31, 2022
		Cost		Unrealized Gain (Loss)		Fair Value
Marketable securities
Debt securities		$	1,021,431	$	(84,868)	$	936,563
Equity securities		1,776,773		(523,746)		1,253,027
Total marketable securities						$	2,189,590

The realized loss on the securities as of September 30, 2023 was approximately $510,000.

Note 4 – Property and Equipment

The net carrying value of property and equipment was as follows as of:


	September 30, 2023		December 31, 2022
Furniture and fixtures	$	293,152	$	293,152
Equipment	1,287,925		1,265,752
Capitalized internal use and purchased software	15,740,652		14,503,608
Leasehold improvements	458,885		458,885
Subtotal	17,780,614		16,521,397
Less: accumulated depreciation and amortization	(16,098,187)		(14,852,425)
Total	$	1,682,427	$	1,668,972

During the three months ended September 30, 2023 and September 30, 2022, depreciation expense was $420,808 and $394,942, respectively. During the nine months ended September 30, 2023 and September 30, 2022, depreciation expense was $1,245,762 and $1,124,674, respectively.

Note 5 – Intangible Assets and Goodwill

The following is a schedule of intangible assets and goodwill as of September 30, 2023:


	Term	Carrying Value		Accumulated Amortization and Impairment		Net Carrying Value		Year-to-date Amortization

Customer list, Google	20 years	$	8,820,000	$	(5,108,250)	$	3,711,750	$	330,750
Technology	5 years	3,600,000		(3,600,000)		—		—
Customer list, ReTargeter	5 years	1,931,250		(1,609,375)		321,875		289,687
Customer list, all other	10 years	1,610,000		(1,610,000)		—		—
Brand name, ReTargeter	5 years	643,750		(536,459)		107,291		96,563
Customer relationships	20 years	570,000		(190,000)		380,000		21,375
Trade names, web properties (1)	-	390,000		—		390,000		—
Intangible assets classified as long-term		$	17,565,000	$	(12,654,084)	$	4,910,916	$	738,375

Goodwill, total	-	$	9,853,342	$	—	$	9,853,342	$	—

(1) The trade names related to our web properties have an indefinite life, and as such are not amortized.

Amortization expense over the next five years and thereafter is as follows:


2023 (remainder of year)	$	246,125
2024	769,917
2025	469,500
2026	469,500
2027	469,500
Thereafter	2,096,374
Total	$	4,520,916

The following is a schedule of intangible assets and goodwill as of December 31, 2022:


	Term	Carrying Value		Accumulated Amortization and Impairment		Net Carrying Value		2022 Amortization

Customer list, Google	20 years	$	8,820,000	$	(4,777,500)	$	4,042,500	$	441,000
Technology	5 years	3,600,000		(3,600,000)		—		60,000
Customer list, ReTargeter	5 years	1,931,250		(1,319,688)		611,562		386,250
Customer list, all other	10 years	1,610,000		(1,610,000)		—		26,794
Brand name, ReTargeter	5 years	643,750		(439,896)		203,854		128,750
Customer relationships	20 years	570,000		(168,625)		401,375		28,500
Trade names, web properties	-	390,000		—		390,000		—
Intangible assets classified as long-term		$	17,565,000	$	(11,915,709)	$	5,649,291	$	1,071,294

Goodwill, total		$	9,853,342	$	—	$	9,853,342	$	—

Note 6 – Bank Debt

On March 1, 2023, we entered into Amendment No. 1 to Loan and Security Agreement and Collateral Documents (“Agreement”) with Mitsubishi HC Capital America, Inc., f/k/a/ Hitachi Capital America Corp. (“MHCA”). Under the terms of the Agreement, MHCA has provided us with a $5,000,000 line of credit commitment. We are permitted to borrow up to 80% of the aggregate Eligible Accounts Receivable (which may increase to 85% if certain conditions are met), up to the maximum credit commitment of $5,000,000. We will pay MHCA monthly interest at the rate of 1.75% in excess of the Wall Street Journal Prime Rate. The principal and all accrued but unpaid interest are due on demand. In the event of a default under the terms of the Loan and Security Agreement, the interest rate increases to 6% greater than the interest rate in effect from time to time prior to a default. The Agreement contains certain affirmative and negative covenants to which we are also subject. We agreed to pay MHCA an amendment fee of $10,000 on issuance of the Agreement, and thereafter an annual commitment fee of $10,000. We are also obligated to pay MHCA a quarterly service fee of 0.20% on the monthly unused amount of the maximum credit line. If we terminate the Agreement (i) before February 28, 2024, we are obligated to pay MHCA an exit fee of $50,000, or (ii) after February 28, 2024 but before February 28, 2025, we are obligated to pay MHCA an exit fee of $25,000. The Loan and Security Agreement continues for an indefinite term. At September 30, 2023, there were no outstanding balances due under the Loan and Security Agreement.

Note 7 – Accrued Expenses and Other Current Liabilities

The accrued expenses and other current liabilities consist of the following as of:


	September 30, 2023		December 31, 2022
Accrued marketing costs	$	7,054,416	$	3,321,598
Accrued payroll and commission liabilities	1,096,895		782,441
Accrued expenses and other	272,229		1,044,664
Arkansas grant contingency	10,000		10,000
Accrued taxes, current portion	7,224

SEC Form 10-Q filed by Inuvo Inc.