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, 2020~~March 31, 2021

☐ 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 ~~elected~~ to use the extended transition period for complying with any new or revised financial accounting standards pursuant to Section ~~7(a)(2)(B)~~13(a) of the ~~Securities~~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 11, 2020~~May 12, 2021
Common Stock						~~97,598,977~~118,518,445

TABLE OF CONTENTS

Page No.

Part I

Item 1.

Financial Statements.

Consolidated Balance Sheets

Consolidated Statements of Operations

Consolidated Statements of Cash Flows

Consolidated Statements of Stockholders' Equity

Notes to Consolidated Financial Statements

Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations.

2217

Item 3.

Quantitative and Qualitative Disclosures About Market Risk.

2621

Item 4.

Controls and Procedures.

2621

Part II

Item 1.

Legal Proceedings.

2822

Item 1A.

Risk Factors.

2822

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds.

2823

Item 3.

Defaults upon Senior Securities.

2823

Item 4.

Mine Safety and Disclosures.

2823

Item 5.

Other Information.

2923

Item 6.

Exhibits.

3024

Signatures

3125

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

This report contains forward-looking statements within the meaning of the ~~Private~~Section 27A of the Securities ~~Litigation Reform~~ Act of ~~1995.~~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:

•our history of losses and declining ~~revenues and working capital deficit;~~revenues;

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

•our reliance on revenues from a limited number of customers;

•seasonality of our business which impacts our financial results and cash availability;

•dependence on our supply partners;

•our ability to acquire traffic in a profitable manner;

•failure to keep pace with technology changes;

•impact of possible interruption in our network infrastructure;

•dependence on our 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;

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

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

•dilution to our stockholders upon the exercise of outstanding ~~common stock options and~~ restricted stock unit ~~grants~~grants; 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, ~~2019~~2020 as filed with the Securities and Exchange Commission ("SEC") on ~~May 12, 2020,~~February 11, 2021, as amended on Form 10-K/A as filed with the SEC on March 10, 2021 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~~"first quarter 2021" means for the three months ended March 31, 2021, "first quarter 2020" means for the three months ended ~~June 30,~~March 31, 2020, ~~"second quarter 2019" means for the three months ended June 30, 2019, “2019”~~“2020” means the fiscal year ended December 31, ~~2019~~2020 and ~~"2020"~~"2021" means the fiscal year ending December 31, ~~2020.~~2021. 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, 2020~~March 31, 2021 (Unaudited) and December 31, ~~2019~~

June 30, 2020 December 31, 2019
Assets
Current assets
Cash $ 4,181,214 $ 372,989
Accounts receivable, net of allowance for doubtful accounts of $269,000 and $225,000, respectively. 3,256,697 7,529,785
Prepaid expenses and other current assets 243,137 243,888
Total current assets 7,681,048 8,146,662
Property and equipment, net 1,213,937 1,374,152
Other assets
Intangible assets, net of accumulated amortization 9,518,841 10,451,593
Goodwill 9,853,342 9,853,342
Right of use assets - operating lease 535,870 756,115
Right of use assets - finance lease 518,747 88,178
Other assets 20,884 20,886
Total other assets 20,447,684 21,170,114
Total assets $ 29,342,669 $ 30,690,928
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable $ 3,674,697 $ 7,520,567
Accrued expenses and other current liabilities 2,574,580 3,614,433
Lease liability - operating lease 240,580 362,130
Lease liability - finance lease 230,197 80,777
Line of credit 2,158,443 —
Financed receivables — 3,381,364
Convertible promissory note — 536,806
Derivative liability — 182,250
Total current liabilities 8,878,497 15,678,327
Long-term liabilities
Deferred tax liability 107,000 107,000
Lease liability - operating lease 295,528 394,889
Lease liability - finance lease 196,267 —
Other long-term liabilities 1,790,845 57,162
Total long-term liabilities 2,389,640 559,051
Stockholders’ equity
Preferred stock, $0.001 par value:
Authorized shares 500,000, NaN issued and outstanding — —
Common stock, $0.001 par value:
Authorized shares 100,000,000; issued shares 76,152,193 and 52,222,538, respectively; outstanding shares 75,775,666 and 51,846,011, respectively
76,153 52,223
Additional paid-in capital 152,625,263 144,843,687
Accumulated deficit (133,230,325) (129,045,801)
Treasury stock, at cost - 376,527 shares (1,396,559) (1,396,559)
Total stockholders' equity 18,074,532 14,453,550
Total liabilities and stockholders' equity $ 29,342,669 $ 30,690,928

2020


	March 31, 2021		December 31, 2020
Assets
Current assets
Cash and cash equivalent	$	17,805,324	$	7,890,665
Accounts receivable, net of allowance for doubtful accounts of $191,667 and $209,667, respectively.	5,749,261		6,227,610
Prepaid expenses and other current assets	534,471		413,435
Total current assets	24,089,056		14,531,710

Property and equipment, net	1,292,933		1,187,061
Other assets
Goodwill	9,853,342		9,853,342
Intangible assets, net of accumulated amortization	8,119,713		8,586,089
Right of use assets - operating lease	843,573		606,573
Right of use assets - finance lease	315,793		395,910
Other assets	35,185		20,886
Total other assets	19,167,606		19,462,800

Total assets	$	44,549,595	$	35,181,571

Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable	$	2,790,432	$	4,048,260
Accrued expenses and other current liabilities	4,006,124		4,216,448
Lease liability - operating lease	305,637		217,671
Lease liability - finance lease	197,100		246,793





Total current liabilities	7,299,293		8,729,172

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

Lease liability - operating lease	537,936		388,902
Lease liability - finance lease	83,900		93,426
Other long-term liabilities	6,925		573,957
Total long-term liabilities	735,761		1,163,285

Stockholders’ equity
Preferred stock, $0.001 par value:
Authorized shares 500,000, NaN issued and outstanding	0		0
Common stock, $0.001 par value:
Authorized shares 150,000,000 and 100,000,000, respectively; issued and outstanding shares 118,518,445 and 98,035,829, respectively.	118,519		98,036
Additional paid-in capital	174,893,660		161,541,448
Accumulated deficit	(138,497,638)		(136,350,370)

Total stockholders' equity	36,514,541		25,289,114
Total liabilities and stockholders' equity	$	44,549,595	$	35,181,571

See accompanying notes to the consolidated financial statements.

INUVO, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

For the Three Months Ended June 30, For the Six Months Ended June 30,
2020 2019 2020 2019
Net revenue $ 7,590,187 $ 14,047,907 $ 22,523,170 $ 29,512,476
Cost of revenue 1,070,028 5,674,360 4,509,529 12,354,988
Gross profit 6,520,159 8,373,547 18,013,641 17,157,488
Operating expenses
Marketing costs (traffic acquisition costs or TAC) 3,857,395 6,528,336 13,480,218 13,072,345
Compensation 2,118,311 1,735,489 4,462,546 3,544,045
Selling, general and administrative 1,781,121 2,213,507 3,839,963 4,590,568
Total operating expenses 7,756,827 10,477,332 21,782,727 21,206,958
Operating loss (1,236,668) (2,103,785) (3,769,086) (4,049,470)
Interest (expense) income, net (72,681) 148,792 (225,192) (367,916)
Other expense, net (49,939) — (190,246) —
Net loss $ (1,359,288) $ (1,954,993) (4,184,524) (4,417,386)
Per common share data
Basic and diluted:
Net loss $ (0.02) $ (0.06) $ (0.07) $ (0.14)
Weighted average shares
Basic 66,023,317 32,570,866 59,835,925 32,484,878
Diluted 66,023,317 32,570,866 59,835,925 32,484,878


	For the Three Months Ended March 31,
	2021		2020
Net revenue	$	10,617,809	$	14,932,983
Cost of revenue	1,444,059		3,439,501
Gross profit	9,173,750		11,493,482
Operating expenses
Marketing costs (traffic acquisition costs or TAC)	7,305,784		9,622,823
Compensation	2,737,867		2,344,235
Selling, general and administrative	1,724,978		2,058,842
Total operating expenses	11,768,629		14,025,900
Operating loss	(2,594,879)		(2,532,418)


Interest expense, net	(22,389)		(152,511)
Other income (expense), net	470,000		(140,307)



Net loss	$	(2,147,268)	$	(2,825,236)

Per common share data
Basic and diluted:


Net loss	$	(0.02)	$	(0.05)

Weighted average shares
Basic	114,430,201		53,642,787
Diluted	114,430,201		53,642,787

See accompanying notes to the consolidated financial statements.

INUVO, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


		For the Six Months Ended June 30,							For the Three Months Ended March 31,
		2020		2019			2021		2020
Operating activities:	Operating activities:					Operating activities:
Net loss	Net loss	$	(4,184,524)	$	(4,417,386)	Net loss	$	(2,147,268)	(2,825,236)
Adjustments to reconcile net loss to net cash used in operating activities:
Contract Cancellation		(1,260,978)		—
Adjustments to reconcile net loss to net cash (used in)/provided by operating activities:						Adjustments to reconcile net loss to net cash (used in)/provided by operating activities:
Third party rights agreement termination						Third party rights agreement termination	(420,000)		0
Derecognition of contingencies						Derecognition of contingencies	(110,000)		0
Depreciation and amortization	Depreciation and amortization	1,650,785		1,548,678		Depreciation and amortization	771,904		835,748
Depreciation-Right of Use Assets	Depreciation-Right of Use Assets	215,847		291,676		Depreciation-Right of Use Assets	80,117		105,678
Stock based compensation						Stock based compensation	394,870		208,897
Amortization of financing fees	Amortization of financing fees	11,092		27,247		Amortization of financing fees	1,250		10,198
Provision for doubtful accounts						Provision for doubtful accounts	(18,000)		0
Amortization of debt discount	Amortization of debt discount	18,286		—		Amortization of debt discount	0		14,982
Amortization of original issue discount on convertible promissory notes		13,167		—
Stock based compensation		402,185		146,693
Amortization of OID interest expense						Amortization of OID interest expense	0		10,787
Mark to market fair value of derivative	Mark to market fair value of derivative	102,664		—		Mark to market fair value of derivative	0		71,550
Loss on extinguishment of convertible debt	Loss on extinguishment of convertible debt	65,700		—		Loss on extinguishment of convertible debt	0		68,757
Provision of doubtful accounts		44,000		36,273

Change in operating assets and liabilities:	Change in operating assets and liabilities:					Change in operating assets and liabilities:

Accounts receivable	Accounts receivable	4,229,088		1,623,632		Accounts receivable	496,349		1,737,568
Prepaid expenses, unbilled revenue and other current assets	Prepaid expenses, unbilled revenue and other current assets	(5,402)		41,074		Prepaid expenses, unbilled revenue and other current assets	(136,586)		(120,360)
Accrued expenses and other liabilities	Accrued expenses and other liabilities	(1,053,047)		170,713		Accrued expenses and other liabilities	(97,455)		108,172
Accounts payable	Accounts payable	(2,584,892)		(178,446)		Accounts payable	(1,257,828)		594,759

Net cash used in operating activities		(2,336,029)		(709,846)
Net cash (used in)/provided by operating activities						Net cash (used in)/provided by operating activities	(2,442,647)		821,500
Investing activities:	Investing activities:					Investing activities:
Purchases of equipment and capitalized development costs	Purchases of equipment and capitalized development costs	(557,818)		(581,839)		Purchases of equipment and capitalized development costs	(411,400)		(310,853)
Net cash used in investing activities	Net cash used in investing activities	(557,818)		(581,839)		Net cash used in investing activities	(411,400)		(310,853)
Financing activities:	Financing activities:					Financing activities:
Proceeds from sale of common stock, net	Proceeds from sale of common stock, net	6,500,695		—		Proceeds from sale of common stock, net	13,137,500		1,206,788
Prepaid financing fees		—		(24,529)

Proceeds from ValidClick licensing agreement	Proceeds from ValidClick licensing agreement	500,000		—		Proceeds from ValidClick licensing agreement	0		500,000
Proceeds from convertible promissory notes		—		1,200,000

Net payments on line of credit	Net payments on line of credit	(1,222,921)		—		Net payments on line of credit	0		(1,878,217)
Net proceeds from financed receivables		—		996,575

Payments on finance lease obligations	Payments on finance lease obligations	(313,418)		(104,805)		Payments on finance lease obligations	(59,219)		(220,216)

Proceeds from PPP and SBA loans		1,258,900		—

Proceeds from exercise of options						Proceeds from exercise of options	1,569		0
SBA loan repayment						SBA loan repayment	(149,900)		0
Net taxes paid on restricted stock unit grants exercised	Net taxes paid on restricted stock unit grants exercised	(21,184)		(9,045)		Net taxes paid on restricted stock unit grants exercised	(161,244)		(21,184)
Net cash provided by financing activities		6,702,072		2,058,196
Net cash provided by/(used in) financing activities						Net cash provided by/(used in) financing activities	12,768,706		(412,829)

Net change – cash	Net change – cash	3,808,225		766,511		Net change – cash	9,914,659		97,818
Cash, beginning of year		372,989		228,956
Cash, end of period		$	4,181,214	$	995,467
Cash and cash equivalent, beginning of year						Cash and cash equivalent, beginning of year	7,890,665		372,989
Cash and cash equivalent, end of period						Cash and cash equivalent, end of period	$	17,805,324	$	470,807
Supplemental information:	Supplemental information:					Supplemental information:
Interest paid	Interest paid	$	178,938	$	230,900	Interest paid	$	21,656	$	126,236

Non cash investing and financing activities:	Non cash investing and financing activities:					Non cash investing and financing activities:

Adoption of ASC 842		$	—	$	1,437,526

Conversion of Debt and derecognition of derivative and discounts to common stock	Conversion of Debt and derecognition of derivative and discounts to common stock	$	923,810	$	—	Conversion of Debt and derecognition of derivative and discounts to common stock	$	0	$	468,667
Assets purchased under finance lease obligations	Assets purchased under finance lease obligations	$	495,071	$	—	Assets purchased under finance lease obligations	$	0	$	364,545
Assets purchased under operating lease obligations						Assets purchased under operating lease obligations	$	303,031	$	0

See accompanying notes to the consolidated financial statements.

INUVO, INC.

CONSOLIDATED STATEMENTS ofOF STOCKHOLDERS' EQUITY

(unaudited)

For the ~~Six~~Three Months Ended ~~June 30,~~March 31,


2020
2021													2021
		Common Stock					Additional Paid in Capital		Accumulated Deficit		Treasury Stock				Total	Common Stock			Additional Paid in Capital		Accumulated Deficit			Total
		Shares	Stock											Shares		Stock
Balance as of December 31, 2019		51,846,011	$52,223		$	144,843,687	$	(129,045,801)	$	(1,396,559)	$	14,453,550
Net Loss							$	(2,825,236)			(2,825,236)
Balance as of December 31, 2020													Balance as of December 31, 2020	98,035,829		$98,036	$	161,541,448	$	(136,350,370)		$	25,289,114
Net loss													Net loss						(2,147,268)			(2,147,268)
Stock-based compensation	Stock-based compensation				$	208,897					208,897		Stock-based compensation				394,870					394,870
Stock issued for vested restricted stock awards	Stock issued for vested restricted stock awards	260,719	261		$	(261)					—		Stock issued for vested restricted stock awards	1,467,465		1,467	(1,467)					0
Shares withheld for taxes on vested restricted stock	Shares withheld for taxes on vested restricted stock				$	(21,184)					(21,184)		Shares withheld for taxes on vested restricted stock				(161,244)					(161,244)
Convertible Note Conversion		1,200,000	1,200		$	467,467					468,667
Proceeds from exercise of options													Proceeds from exercise of options				1,569					1,569
Sale of common stock, net	Sale of common stock, net	7,046,429	$7,046		$	1,199,742					1,206,788		Sale of common stock, net	19,015,151		19,016	13,118,484					13,137,500
Balance as of March 31, 2020		60,353,159	$60,730		$	146,698,348	$	(131,871,037)	$	(1,396,559)	13,491,482
Net loss							(1,359,288)				(1,359,288)
Stock-based compensation					193,288						193,288

Convertible Note Conversion		1,800,000	1,800		453,343						455,143
Sale of common stock, net		13,622,507	13,623		5,280,284						5,293,907
Balance as of June 30, 2020		75,775,666	$	76,153	$	152,625,263	$	(133,230,325)	$	(1,396,559)	$	18,074,532
Balance as of March 31, 2021													Balance as of March 31, 2021	118,518,445		$118,519	$	174,893,660	$	(138,497,638)		$	36,514,541


2020
	Common Stock		Additional Paid in Capital		Accumulated Deficit		Treasury Stock		Total
	Shares	Stock
Balance as of December 31, 2019	51,846,011	$52,223	$	144,843,687	$	(129,045,801)	$	(1,396,559)	$	14,453,550
Net loss					(2,825,236)				(2,825,236)
Stock-based compensation			208,897						208,897
Stock issued for vested restricted stock awards	260,719	261	(261)						0
Shares withheld for taxes on vested restricted stock			(21,184)						(21,184)
Convertible Note Conversion	1,200,000	1,200	467,467						468,667
Sale of common stock, net	7,046,429	7,046	1,199,742						1,206,788
Balance as of March 31, 2020	60,353,159	$60,730	$	146,698,348	$	(131,871,037)	$	(1,396,559)	13,491,482

2019
Common Stock Additional Paid in Capital Accumulated Deficit Treasury Stock Total
Shares Stock
Balance as of December 31, 2018 32,381,290 $32,759 $ 138,867,509 $ (124,557,694) $ (1,396,559) $ 12,946,015
Net loss (2,462,393) (2,462,393)
Stock-based compensation 96,871 96,871
Stock issued for vested restricted stock awards 186,031 186 (186) —
Balance as of March 31, 2019 32,567,321 $ 32,945 $ 138,964,194 $ (127,020,087) $ (1,396,559) $ 10,580,493
Net loss (1,954,993) — (1,954,993)
Stock-based compensation 49,822 49,822
Stock issued for vested restricted stock awards 47,213 47 (47) —
Shares withheld for taxes on vested restricted stock (9,045) (9,045)
Balance as of June 30, 2019 32,614,534 $ 32,992 $ 139,004,924 $ (128,975,080) $ (1,396,559) $ 8,666,277

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.~~marketing and advertising. These platforms predictively identify and message online audiences for any product or service across devices, channels and formats, including video, mobile, connected TV, display, social and native. These capabilities allow Inuvo’s clients to engage with their customers and prospects in a manner that drives engagement from the first contact with the consumer. Inuvo facilitates the delivery of hundreds of millions of marketing messages to consumers every single month and counts among its clients numerous ~~world-renowned~~world- renowned names in industries that have included retail, automotive, insurance, health care, technology, telecommunications and finance.

~~Inuvo’s~~The Inuvo solution incorporates a proprietary form of artificial intelligence, or AI, branded the IntentKey. This sophisticated machine learning technology uses interactions with Internet content as a source of information from which to predict consumer intent. The AI includes a continually updated database of over 500 million machine profiles which Inuvo utilizes to deliver highly aligned online audiences to its clients. Inuvo earns revenue when consumers view or click on its client’s messages. ~~Inuvo’s~~

The Inuvo business scales through account management activity with existing clients and by adding new clients through sales activity.

As part of ~~Inuvo’s~~the Inuvo technology strategy, it owns a collection of websites including alot.com and earnspendlive.com, where Inuvo creates content in health, finance, travel, careers, auto, education and living categories. These sites provide the means to test ~~Inuvo’s~~the Inuvo technologies, while also delivering high quality consumers to clients through the interaction with proprietary content in the form of images, videos, slideshows and articles.

There are many barriers to entry associated with ~~Inuvo’s~~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)~~("IOT"), and the relationships required to execute within the IOT. Inuvo’s intellectual property is protected by 1718 issued and 87 pending patents.

~~Mergers Termination~~Liquidity

On June 20, 2019, Inuvo entered into an Agreement and Plan of Merger Termination Agreement (the “Merger Termination Agreement”) with ConversionPoint Technologies Inc., a Delaware corporation (“CPT”), ConversionPoint Holdings, Inc., a Delaware corporation (“Parent”), CPT Merger Sub, Inc., a Delaware corporation, (“CPT Merger Sub”), and CPT Cigar Merger Sub, Inc., a Nevada corporation (“Inuvo Merger Sub”), which, among other things, (1) terminated the Agreement and Plan of Merger, dated November 2, 2018, by and among Inuvo, CPT, Parent, CPT Merger Sub, and Inuvo Merger Sub, as amended (the “Merger Agreement”), pursuant to which Inuvo would have merged with and into Inuvo Merger Sub and become a wholly-owned subsidiary of Parent, and CPT would have merged with and into CPT Merger Sub and become a wholly-owned subsidiary of Parent (the “Mergers”), and (2) terminated each of the Support Agreements that were entered into by certain officers and directors of InuvoThroughout 2020 and the ~~parties to the Merger Agreement. The Merger Agreement was terminated as a result~~first quarter of ~~Parent’s inability to fulfill the closing condition of the Mergers that Parent raise $36,000,000 in gross proceeds from~~2021, we raised capital reversing an ~~equity, debt, or equity-linked offering of its securities which no longer obligated Inuvo to consummate the Mergers contemplated by the Merger Agreement.~~

Concurrently with the execution of the Merger Termination Agreement, CPT Investments, LLC, a California limited liability company and an affiliate of CPT (“CPT Investments”), and Inuvo entered into a certain Inuvo Note Termination Agreement (the “Note Termination Agreement”) and agreed to (1) terminate and cancel the 10% Senior Unsecured Subordinated Convertible Promissory Note, dated November 1, 2018, executed by Inuvo in favor of CPT Investments (the “CPTI Note”), which as of June 20, 2019, had $1,063,288 in accrued principal and interest outstanding (the “Outstanding Indebtedness”) by July 20, 2019, (2) effective immediately, terminate all conversion rights under the CPTI Note to convert amounts outstanding into shares of Inuvo’s common stock, (3) terminate the Securities Purchase Agreement, dated November 1, 2018, by and between Inuvo and CPTI (the “Securities Purchase Agreement”), and (4) terminate the Registration Rights Agreement, dated November 1, 2018, by and between Inuvo and CPTI.

The Merger Termination Agreement provided that the termination fee of $2,800,000 to be paid to Inuvo (the “Termination Fee”) for failure to fulfill the Financing Condition would be satisfied as follows:

(1) $1,063,288 of the Termination Fee (the “Indebtedness Satisfaction Amount”) was satisfied in consideration of the termination and cancellation of the Outstanding Indebtedness pursuant to the CPTI Note Termination Agreement that was approved by CPT’s senior lenders Montage Capital II, L.P. and Partners for Growth IV, L.P. (the “Senior Lenders”) of CPT’s issuance of a replacement note to CPT Investments that was entered into in July 2019;

~~(2)~~$1,611,712 of the Termination Fee (the “ReTargeter Satisfaction Amount”) was satisfied by CPT transferring all of the assets related to CPT’s programmatic and RTB advertising solutions business conducted through managed services and a proprietary SaaS solution (the “ReTargeter Business”), free and clear of all liabilities, encumbrances, or liens, to Inuvo (the “ReTargeter Asset Transfer”). The enterprise valuation of the ReTargeter Business was determined to be $2.57 million; and

~~(3)CPT paid $125,000 to Inuvo on September 15, 2019 to be contributed to the settlement of ongoing litigation with respect to the Mergers (the “Litigation Fee”).~~

On September 30, 2019, Inuvo paid its obligation of $250,000 under a confidential settlement agreement that it entered into on June 20, 2019 resolving certain outstanding litigation related to the Mergers. Under the Merger Termination Agreement, CPT and Inuvo agreed to mutually release all claims that each party had against the other, as well as certain affiliated entities of each. Inuvo, however, will be able to pursue any claims against CPT and its affiliates for breaches of the Merger Termination Agreement.

~~Liquidity~~

For the six months ended June 30, 2020 our revenues declined 23.7% from the same period in the prior year. The lower revenue in the six-month period of 2020 is principally responsible for our approximately $4.2 millionhistorical net loss. Of the loss, approximately $2.3 million were the non-cash expenses of depreciation, amortization and stock-based compensation. We do not know when, if ever, our revenues will return to historic levels or if we will be able to replace those lost revenues with revenues from other sources.working capital deficit. Our principal sources of liquidity ~~are our borrowings under our credit facility which is described in Note 5,~~come as a result of the sale of ~~our~~ common stock and ~~borrowings from non-bank financial institutions (see Note 7).~~ ). ~~During the quarter ended June 30, 2020, we renegotiated the payment terms and conditions with ValidClick marketing partners resulting in an overall~~use of a credit ~~in the quarter of $1.3 million reducing our cost of revenue and marketing costs expenses and our accounts payable obligations.~~

~~On March 20, 2020, we closed a Loan and Security Agreement (the “Loan and Security Agreement”) dated February 28, 2020 by and between our company and our subsidiaries and~~facility through Hitachi Capital America Corp. (“Hitachi”) replacing the previous credit facility with Western Alliance Bank. Under the terms of the Loan and Security Agreement Hitachi has provided us with a $5,000,000 line of credit commitment. We are permitted to borrow (i) 90% of the aggregate Eligible Accounts Receivable, plus (i) the lesser of 75% of the aggregate Unbilled Accounts Receivable (as those terms are defineddescribed in the Loan and Security Agreement) or 50% of the amount available to borrow under (i), up to the maximum credit commitment. On March 12, 2020 we drew $5,000,000 under this agreement, using $2,959,573 of these proceeds to satisfy our obligations to Western Alliance Bank under our credit agreement with it and the balance is being used for working capital. Following the satisfaction of our obligations to Western Alliance Bank, all agreements with that entity have been terminated.Note 5.

On March 20, 2020, we sold an aggregate of 3,931,428 shares of our common stock ~~at a purchase price of $0.175 per share~~ to the five members of our Board of Directors in a private placement exempt from registration under Section 4(a)(2) and Rule 506(b) of Regulation D under the Securities Act of 1933, as amended. We received proceeds of $688,000 in this offering.

On March 27, 2020, we closed on the first tranche of a registered direct offering in which we sold 3,115,001 shares of our common stock ~~at a price of $0.175 per share~~ for gross proceeds of $545,125.

On April 2, 2020, we closed on a second tranche of the registered direct offering in which we sold 1,400,285 shares of our common stock ~~at a price of $0.175 per share~~ for gross proceeds of $245,050.

On April 10, 2020, we obtained an unsecured $1.1 million loan ~~through Relyance Bank N.A.~~ under the Paycheck Protection Program (the “PPP Loan”) pursuant to the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) and which is administered by the United States Small Business ~~Administration.~~Administration ("SBA"). In accordance with the requirements of the CARES Act, proceeds from the PPP Loan were used for payroll costs. The PPP Loan was fully forgiven on November 2, 2020. On May 15, 2020, we received a COVID-19 Economic Injury Disaster Loan ("EIDL") from the SBA for $149,900. We repaid the EIDL in full on January 28, 2021.

On June 8, 2020, we closed an additional registered direct offering of an aggregate of 12,222,222 shares of our common stock ~~at a price of $0.45 per share,~~ for gross proceeds of ~~$5,500,000.~~$5.5 million. On July 27, 2020, we closed a firm commitment underwritten follow-on public offering of an aggregate of 21,500,000 shares of our common stock for gross proceeds of $10.75 million. 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.

109

On ~~July 27, 2020,~~January 7, 2021, we ~~closed a firm commitment underwritten follow on public offering~~filed the Articles of ~~an aggregate~~Amendment to our Articles of ~~21,500,000~~Incorporation in the state of Nevada increasing the number of authorized shares ~~of our common stock at a price of $0.50 per share, for gross proceeds of $10,750,000.~~

~~We have pooled our resources behind a plan~~from 100,000,000 to grow 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.150,000,000.

Though we believe our current cash position ~~operating cash flows~~ and credit facility will be sufficient to sustain operations for the next twelve

months, if our plan to grow the IntentKey business is unsuccessful, we may need to fund operations through private or public

sales of securities, debt financings or partnering/licensing transactions.

Recently, it came to our attention that the effectiveness of the amendment to our articles of incorporation to increase the number of our authorized shares of common stock from 60,000,000 to 100,000,000 may not have complied with certain requirements of our articles of incorporation and/or by-laws as well as Nevada Revised Statutes. See Note 16 - Subsequent Events for additional information.

Customer concentration

~~We generated the majority of our revenue from two~~Our three largest customers are Google, Proper Media and Yahoo! and ~~Google as~~all are clients of the ValidClick platform. The percentages of overall Inuvo revenue associated with these clients is noted below:

For the Three Months Ended June 30, For the Six Months Ended June 30,
2020 2019 2020 2019
Yahoo! 36.7% 69.7 % 46.5 % 71.8 %
Google 25.0% 11.3 % 20.6 % 11.5 %
Total 61.7% 81.0 % 67.1 % 83.3 %


	For the Three Months Ended March 31,
	2021	2020
Google	40.0%	18.4	%
Proper Media	19.2%	0	%
Yahoo!	16.5%	51.4	%
Total	75.7%	69.8	%

As of ~~June 30, 2020,~~March 31, 2021, Google, Proper Media and Yahoo! ~~and Google~~ accounted for ~~34.1%~~64.5% of our gross accounts receivable balance. As of December 31, ~~2019,~~2020, the same ~~two~~three customers accounted for ~~60.2%~~38.4% of our gross accounts receivable balance.

We still source the majority of our ValidClick revenue through these relationships where we have access to advertiser budgets indirectly. While this strategy creates a concentration risk, we believe that it also provides upside opportunities including; access to hundreds of thousands of advertisers across geographies; the ability to scale our business across verticals; an avoidance of the sales costs associated with a large direct to advertisers’ sales force; access to innovation; overall media budget market insights; attractive payment terms; and low risk on receivables. ~~As our IntentKey business continues to grow and become a larger proportion of our overall revenue, the percentage of Yahoo! and Google revenue to the total revenue is expected to continue to decrease.~~

Impact of COVID-19 Pandemic

First identified in late 2019 and known now as COVID-19, the outbreak has impacted millions of individuals and businesses worldwide. In response, many countries have implemented measures to combat the outbreak which has had an unprecedented economic consequence. We did not experience an impact from COVID-19 through the end of fiscal year 2019 and had only minor impact from COVID-19 in the first quarter of 2020. Because we operate in the digital advertising industry, unlike a brick and mortar-based company, predicting the impact of the coronavirus pandemic on our company is difficult. Beginning in late April 2020, we ~~have~~ experienced a significant reduction in marketing budgets ~~for some IntentKey clients, a decrease in the number of supply partners and quantity of Internet traffic from supply partners within ValidClick,~~ and a decrease in ~~overall~~ monetization rates inwhich impacted ValidClick ~~the combination of which has~~more severely than IntentKey. This resulted in a significant reduction in our overall revenue run ~~rate.~~rates during 2020 with the low point occurring during May 2020.

In response to COVID-19, we ~~have~~ curtailed expenses, including compensation and travel ~~and we have issued a work from home policy~~throughout 2020, in addition to ~~protect our employees and their families from virus transmission associated with co-workers.~~other actions. Additionally, in April 2020, we obtained an unsecured ~~Paycheck Protection Program loan~~PPP Loan under the ~~Coronavirus Aid, Relief and Economic Security~~CARES Act of $1.1 million which we ~~are using~~used primarily for payroll costs. The loan was fully forgiven by the SBA on November 2, 2020.

Beginning mid-June 2020, we began to experience an improvement in overall daily revenue. Though there has been a steady month by month improvement in the revenue ~~but because~~run rates, by the end of the ~~impact~~first quarter 2021 we still have not reached pre-pandemic levels. Due to the unprecedented sustainability of COVID-19 on our business, we ~~are~~were unable ~~at this time~~ to predict with any certainty how our clients will adapt their business strategies within the ~~second half~~context of ~~the year will materialize~~COVID-19 and ~~whether~~therefore how our revenue run rate ~~will continue to improve. As~~would change as a ~~result of this uncertainty we are~~result. We, therefore, were focusing our resources on areas we believe could have more immediate revenue potential, ~~and~~ attempting to reduce expenses ~~where necessary~~and raising additional capital so as to mitigate operating disruptions while the impact of COVID-19 abates. Since the start of the year with ~~as little disruption~~the roll out of vaccinations, we see an increase in client’s willingness to spend on advertising and thereby an improvement in our

~~daily operations as possible. Should revenues continue to turn downwards or fail to return to historical levels, we may not be able to offset expenses quickly enough.~~ revenue run rates.

Our net working capital was ~~negative $1.2~~a positive $16.8 million as of ~~June 30, 2020.~~March 31, 2021. During January 2021, we raised approximately $14.3 million, before expenses, through the sale of our securities in two offerings. During the second ~~quarter,~~and third quarters of 2020, we raised approximately ~~$5.7~~$16.5 million, before expenses, through the sale of our securities and in April 2020, we obtained ~~the~~a $1.1 million PPP ~~Loan of $1.1 million. In July 2020, we raised approximately $10.8 million, before expenses, through the sale of our securities.~~Loan. With the reduction in our revenue run rate, there is an increased need for working capital to fund our operations. There is no assurance that we will be successful in obtaining additional funding to continue operations, particularly

in light of the current impact of COVID-19 on the U.S. capital markets, but believe we have sufficient capital to operate during the next twelve months.

~~Revisions of Previously Issued Consolidated Financial Statements~~

During the second quarter of 2020, the Company identified an error in the accounting for deferred tax asset valuation allowance originating in 2012 and continuing in its previously issued 2019 annual consolidated financial statements and the first quarter of 2020. Although the Company assessed the materiality of the error and concluded that the error was not material to the previously issued annual or interim financial statements, the Company is revising its previously issued 2019 annual balance sheet to correct for the error in connection with the filing of its Quarterly Reports on Form 10-Q as of June 30, 2020. Additionally, in connection with the filing of this Quarterly Report on Form 10-Q, the Company has disclosed the impact of the revision to the consolidated balance sheet to correct for the impact of the error. See Note 17, "Revisions of Previously Issued Consolidated Year-end Financial Statements" for reconciliations between as reported and as revised amounts as of and for the periods ended December 31, 2019.

1211

Note 2 – Summary of Significant Accounting Policies

Basis of presentation

The consolidated financial statements presented are for Inuvo and its consolidated 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, ~~2019,~~2020, 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, ~~2019,~~2020, which was filed with the SEC on ~~May 12, 2020,~~February 11, 2021, as amended on Form 10-K/A as filed with the SEC on ~~June 22, 2020.~~March 10, 2021.

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 ~~allowances for doubtful accounts,~~ goodwill and purchased intangible asset valuations and income tax valuation ~~of long-lived assets and derivative liability.~~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

Most of our revenue is generated through clicks on advertisements presented on our properties or those of our partners. We

recognize revenue from clicks in the period in which the click occurs. Payments to partners who display advertisements on our behalf are recognized as cost of revenue. Revenue from data sales and commissions is recognized in the period in which the

transaction occurs and the other revenue recognition criteria are met. Revenues are recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. 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.

The below table is the proportion of revenue that is generated through advertisements on our ValidClick and IntentKey platforms:

For the Three Months Ended June 30, For the Six Months Ended June 30,
2020 2019 2020 2019
ValidClick Platform $ 5,649,725 74.4 % $ 12,077,922 86.0 % $ 18,726,715 83.1 % $ 26,265,946 89.0 %
IntentKey Platform 1,940,462 25.6 % 1,969,985 14.0 % 3,796,455 16.9 % 3,246,530 11.0 %
Total $ 7,590,187 100.0 % $ 14,047,907 100.0 % $ 22,523,170 100.0 % $ 29,512,476 100.0 %

~~The following table presents our revenue disaggregated by channel:~~

For the Three Months Ended June 30, For the Six Months Ended June 30,
2020 2019 2020 2019
Mobile $ 2,751,044 $ 8,823,577 $ 10,426,026 $ 19,370,199
Desktop 4,610,097 4,935,654 11,497,340 9,530,276
Other 229,046 288,676 599,804 612,001
Total $ 7,590,187 $ 14,047,907 $ 22,523,170 $ 29,512,476

~~Leases~~

In February 2016, the FASB issued Accounting Standards Update ("ASU") No. 2016-02, Leases (Topic 842) (ASU 2016-02), as amended, which generally requires lessees to recognize operating and financing lease liabilities and corresponding right-of-use assets on the balance sheet and to provide enhanced disclosures surrounding the amount, timing and uncertainty of cash flows arising from leasing arrangements. We adopted the new standard effective January 1, 2019 on a modified retrospective basis and did not restate comparative periods. We elected the package of practical expedients permitted under the transition guidance, which allowed us to carryforward our historical lease classification, our assessment on whether a contract is or contains a lease, and our initial direct costs for any leases that exist prior to adoption of the new standard. We also elected to combine lease and non-lease components and to keep leases with an initial term of 12 months or less off the balance sheet and recognize the associated lease payments in the consolidated statements of income on a straight-line basis over the lease term. Based on the present value of the lease payments for the remaining lease term of the Company's existing leases, the Company recognized right-of-use assets and lease liabilities for operating leases of approximately $1.2 million and finance leases of approximately $265,000, respectively, on January 1, 2019.


	For the Three Months Ended March 31,
	2021				2020
ValidClick Platform	$	8,484,813	79.9	%	$	13,076,990	87.6	%
IntentKey Platform	2,132,996		20.1	%	1,855,993		12.4	%
Total	$	10,617,809	100.0	%	$	14,932,983	100.0	%

Recent Accounting Pronouncements Not Yet Adopted

In June 2016, (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.

1412

Note 3–3 – Property and Equipment

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

June 30, 2020 December 31, 2019
Furniture and fixtures $ 293,152 $ 293,152
Equipment 1,042,200 1,025,357
Capitalized internal use and purchased software 10,850,273 10,309,298
Leasehold improvements 421,016 421,016
Subtotal 12,606,641 12,048,823
Less: accumulated depreciation and amortization (11,392,704) (10,674,671)
Total $ 1,213,937 $ 1,374,152


	March 31, 2021		December 31, 2020
Furniture and fixtures	$	293,152	$	293,152
Equipment	1,108,686		1,052,199
Capitalized internal use and purchased software	11,798,641		11,475,683
Leasehold improvements	445,080		421,016
Subtotal	13,645,559		13,242,050
Less: accumulated depreciation and amortization	(12,352,626)		(12,054,989)
Total	$	1,292,933	$	1,187,061

During the three ~~and six~~ months ended ~~June 30,~~March 31, 2021 and March 31, 2020, depreciation expense was ~~$348,661~~$305,528 and ~~$718,033, respectively. During the three and six months ended June 30, 2019, depreciation expense was $431,585 and $873,426,~~$369,372, respectively.

Note 4 – Other Intangible Assets and Goodwill

The following is a schedule of intangible assets and goodwill as of ~~June 30, 2020:~~

Term Carrying
Value Accumulated Amortization and Impairment Net Carrying Value Year-to-date Amortization
Customer list, Google 20 years $ 8,820,000 $ (3,675,000) $ 5,145,000 $ 220,500
Technology 5 years 3,600,000 (2,460,000) 1,140,000 360,000
Customer list, ReTargeter (2) 5 years 1,931,250 (354,063) 1,577,187 193,125
Customer list, all other 10 years 1,610,000 (1,341,700) 268,300 80,502
Brand name, ReTargeter (2) 5 years 643,750 (118,021) 525,729 64,375
Customer relationships 20 years 570,000 (97,375) 472,625 14,250
Trade names, web properties (1) - 390,000 — 390,000 —
Intangible assets classified as long-term $ 17,565,000 $ (8,046,159) $ 9,518,841 $ 932,752
Goodwill, total - $ 9,853,342 $ — $ 9,853,342 $ —
March 31, 2021:


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

Customer list, Google	20 years	$	8,820,000	$	(4,005,751)	$	4,814,249	$	110,250
Technology	5 years	3,600,000		(3,000,000)		$	600,000	180,000
Customer list, ReTargeter	5 years	1,931,250		(643,750)		$	1,287,500	96,562
Customer list, all other	10 years	1,610,000		(1,462,453)		$	147,547	40,251
Brand name, ReTargeter	5 years	643,750		(214,583)		$	429,167	32,188
Customer relationships	20 years	570,000		(118,750)		$	451,250	7,125
Trade names, web properties (1)	-	390,000		—		$	390,000	—
Intangible assets classified as long-term		$	17,565,000	$	(9,445,287)	$	8,119,713	$	466,376

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

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

2.We recorded $2.57 million in intangible assets from the CPT Merger Termination Agreement. An independent valuation of the assets was performed to determine the carrying value of the assets listed above. See Note 1 - Organization and Business.

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

2020 $ 932,752
2021 1,865,504
2022 1,071,294
2023 984,500
2024 769,917
Thereafter 3,504,874
Total $ 9,128,841


2021	$	1,399,128
2022	1,071,294
2023	984,500
2024	769,917
2025	469,500
Thereafter	3,035,374
Total	$	7,729,713

Note 5 -– Bank Debt

~~The following table summarizes our bank debt as of:~~

June 30, 2020 December 31, 2019
Line of credit - 6.75 percent at June 30, 2020 $ 2,158,443 $ —
Financed receivables - 5.75 percent at December 31, 2019 (prime plus 1 percent) on invoiced receivables; 6.75 percent December 31, 2019 (prime plus 2 percent) on uninvoiced receivables $ — $ 3,381,364
Total $ 2,158,443 $ 3,381,364

On March 1, 2012 we entered into a Business Financing Agreement with Bridge Bank, which is now owned by Western Alliance Bank. The agreement provided us with a revolving credit line of up to $10 million which we used to help satisfy our working capital needs. On October 11, 2018, we entered into the Amended and Restated Financing Agreement with Western Alliance Bank which superseded the Business Financing Agreement, as amended. ~~The material terms of~~All obligations under the Amended and Restated Financing Agreement included financing eligible invoiced receivables at an advance rate of 85% and an interest rate of prime plus 1% and a sub-limit of up to $2.5 million of uninvoiced eligible receivables at an advance rate of 75% and an interest rate of prime plus 2%. The sub-limit provision expired at the end of April 2019. The Amended and Restated Financing Agreement included certain fees; a facility fee of $11,765 due at closing; an annual facility fee of 0.25% of the account balance due beginning on April 20, 2019; a monthly maintenance fee of 0.125% of the ending daily account balance; a $30,000 fee in lieu of a warrant; and $80,000 due upon termination of the agreement or repayment of our obligations under the agreement. The Amended and Restated Financing Agreement was secured by all of our assets. On April 30, 2019, under the terms of the Second Amendment, Western Alliance Bank agreed to extend the $2.5 million sub-limit provision of uninvoiced eligible receivables until the earlier of May 31, 2019 or three days after the closing of the Mergers, among other terms.

On June 6, 2019, we entered into the Third Amendment to the Amended and Restated Financing. The Third Amendment provided that with respect to the eligible unbilled receivable sublimit of $2,500,000, which expired May 31, 2019 under the Amended and

Restated Financing Agreement, ~~that: (i) lender had no obligation to finance unbilled receivables but may do so in its discretion;~~as amended, with Western Alliance Bank have been met and (ii) lender may terminate financing of unbilled receivables upon written notice. The Third Amendment also imposed an amendment fee of $2,000. At June 30, 2020 there were 0 outstanding balances due under the Amended and Restated Financing Agreement.all agreements with Western Alliance Bank have been terminated.

On March 12, 2020, we closed on the Loan and Security Agreement dated February 28, 2020 with Hitachi. Under the terms of the Loan and Security Agreement, Hitachi has provided us with a $5,000,000 line of credit commitment. We are permitted to borrow (i) 90% of the aggregate Eligible Accounts Receivable, plus ~~(i)~~(ii) the lesser of (A) 75% of the aggregate Unbilled Accounts Receivable or (B) 50% of the amount available to borrow under (i), up to the maximum credit commitment. On March 12, 2020 we drew $5,000,000 under this agreement, using $2,959,573 of these proceeds to satisfy all of our obligations tounder the Western Alliance Bank ~~under our~~ credit agreement ~~with it~~ and the balance ~~is being~~was used for working capital. ~~Following the satisfaction of our obligations to Western Alliance Bank, all agreements with that entity have been terminated.~~ We pay Hitachi a monthly interest at the rate of 2% in excess of the Wall Street Journal Prime Rate, with a minimum rate of 6.75% per annum, on outstanding amounts. The principal and all accrued but unpaid interest are due on demand.

We agreed to pay Hitachi a commitment fee of $50,000, with one half due upon the execution of the agreement and the balance due six months thereafter. Thereafter, we are obligated to pay Hitachi a commitment fee of $15,000 annually. We are also obligated to pay Hitachi a quarterly service fee of 0.30% on the monthly unused amount of the maximum credit line. In addition to a $2,000 document fee we have paid to Hitachi, if we ~~should repay the amounts due under the Loan and Security Agreement~~exit our relationship with Hitachi before March 1, 2022, we are obligated to pay Hitachi an exit fee of $50,000. At ~~June 30, 2020~~March 31, 2021, there ~~was an~~were 0 outstanding balances due under the Loan and Security Agreement ~~of $2,158,443.~~with Hitachi.

Note 6 – Accrued Expenses and Other Current Liabilities

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


		June 30, 2020		December 31, 2019			March 31, 2021		December 31, 2020
Accrued marketing costs (TAC)	Accrued marketing costs (TAC)	$	1,612,548	$	2,200,014	Accrued marketing costs (TAC)	$	2,989,778	$	3,234,192
Accrued expenses and other	Accrued expenses and other	428,460		1,152,267		Accrued expenses and other	571,676		440,578
Accrued payroll and commission liabilities	Accrued payroll and commission liabilities	403,455		115,707		Accrued payroll and commission liabilities	436,573		423,373
Accrued taxes						Accrued taxes	8,097		8,305
Arkansas grant contingency	Arkansas grant contingency	70,000		85,000		Arkansas grant contingency	0		60,000
Accrued sales allowance	Accrued sales allowance	50,000		50,000		Accrued sales allowance	0		50,000
Accrued taxes		10,117		11,445

Total	Total	$	2,574,580	$	3,614,433	Total	$	4,006,124	$	4,216,448

Note 7 -– Convertible Promissory Notes

On March 1, 2019, Inuvo entered into a Securities Purchase Agreement with 3 accredited investors for the purchase and sale of an aggregate of $1,440,000 of principal of Original Issue Discount Unsecured Subordinated Convertible Notes due September 1, 2020 (the “Calvary Notes”) to fund working capital and additional expenses resulting from the delay in closing of ~~the Mergers associated~~certain planned, and since terminated, mergers with ~~the government shut down.~~ConversionPoint Technologies Inc. and ConversionPoint Holdings Inc. The initial conversion price of the Calvary Notes was $1.08 per share which would have made the Calvary Notes then convertible into 1,333,333 unregistered shares of Inuvo’s common stock upon conversion. The Calvary Notes were issued in a private placement and the shares of common stock issuable upon conversion are restricted, subject to resale under Rule 144. The proceeds to Inuvo from the offering were $1,200,000. Inuvo did not pay any commissions or finders fees in connection with the sale of the Calvary Notes and Inuvo utilized the proceeds for working capital. ~~The Calvary Notes are reported net of unamortized original issue discounts and initial value attributed to the bifurcated embedded conversion feature. The balance as of June 30, 2020 was $0.~~

Effective April 20, 2020, the Company and the holder of the remaining Calvary Notes due September 1, 2020 in the principal amount of $315,000 as modified under that certain Note Modification and Release Agreement effective November 11, 2019, agreed to amend the note to extend the maturity date to December 31, 2020 and reduce the conversion price to $0.175 per share. On April 21,2020, the noteholder converted $200,000 principal amount due under the note into 1,142,857 shares of our common stock. On May 5, 2020, the noteholder converted the final $115,000 principal amount due under the note into 657,143 shares of our common stock, thereby satisfying the note in full.

~~Consideration of Down Round price adjustment~~

The Calvary Notes contained certain triggers that created adjustments to the conversion ratio, which provided down round protection to the holders. Because the conversion feature has been bifurcated as an embedded derivative and is marked to fair value at each reporting period, the actual occurrence of a trigger and the resulting adjustment to the conversion rate did not require any additional accounting treatment at the time of the price adjustment. Rather, the next fair value computation reflects the new terms of the conversion feature.

On July 15, 2019, we closed on an underwritten public offering of 13,750,000 shares at an offering price of $0.30 per share. As a result, this triggered a corresponding adjustment to the conversion ratio in the Calvary Notes to $0.30. The fair value of the embedded derivative reflected these terms at December 31, 2019.

~~Modifications/Extinguishment~~

On November 11, 2019 we entered into Note Modification and Release Agreements with the holders of $1,080,000 principal amount of the Calvary Notes. Under the terms of the Note Modification and Release Agreement, the parties agreed that in consideration of such noteholder’s agreement to convert a minimum of 50% of the outstanding amount of the note (the “First Conversion Amount”) that the conversion price for the First Conversion Amount would be $0.265 per share and that the conversion price for any remaining amount due under the note would be $0.30 per share, subject to future adjustments under the terms of the note including dilutive issuances at a price below $0.30 per share, subject to a floor of $0.23 per share. The agreement contains mutual general releases. These holders converted an aggregate of $765,000 due under the Calvary Notes into 2,886,792 shares of our common stock. Immediately prior to the conversion, the carrying value of the derivative was marked-to-market. Upon converting, the issued shares were recorded at their fair value of $0.29 per share. This resulted in a loss on extinguishment. Both the loss due to the marking to market and the loss on extinguishment totaling approximately $193,000 were recorded to other income, net.

In January 2020, a noteholder of a $360,000 principal amount Calvary note converted the note into 1,200,000 shares of our common stock. ~~The carrying value of the bifurcated derivative was marked-to-market immediately prior to the conversion. Upon conversion, the issued shares were recorded at their fair value. Both the loss~~On April 21, 2020, a noteholder converted $200,000 principal amount due ~~to the marked-to-market and loss on extinguishment of approximately $69,000 were recorded to other income, net.~~

Upon the April 2020 conversion, we relieved a proportional amount ($200,000 of $315,000 or 63.49%) of the adjusted carrying values of bifurcated conversion option and the debt host, and recorded the issued shares at their fair value of $0.22 per share. This resulted in a gain on extinguishment of $9,258 and was recorded to other income, net.

Upon the May 2020 conversion, we relieved the remaining amount ($115,000 of $115,000 or 100%) of the adjusted carrying values of bifurcated conversion option and the debt host, and recorded the issued shares at their fair value of $0.31 per share. This resulted in a loss on extinguishment of $6,201 other income, net.

~~Note 8 - Derivative Liability~~

The derivative liability reported in the financial statements represents the embedded conversion feature in the convertible promissory notes described in Note 7, which has been bifurcated for accounting purposes. The derivative is marked-to-market each reporting period at fair value under ASC 820 using significant observable and unobservable inputs, with changes in fair value recorded in the statement of operations. 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. The fair value hierarchy distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are described below:

~~Level 1—Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.~~

Level 2—Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, including quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates); and inputs that are derived principally from or corroborated by observable market data by correlation or other means.

~~Level 3—Inputs that are both significant to the fair value measurement and unobservable.~~

~~At December 31, 2019, we recorded a derivative liability of $182,250 related to the bifurcated embedded conversion feature of~~ the Calvary Notes ~~discussed in Note 7 - Convertible Promissory Note. In accordance with~~into 1,142,857 shares of our common stock. On May 5, 2020, a noteholder converted the ~~guidance above, the fair value of the derivative liability is considered "Level 3."~~final $115,000 principal amount due under

the Calvary Notes into 657,143 shares of our common stock, thereby satisfying the Calvary Notes in full and completing the extinguishment of the Calvary Notes.

Note 98 – Other Long-Term Liabilities

The lease liabilities and other long-term liabilities consist of the following as of:

June 30, 2020 December 31, 2019
PPP and SBA loans $ 1,258,900 $ —
Deferred revenue 498,763 —
Deferred rent 33,182 57,162
Total $ 1,790,845 $ 57,162

On April 10, 2020, we obtained an unsecured $1.1 million PPP loan under the CARES Act and proceeds from the PPP Loan were used for payroll costs. The interest rate of the loan is 1% and has a maturity date of two years. In July 2020, we applied for loan forgiveness in accordance with the CARES Act.


	March 31, 2021		December 31, 2020
Deferred rent	6,925		4,057
Deferred revenue	0		420,000
SBA loan	0		149,900
Total	$	6,925	$	573,957

Note ~~10 -~~9 – Commitments

In March 2020, we entered into an agreement to allow a third party to license and use ValidClick technology. The agreement required a nonrefundable fee of $500,000 in March with subsequent fees as earned in later quarters. The $500,000 fee was ~~recognized~~recorded as deferred revenue in March 2020. ~~We are committed to paying a monthly development royalty~~Effective March 1, 2021, the agreement was canceled and ~~marketing services fee when certain adjusted gross profit targets are achieved. As~~the remaining deferred revenue balance of ~~June 30, 2020, no activity has been recorded.~~$420,000 was recognized as other income.

Note 1110 – Income Taxes

We have a deferred tax ~~asset~~assets of ~~$33,987,850.~~$37,693,100. We believe it is more likely than not that essentially none of our deferred tax assets will be realized, and we have recorded a valuation allowance of ~~$32,075,650~~$35,848,400 for the deferred tax assets that may not be realized as of ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019.~~2020. We also have a deferred tax ~~liability~~liabilities totaling ~~$2,019,200~~$1,951,700 as of ~~June 30, 2020 and December~~March 31, ~~2019,~~2021, related to intangible assets acquired in March 2012. These balances are presented as a net deferred tax liability of $107,000 composed of indefinite lived intangible assets.

Note ~~12 -~~11 – Stock-Based Compensation

We maintain a stock-based compensation program intended to attract, retain and provide incentives for talented employees and directors and align stockholder and employee interests. During the ~~2020~~2021 and ~~2019~~2020 periods, we granted ~~options and~~ restricted stock units ("RSUs") from the ~~2010 Equity Compensation Plan (“2010 ECP”) and the~~ 2017 Equity Compensation Plan, as amended (“2017 ECP”). ~~The 2010 ECP expired by its terms in April 2020. Option and RSUs~~RSU vesting periods are generally up to three years and/or achieving certain financial targets.

On August 14, 2019, the Inuvo Nominating, Corporate Governance and Compensation Committee approved modifications to the outstanding RSU grants under the 2010 ECP and 2017 ECP. The modifications include deeming the performance criteria for the performance based RSU grants with a measurement period based on June 30, 2019 as met and vested. In addition, any remaining RSU grants outstanding were modified to vest in three equal parts on August 19, 2019, January 1, ~~2020 and July 1, 2020 as long as the grantee is employed by Inuvo on the vesting date.~~

On August 21, 2019 our board of directors adopted, subject to stockholder approval, an amendment to our 2017 ECP to increase in the number of shares reserved for issuance upon grants made under the plan by an additional 6,800,000 shares of our common stock. The stockholders approved the amendment to our 2017 ECP at the annual stockholders meeting on October 4, 2019.

~~On January 1, 2020,~~2021, in accordance with the plan provisions, the number of shares available for issuance under the 2017 ~~and 2010~~ ECP ~~plans were~~plan was increased by 150,000 ~~and 250,000 shares, respectively.~~shares.

Compensation Expense

For the three ~~and six~~ months ended ~~June 30,~~March 31, 2021 and 2020, we recorded stock-based compensation expense for all equity incentive plans of ~~$193,288~~$394,870 and ~~$402,185, respectively. For the three and six months ended June 30, 2019, we recorded stock-based compensation expense for all equity incentive plans of $49,823 and $146,693,~~$208,897, respectively. Total compensation cost not yet recognized at ~~June 30, 2020~~March 31, 2021 was ~~$486,627~~$5,634,951 to be recognized over a weighted-average recognition period of ~~less than one year.~~approximately two years.

The following table summarizes the stock grants outstanding under ~~our 2005 Long-Term Incentive Plan ("2005 LTIP"),~~ the ~~2010~~2017 ECP and the ~~2017 ECP~~2010 Equity Compensation Plan (“2010 ECP”), which expired on its terms in April 2020, for the ~~six~~three months ended ~~June 30, 2020:~~March 31, 2021:

Options Outstanding RSUs Outstanding Options and RSUs Exercised Available Shares Total
2017 ECP — 1,752,582 728,346 6,769,072 9,250,000
2010 ECP (**) 14,498 1,072,171 3,969,590 — 5,056,259
2005 LTIP (*) — — 953,835 — 953,835
Total 14,498 2,824,753 5,651,771 6,769,072 15,260,094


	Options Outstanding	RSUs Outstanding	Options and RSUs Exercised	Available Shares	Total
2017 ECP	0	4,376,667	2,367,472	2,655,861	9,400,000
2010 ECP (*)	1,500	0	5,011,511	0	5,013,011
Total	1,500	4,376,667	7,378,983	2,655,861	14,413,011

(*~~) Expired June 2015~~

(**) Expired April 2020

1915

The following table summarizes the ~~activities~~activity of stock option awards under the ~~2005 LTIP and the~~ 2010 ECP for the ~~six~~three months ended ~~June 30, 2020:~~

Shares Subject to Options Outstanding
Number of Shares Weighted Average Exercise Price Weighted Average Remaining Contractual Term (in years) Aggregate Intrinsic Value
Balance as of December 31, 2019 18,248 $ 1.74 1.8 $ 2,019
Stock options canceled 3,750 $ 3.7 — —
Balance as of June 30, 2020 14,498 $ 1.23 1.39 $ 2,019
Stock options exercisable as of June 30, 2020 14,498 $ 1.23 1.39 $ 2,019
March 31, 2021:


	Shares Subject to Options Outstanding
	Number of Shares	Weighted Average Exercise Price
Balance as of December 31, 2020	9,500	$	0.56
Stock options exercised	4,750	$	0.56
Stock options canceled	3,250	$	0.56
Balance as of March 31, 2021	1,500	0.56
Stock options exercisable as of March 31, 2021	1,500	0.56

The following table summarizes the activities for our unvested RSUs for the ~~six~~three months ended ~~June 30, 2020:~~March 31, 2021:


		Unvested RSUs					Unvested RSUs
		Number of Shares	Weighted Average Grant Date Fair Value			Number of Shares	Weighted Average Grant Date Fair Value
Unvested as of December 31, 2019		2,568,951	$	0.79
Unvested as of December 31, 2020					Unvested as of December 31, 2020	1,930,526	$	0.28
Granted	Granted	587,103	$	0.44	Granted	4,310,000	$	1.40
Vested	Vested	331,301	$	0.21	Vested	1,804,665	$	0.28
Forfeited	Forfeited	—	$	—	Forfeited	59,194	$	0.29
Unvested as of June 30, 2020		2,824,753	$	0.31
Unvested as of March 31, 2021					Unvested as of March 31, 2021	4,376,667	$	1.38

Note ~~13 -~~ 12 – Stockholders Equity

Earnings per Share

~~During~~For the three months ended March 31, 2021 and ~~six month period ended June 30,~~ 2020, ~~and June 30, 2019,~~ we generated a net loss from continuing operations and as a result, all of our shares are anti-dilutive.

Note ~~14 -~~13 – Leases

The Company has entered into operating and finance leases primarily for real estate and equipment rental. These leases have terms which range from two years to four years, and often include one or more options to renew or in the case of equipment rental, to purchase the equipment. These operating and finance leases are listed as separate line items on the Company's ~~June 30, 2020~~ consolidated balance ~~sheet~~sheets and represent the Company’s right to use the underlying asset for the lease term. The Company’s obligation to make lease payments are also listed as separate line items on the Company's ~~June 30, 2020,~~ consolidated balance sheet. Based on the present value of the lease payments for the remaining lease term of the Company's existing leases, the Company recognized right-of-use assets and lease liabilities for operating leases of approximately $1.2 million and finance leases of approximately $265,000, respectively, on January 1, 2019. Operating lease right-of-use assets and liabilities commencing after January 1, 2019 are recognized at commencement date based on the present value of lease payments over the lease term.sheets. As of ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, total operating and financed right-of-use assets were ~~$535,870~~$843,573 and ~~$518,747,~~$315,793, and ~~$756,115~~$606,573 and ~~$88,178,~~$395,910, respectively. The Company has entered into a short-term finance lease for equipment with a remaining term of twelve months or less and is included in the "Accrued expenses and other current liabilities" section of the consolidated balance sheet. All operating lease expense is recognized on a straight-line basis over the lease term.

As of ~~June 30,~~March 31, 2021 and 2020, the Company recorded ~~$215,874~~$80,117 and $105,678, respectively, in amortization expense related to finance leases.

Because the rate implicit in each lease is not readily determinable, the Company uses its incremental borrowing rate to determine the present value of the lease payments.

Information related to the Company's operating lease liabilities are as follows:

2016


	For the ~~Six~~Three Months Ended ~~June 30,~~March 31,
Cash paid for operating lease liabilities	$	~~116,726~~182,807
~~Weighted-average remaining lease term~~	~~1.9 years~~
~~Weighted-average discount rate~~	~~6.25~~		%

Minimum future lease payments ended June 30, 2020
2020 166,179
2021 242,558
2022 163,284
572,021
Less imputed interest (35,913)
Total lease liabilities $ 536,108

~~Information related to the Company's financed lease liabilities are as follows:~~


	~~For the Six Months Ended June 30,~~
~~Cash paid for finance lease liabilities~~	$	~~313,418~~
Weighted-average remaining lease term	2.4 years
Weighted-average discount rate	6.25		%


Minimum future lease payments ended March 31, 2021
2021	285,922
2022	378,339
2023	295,778
2024	10,983
	971,022
Less imputed interest	(127,449)
Total lease liabilities	$	843,573

Minimum future lease payments ended June 30, 2020
2020 $ 125,166
2021 250,331
2022 55,956
2023 23,315
454,768
Less imputed interest (28,304)
Total lease liabilities $ 426,464

Information related to the Company's financed lease liabilities are as follows:


	For the Three Months Ended March 31,
Cash paid for finance lease liabilities	$	69,291
Weighted-average remaining lease term	2.3 years
Weighted-average discount rate	6.25		%


Minimum future lease payments ended March 31, 2021
2021	$	200,518
2022	72,982
2023	37,658
	311,158
Less imputed interest	(30,158)
Total lease liabilities	$	281,000

Note ~~15 -~~14 – Related Party Transactions

On March 20, 2020, we sold an aggregate of 3,931,428 shares of our common stock at a purchase price of $0.175 per share to the five members of our Board of Directors in a private placement exempt from registration under Section 4(a)(2) and Rule 506(b) of Regulation D under the Securities Act of 1933, as amended. We received proceeds of $688,000 in this offering. The purchase price of the shares of our common stock sold in the offering exceeded the closing market price of our common stock on March 19, 2020, the trading day immediately preceding the day the binding Insider Subscription Agreements were executed by the purchasers. The purchasers were all accredited investors. We did not pay any commissions or finder’s fees, and we ~~are using~~used the proceeds for general working capital.

In June 2019, the Company entered into an agreement with First Orion Corp., which is partially owned by 2 directors and shareholders of Inuvo, to provide office space. The lease is for eight-months commencing on July 1, 2019 and cost $80,000 which was prepaid in June 2019.

~~Note 16 - Subsequent Events~~

On July 27, 2020, we closed a firm commitment underwritten follow on public offering of an aggregate of 21,500,000 shares of our common stock, at a price of $0.50 per share, for gross proceeds of $10,750,000, before deducting underwriting discounts and commission and other offering expenses.

Recently, it came to our attention that the effectiveness of the amendment to our articles of incorporation to increase the number of our authorized shares of common stock, par value $0.001 per share (the “Common Stock”), that we may issue from 60,000,000 to 100,000,000 (the "Share Increase Amendment") could be called into question as the authorization of the Share Increase Amendment may not have complied with certain requirements of our articles of incorporation and/or by-laws as well as Chapter 78 of the Nevada Revised Statutes (“NRS”), as related thereto. Our Board has determined that it is in the best interests of the Company and our stockholders to ratify and validate the filing and effectiveness of the Share Increase Amendment pursuant to Section 78.0296 of the NRS to eliminate any uncertainty related to the effectiveness of the Share Increase Amendment and any subsequent issuances of shares of our Common Stock (the “Ratification Proposal”). If the Ratification Proposal is approved by our stockholders and becomes effective, the Share Increase Amendment will be retroactive to October 31, 2019, which was the date of the filing of the Share Increase Amendment with the Nevada Secretary of State. If the Ratification Proposal is not approved by the requisite vote of our stockholders, the Share Increase Amendment may not be deemed effective which could result in (a) our not having sufficient authorized but unissued shares of Common Stock to permit future sales and issuances of Common Stock, including pursuant to outstanding warrants and stock options, (b) certain of our past issuances of Common Stock being deemed to not be valid, and (c) an inability to validate our total outstanding shares of Common Stock in connection with any strategic transaction. Any inability to issue Common Stock in the future and any invalidity of past issuances of Common Stock could expose us to significant claims and have a material adverse effect on our liquidity.

~~Note 17 - Revisions of Previously Issued Consolidated Year-End Financial Statements~~

As described in Note 1, "Organization and Business," the following table sets forth the impact of an error correction on the Company’s consolidated financial statements as of and for the period ended December 31, 2019 by financial statement line item. Most of the deferred tax liabilities arose from the acquisition in 2012. The tax assets with definite lives should have been netted against the tax liabilities with definite lives as required by ASC 740 when evaluating the valuation allowance. Instead, both the tax assets and liabilities were maintained on a gross basis on the balance sheet and the tax assets were entirely offset with a valuation allowance. The effect of the error was deemed immaterial.

December 31, 2019
Consolidated Balance Sheet Line Item As Previously Reported Adjustments As Revised
Deferred tax liability $ 2,019,200 $ 1,912,200 $ 107,000
Accumulated deficit $ 130,958,001 $ (1,912,200) $ 129,045,801

December 31, 2018
Consolidated Balance Sheet Line Item As Previously Reported Adjustments As Revised
Accumulated deficit $ 126,469,894 $ (1,912,200) $ 124,557,694

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Company Overview

Inuvo is a technology company that develops and sells information technology solutions for marketing. These platforms predictively identify and message online audiences for any product or service across devices, channels and formats, including video, mobile, connected TV, display, social and native. These capabilities allow Inuvo’s clients to engage with their customers and prospects in a manner that drives engagement from the first contact with the consumer. Inuvo facilitates the delivery of hundreds of millions of marketing messages to consumers every single month and counts among its clients numerous ~~world-renowned~~world-

renowned names in industries that have included retail, automotive, insurance, health care, technology, telecommunications and finance.

The Inuvo business scales through account management activity with existing clients and by adding new clients through sales activity.

Our net working capital was negative $1.2 million as of June 30, 2020. During the second quarter, we raised approximately $5.7 million, before expenses, through the sale of our securities and in April 2020, we obtained the PPP Loan of $1.1 million. In July 2020, we raised approximately $10.8 million, before expenses, through the sale of our securities. With the reduction in our revenue run rate there is an increased need for working capital to fund our operations. There is no assurance that we will be successful in obtaining additional funding to continue operations, particularly in light of the current impact of COVID-19 on the U.S. capital markets, but believe we have sufficient capital to operate during the next twelve months.

Impact of COVID-19 Pandemic

Beginning in late April 2020, we ~~have~~ experienced a significant reduction in marketing budgets ~~for some IntentKey clients, a decrease in the number of supply partners and quantity of Internet traffic from supply partners within ValidClick,~~ and a decrease in ~~overall~~ monetization rates inwhich impacted ValidClick ~~the combination of which has~~more severely than IntentKey. This resulted in a significant reduction in our overall revenue run ~~rate.~~rates during 2020 with the low point occurring during May 2020.

In response to COVID-19, we ~~have~~ curtailed expenses, including compensation and travel ~~and we have issued a work from home policy~~throughout 2020in addition to ~~protect our employees and their families from virus transmission associated with co-workers.~~other actions. Additionally, in April 2020, we obtained ~~an unsecured Paycheck Protection Program loan under~~ the ~~Coronavirus Aid, Relief and Economic Security Act of~~ $1.1 million PPP Loan which we ~~are using~~used primarily for payroll costs. The PPP Loan was fully forgiven by the SBA on November 2, 2020.

Beginning mid-June 2020, we began to experience an improvement in overall daily revenue. Though there has been a steady month by month improvement in the revenue ~~but because~~run rates, by the end of the ~~impact~~first quarter 2021 we still have not reached pre-pandemic levels. Due to the unprecedented sustainability of COVID-19 on our business, we ~~are~~were unable ~~at this time~~ to predict with any certainty how our clients will adapt their business strategies within the ~~second half~~context of ~~the year will materialize~~COVID-19 and ~~whether~~therefore how our revenue run rate ~~will continue to improve. As~~would change as a ~~result of this uncertainty we are~~result. We, therefore, were focusing our resources on areas we believe could have more immediate revenue potential, ~~and~~ attempting to reduce expenses ~~where necessary~~and raising additional capital so as to mitigate operating disruptions while the impact of COVID-19 abates. Since the start of the year with the roll out of vaccinations, we see an increase in client’s willingness to spend on advertising and thereby an improvement in our revenue run rates.

Our net working capital was a positive $16.8 million as ~~little disruption~~of March 31, 2021. During January 2021, we raised approximately $14.3 million, before expenses, through the sale of our securities in two offerings. During the second and third quarters of 2020, we raised approximately $16.5 million, before expenses, through the sale of our securities and in April 2020, we obtained a $1.1 million PPP Loan. With the reduction in our revenue run rate, there is an increased need for working capital to fund our operations. There is no assurance that we will be successful in obtaining additional funding to continue operations, particularly in light of the current impact of COVID-19 on ~~our daily operations as possible. Should revenues continue~~the U.S. capital markets, but believe we have sufficient capital to ~~turn downwards or fail to return to historical levels, we may not be able to offset expenses quickly enough.~~operate during the next twelve months.

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of revenue and expenses during the reported periods. The more critical accounting estimates include estimates related to revenue recognition and accounts receivable allowances. We also have other key accounting policies, which involve the use of

estimates, judgments and assumptions that are significant to understanding our results, which are described in Note 2 to our audited consolidated financial statements for ~~2019~~2020 appearing in our Annual Report on Form 10-K for the year ended December 31, ~~2019~~2020 as filed with the SEC on ~~May 12, 2020,~~February 11, 2021, as ~~amended.~~amended on Form 10-K/A as filed with the SEC on March 10, 2021. The estimates and assumptions that management makes affect the reported amounts of assets, liabilities, net revenues and expenses and disclosure of contingent assets and liabilities. The estimates and assumptions that management makes affect the reported amounts of assets, liabilities, net revenues and expenses and disclosure of contingent assets and liabilities. The estimates and assumptions used 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 ~~allowances for doubtful accounts,~~ goodwill and purchased intangible asset valuations and valuation ~~of long-lived assets and derivative liability.~~allowance. Actual results may differ from the estimates and assumptions used in preparing the accompanying consolidated financial statements, and such differences could be material.

Results of Operations

For the Three Months Ended June 30, For the Six Months Ended June 30,
2020 2019 Change % Change 2020 2019 Change % Change
Net Revenue $ 7,590,187 $ 14,047,907 $ (6,457,720) (46.0) % $ 22,523,170 $ 29,512,476 $ (6,989,306) (23.7) %
Cost of Revenue 1,070,028 5,674,360 (4,604,332) (81.1) % 4,509,529 12,354,988 (7,845,459) (63.5) %
Gross Profit $ 6,520,159 $ 8,373,547 (1,853,388) (22.1) % $ 18,013,641 $ 17,157,488 $ 856,153 5.0 %


	For the Three Months Ended March 31,
	2021		2020		Change		% Change
Net Revenue	$	10,617,809	$	14,932,983	$	(4,315,174)	(28.9)	%
Cost of Revenue	1,444,059		3,439,501		(1,995,442)		(58.0)	%
Gross Profit	$	9,173,750	$	11,493,482	$	(2,319,732)	(20.2)	%

Net Revenue

We experienced lower year over year revenue for the three months ended ~~June 30, 2020 and the first half of 2020~~March 31, 2021 as compared to the same ~~periods~~period in ~~2019 due to lower advertiser budgets associated with Covid-19. Most of the decline in revenue was experienced by~~2020. Revenue declined within the ValidClick ~~business.~~platform where COVID-19 had a material impact on advertising budgets beginning in April of 2020. The renegotiation of payment terms and conditions with marketing partners in the quarter ended June 30, 2020 also contributed to the lower ValidClick revenue ~~was partially offset by~~as a trade-off for higher gross margins. Since the low revenue month in ~~owned and operated sites.~~May of 2020, ValidClick has had a 9% monthly compounded growth rate through the end of March 2021. The IntentKey ~~business revenue was approximately flat~~platform grew 15% for the three months ended ~~June 30, 2020 and 16% higher for~~March 31, 2021 over the ~~first half of 2020 as compared~~prior year quarter due primarily to the ~~same periods in 2019.~~acquisition of new customers.

Cost of Revenue

Cost of revenue in the 2021 period is primarily generated by payments ~~to website publishers and app developers that host advertisements we serve through ValidClick and~~ to ad exchanges that provide access to a supply of advertising inventory where we serve advertisements using information predicted by the ~~IntentKey.~~IntentKey and to lesser extent, payments to website publishers and app developers that host advertisements we serve through ValidClick. Cost of revenue in the 2020 period was primarily generated by payments to website publishers and app developers that host advertisements we serve through ValidClick. The components of the cost of revenue have shifted, as the IntentKey platform revenue becomes a greater percentage of Net Revenue and as the ValidClick business has continued to expand its owned and operated publishing assets. The decrease in the cost of revenue infor the ~~three and six month periods~~quarter ended ~~June 30, 2020~~March 31, 2021 compared to the same ~~time periods~~quarter in ~~2019 is~~2020 was due primarily to the decline in ValidClick revenue as described in the Net Revenue section and ~~in part due~~the decision to ~~the renegotiation of payment terms and conditions with a ValidClick marketing partner in the quarter ended June 30, 2020.~~reduce certain historically outsourced campaign management tasks.

Operating Expenses


		For the Three Months Ended June 30,														For the Six Months Ended June 30,											For the Three Months Ended March 31,
		2020		2019		Change		% Change		2020		2019		Change		% Change			2021		2020		Change		% Change
Marketing costs (TAC)	Marketing costs (TAC)	$	3,857,395	$	6,528,336	$	(2,670,941)	(40.9	%)	$	13,480,218	$	13,072,345	$	407,873	3.1	%	Marketing costs (TAC)	$	7,305,784	$	9,622,823	$	(2,317,039)	(24.1	%)
Compensation	Compensation	2,118,311		1,735,489		382,822		22.1	%	4,462,546		3,544,045		$	918,501	25.9	%	Compensation	2,737,867		2,344,235		393,632		16.8	%
Selling, general and administrative	Selling, general and administrative	1,781,121		2,213,507		(432,386)		(19.5	%)	3,839,963		4,590,568		$	(750,605)	(16.4)	%	Selling, general and administrative	1,724,978		2,058,842		(333,864)		(16.2	%)
Operating expenses	Operating expenses	$	7,756,827	$	10,477,332	$	(2,720,505)	(26.0	%)	$	21,782,727	$	21,206,958	$	575,769	2.7	%	Operating expenses	$	11,768,629	$	14,025,900	$	(2,257,271)	(16.1	%)

Marketing costs or traffic acquisition costs ("TAC") include those expenses required to attract an audience to the ValidClick owned and operated web properties. The increase in marketing costs in the six-month period ended June 30, 2020 compared to the same time period in 2019 is associated with higher ValidClick revenue from owned and operated sites.platform. The decrease in marketing costs for the ~~three month~~three-month period ended ~~June 30, 2020~~March 31, 2021 compared to the same period in ~~2019 is~~2020 was due primarily to the decline in revenue as described in the Net Revenue ~~section in addition to reduced TAC due to renegotiating payment terms and conditions with a ValidClick marketing partner.~~section.

Compensation expense was higher for the ~~three and six months~~three-month period ended ~~June 30, 2020~~March 31, 2021 compared to the same time ~~periods~~period in ~~2019~~2020 due to primarily to higher employee ~~benefits~~salary expense, ~~accrued commissions,~~and stock-based ~~compensation and accrued incentive pay.~~compensation. Our total employment, both full and part-time, was 70 at June 30, 2020 compared to 62 at June 30, 2019. In spite of a higher headcount in this year’s quarter, the payroll for the quarter ended June 30, 2020 was lower than the same quarter last year due to temporarily lowering the compensation for senior officers and employees with salaries in excess of $100,000 per year.

2419

was 77 at March 31, 2021 compared to 69 at March 31, 2020. The higher headcount this year over last year is primarily due to hiring additional sales and sales support personnel for the IntentKey.

Selling, general and administrative costs werelowerforthe~~threeandsixmonths~~ three-month period ended~~June30,2020~~ March 31, 2021 comparedto~~thesametimeperiods~~in~~2019 due to $887 thousand primarily in legal and professional fees related~~ to the ~~terminated Mergers~~same time period in ~~2019.~~2020 due primarily to $197 thousand in lower IT costs, $56 thousand in lower travel and entertainment corporate expense, $87 thousand lower depreciation and amortization expense and to the $60 thousand reversal of a reserve for a liability that had been satisfied.

Interest expense, net

Interest expense, net, for the three months ended ~~June 30,~~March 31, 2021 and 2020 was approximately ~~$73,000~~$22 thousand and $152 thousand, respectively, and primarily represents interest expense on ~~financed receivables, capital~~finance lease obligations and the ~~PPP Loan. Interest expense,~~Hitachi Loan and Security Agreement.

Other income/(expense), net ~~for the six months ended June 30, 2020 was approximately $225 thousand due primarily to the change of the derivative liability associated with the Calvary Notes.~~

Other income, net, for the three months ended March 31, 2021 was $470 thousand and included the reversal of the deferred revenue from the contract cancellation discussed in Note 9 and the reversal of the accrued sales reserve of $50 thousand.

Other expense, net, for the three months ended March 31, 2020, was approximately ~~$190,000 for the six months ended June 30, 2020~~$140 thousand and iswas related to the conversion of ~~the Calvary~~promissory notes.

Liquidity and Capital Resources

Our principal sources of liquidity are the sale of our common stock ~~our borrowings under~~and our credit facility with Hitachi described in Note ~~5, and borrowings from non-bank financial institutions (see Note 7).~~ 5.

During March 2020 and April 2020, we raised ~~$1,478,175~~approximately $1.5 million in gross proceeds, before expenses, through sales of our common stock and in April 2020 we received a $1.1 million PPP Loan. On June 8, 2020, we raised an additional ~~$5,500,000~~$5.5 million in gross proceeds, before expenses, through ~~sales~~the sale of our common stock and on July 27, 2020, we raised an additional ~~$10,750,000~~$10.75 million in gross proceeds, before expenses, through sales of our common stock. On January 19, 2021, we raised an additional $8 million in gross proceeds, before expenses, through the sale of our common stock, and on January 22, 2021, we raised an additional $6.25 million in gross proceeds, before expenses, through sales of our common stock.

We have ~~pooled~~focused our resources behind a plan to grow 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.

Though we believe our current cash position ~~operating cash flows~~ and credit facility will be sufficient to sustain operations for the next twelve

months, if our plan to grow the IntentKey business is unsuccessful, we may need to fund operations through private or public

sales of securities, debt financings or partnering/licensing transactions.

In April of 2020, the Company experienced a significant reduction in advertiser marketing budgets across both the ValidClick and IntentKey platforms as a direct consequence of COVID-19. These reductions ~~have~~ adversely impacted our overall revenue ~~in the second quarter of 2020 and may also adversely impact revenue beyond the second quarter, although we are unable at this time to quantify the ultimate impact on our company.~~throughout 2020. As a result, in May 2020 and June 2020 we implemented a temporary compensation change for senior officers and employees. Certain employees with salaries in excess of $100,000 per year had forgone a percentage of their salary. We ~~have~~ curtailed expenses, including compensation and travel for the months of May and ~~we have~~June, and issued a work from home policy to protect our employees and their families from virus transmission associated with co-workers. As a result of this uncertainty, we ~~are focusing~~continue to focus our resources on areas we believe have immediate revenue potential ~~and attempting to reduce~~while concurrently reducing expenses where necessary with ~~as little disruption on our~~an objective to minimize daily ~~operations as possible. Should revenues continue to turn downwards or fail to return to historical levels, we may not be able to offset expenses quickly enough.~~

Our credit facility is dependent upon receivables, and since we do not know when, if ever, our revenues will return to historic levels or if we will be able to replace those lost revenues with revenues from other sources, the combination of lower credit availability and negative cash flows generated from operating ~~activities introduces potential risk to operation without interruption.~~

disruptions.

2520

Cash Flows

The table below sets forth a summary of our cash flows for the ~~six~~three months ended ~~June 30, 2020~~March 31, 2021 and ~~2019:~~2020:

For the six months ended June 30,
2020 2019
(in thousands)
Net cash used in operating activities $(2,336) $(710)
Net cash used in investing activities (558) (582)
Net cash provided by financing activities 6,702 2,058


	For the Three Months Ended March 31,
	2021	2020
Net cash (used in)/provided by operating activities	$(2,442,647)	$821,500
Net cash used in investing activities	$(411,400)	$(310,853)
Net cash provided by/(used in) financing activities	$12,768,706	$(412,829)

Cash Flows - Operating

Net cash used in operating activities was ~~$2,336,029~~$2,442,647 during the ~~six~~three months ended ~~June 30, 2020.~~March 31, 2021. We reported a net loss of ~~$4,184,524,~~$2,147,268, which included non-cash expenses; depreciation and amortization expense of ~~$1,650,785,~~$771,904, other depreciation expense ~~from right~~ of ~~use assets $215,847~~$80,117 and stock-based compensation expense of ~~$402,185.~~$394,870; partially offset by the reversal of $420,000 in deferred revenue. The change in operating assets and liabilities during the ~~six~~three months ended ~~June 30, 2020~~March 31, 2021 was a net use of cash of ~~$585,747~~$995,520 primarily due to a decrease in the accounts payable balance of ~~$2,584,892, a decrease of accrued expenses and other current liabilities of $1,053,047~~$1,257,828, partially offset by a decrease in the accounts receivable balance by ~~$4,229,088.~~$496,349. Our terms are such that we generally collect receivables prior to paying trade payables. Media sales typically have slower payment terms than the terms of related payables.

During the comparable three-month period in ~~2019,~~2020, cash ~~used in~~provided by operating activities was ~~$709,846~~$821,500 from a net loss of ~~$4,417,386,~~$2,825,236, which included several non-cash expenses; depreciation and amortization of ~~$1,548,678~~$835,748 and stock-based compensation of ~~$146,693.~~$208,897.

Cash Flows - Investing

Net cash used in investing activities was ~~$557,818~~$411,400 and ~~$581,839~~$310,853 for the ~~six~~three months ended ~~June 30,~~March 31, 2021 and 2020, ~~and June 30, 2019,~~ respectively, and primarily consisted of capitalized internal development costs.

Cash Flows - Financing

Net cash provided by financing activities was ~~$6,702,072~~$12,768,706 during the ~~six~~three months ended ~~June 30, 2020~~March 31, 2021 primarily from proceeds from the sale of common stock.

Net cash ~~provided by~~used in financing activities was ~~$2,058,196~~$412,829 during the ~~six~~three months ended ~~June 30, 2019 primarily~~March 31, 2020 was predominately due to the change in our credit facility and the satisfaction of our obligations to Western Alliance Bank, offset by proceeds from the ~~proceeds~~sale of ~~the Calvary Note.~~common stock and ValidClick licensing agreement.

Off Balance Sheet Arrangements

As of ~~June 30, 2020,~~March 31, 2021, we do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors. The term "off-balance sheet arrangement" generally means any transaction, agreement or other contractual arrangement to which an entity unconsolidated with us is a party, under which we have any obligation arising under a guarantee contract, derivative instrument or variable interest or a retained or contingent interest in assets transferred to such entity or similar arrangement that serves as credit, liquidity or market risk support for such assets.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not applicable to a smaller reporting company.

ITEM 4. CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures

We maintain “disclosure controls and procedures” as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934. Disclosure controls and procedures are controls and procedures designed to reasonably assure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, such as this report, is recorded, processed, summarized and reported within the time periods prescribed by SEC rules and regulations, and to reasonably assure that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

Our management does not expect that our disclosure controls will prevent all errors and fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. In addition, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the control. The design of any systems of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of these inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

As required by Rule 13a-15 under the Securities Exchange Act of 1934, as of ~~June 30, 2020,~~March 31, 2021, the end of the period covered by this report, our management concluded their evaluation of the effectiveness of the design and operation of our disclosure controls and procedures.

~~In connection with the preparation~~ As of the consolidated financial statements appearing in this report, the Company identified an error in the accounting for deferred tax asset valuation allowance originating in 2012 and continuing in its previously issued 2019 annual consolidated financial statements and the consolidated financial statements for the first quarter of 2020. This identified error resulted from management’s failure to perform a review of the four sources of taxable income listed in ASC 740-10-30-18 that may be available under the tax law to realize the deferred tax assets: (a) future reversal of existing taxable temporary differences; (b) future taxable income exclusive of reversing temporary differences and carryforwards; (c) taxable income in prior year(s) if carryback is permitted under the tax law; and (d) tax planning strategies when evaluating the valuation allowance which caused the valuation allowance to be overstated. As set forth in Note 17 to the unaudited consolidated financial statements appearing in this report, the correction of this error resulted in a decrease in our deferred tax liability and a decrease in our accumulated deficit. Although the Company assessed the materiality of the error and concluded that the error was not material to the previously issued annual or interim financial statements, the Company revised its previously issued 2019 annual balance sheet to correct for the error in connection with the filing of this Quarterly Report on Form 10-Q for the period ended June 30, 2020.

~~As a result of this~~ evaluation date, our Chief Executive Officer and Chief Financial Officer concluded that we ~~did not~~ maintain disclosure controls and procedures that ~~were~~are effective in providing reasonable assurance that information required to be disclosed in our reports under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods prescribed by SEC rules and regulations, and that such information is accumulated and communicated to our management to allow timely decisions regarding required disclosure as a result of this identified material weakness in our internal control over financial reporting. Subsequent to June 30, 2020, we have begun to undertake certain remedial actions to ensure that any future change to the income tax laws or the Company’s tax provision is properly accounted for in accordance with ASC 740.disclosure.

Changes in Internal Control over Financial Reporting

~~Except for the remediation procedures described above, there~~There were no changes in our internal control over financial reporting during the period ended ~~June 30, 2020~~March 31, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II

Item 1 - Legal Proceedings

None.

ITEM 1A. RISK FACTORS-UPDATE

We desire to take advantage of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. Accordingly, we incorporate by reference the risk factors disclosed in Part I, Item 1A of our Form 10-K for the year ended December 31, ~~2019,~~2020, as filed with the Securities and Exchange Commission ("SEC") on ~~May 12, 2020,~~February 11, 2021, as amended on Form 10-K/A filed with the SEC on March 10, 2021 and our subsequent filings with the SEC, subject to the new or modified risk factors appearing below that should be read in conjunction with the risk factors disclosed in such Form 10-K and our subsequent filings. ~~We expect that these risks will continue to be exacerbated by the impact of the Covid-19 pandemic on our company and any worsening of the economic environment.~~

We rely on ~~two~~three customers for a significant portion of our revenues. We are reliant upon ~~Yahoo!~~Google, Proper Media and ~~Google~~Yahoo! for most of our revenue. During the ~~second~~first quarter of ~~2020, Yahoo! accounted for 36.7% and~~2021, Google accounted for ~~25.0%~~40.0%, Proper Media 19.17%, and Yahoo! 16.5% of our revenues, respectively, and during the same period in ~~2019, 69.7%~~2020, Yahoo! 51.4% and ~~11.3%~~Google 18.4%, respectively. The amount of revenue we receive from these customers is dependent on a number of factors outside of our control, including the amount they charge for advertisements, the depth of advertisements available from them, and their ability to display relevant ads in response to end-user queries. We would likely experience a significant decline in revenue and our business operations could be significantly harmed if these customers do not approve our new websites and applications, or if we violate their guidelines or they change their guidelines. In addition, if any of these preceding circumstances were to occur, we may not be able to find a suitable alternate paid search results provider or otherwise replace the lost revenues. The loss of any of these

customers or a material change in the revenue or gross profit they generate would have a material adverse impact on our business, results of operations and financial condition in future periods.

Our stockholders may not approve and adopt a special meeting proposal to ratify and validate the amendment to our articles of incorporation to increase the number of authorized shares of our common stock, $0.001 par value per share, that we may issue from 60,000,000 to 100,000,000, which may have an adverse effect on our Company. Recently, it came to our attention that the effectiveness of the amendment to our articles of incorporation to increase the number of our authorized shares of common stock, par value $0.001 per share (the “Common Stock”), that we may issue from 60,000,000 to 100,000,000 (the "Share Increase Amendment") could be called into question as the authorization of the Share Increase Amendment may not have complied with certain requirements of our articles of incorporation and/or by-laws as well as Chapter 78 of the Nevada Revised Statutes (“NRS”), as related thereto. Our Board has determined that it is in the best interests of the Company and our stockholders to ratify and validate the filing and effectiveness of the Share Increase Amendment pursuant to Section 78.0296 of the NRS to eliminate any uncertainty related to the effectiveness of the Share Increase Amendment and any subsequent issuances of shares of our Common Stock (the “Ratification Proposal”). If the Ratification Proposal is approved by our stockholders and becomes effective, the Share Increase Amendment will be retroactive to October 31, 2019, which was the date of the filing of the Share Increase Amendment with the Nevada Secretary of State. If the Ratification Proposal is not approved by the requisite vote of our stockholders, the Share Increase Amendment may not be deemed effective which could result in (a) our not having sufficient authorized but unissued shares of Common Stock to permit future sales and issuances of Common Stock, including pursuant to outstanding warrants and stock options, (b) certain of our past issuances of Common Stock being deemed to not be valid, and (c) an inability to validate our total outstanding shares of Common Stock in connection with any strategic transaction. Any inability to issue Common Stock in the future and any invalidity of past issuances of Common Stock could expose us to significant claims and have a material adverse effect on our liquidity.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None.

ITEM 4. MINE SAFETY AND DISCLOSURES.

Not applicable.

ITEM 5. OTHER INFORMATION.

None.

2923

ITEM 6. EXHIBITS-UPDATE

No. Exhibit Description Form Date Filed Number Filed or Furnished Herewith
1.1
Placement Agency Agreement dated June 4, 2020 between Inuvo, Inc. and A.G.P./Alliance Global Partners
8-K 6/4/20 1.1
1.2
Form of Underwriting Agreement dated July 23, 2020 between Inuvo, Inc. and A.G.P./Alliance Global Partners
8-K 7/23/20 10.1
3(i).1
Articles of Incorporation, as amended
10-KSB 3/1/04 4
3(i).2
Amended to Articles of Incorporation filed March 14, 2005
10-KSB 3/31/06 3.2
3(i).3
Articles of Merger between Inuvo, Inc. and Kowabunga! Inc.
8-K 7/24/09 3.4
3(i).4
Certificate of Change Filed Pursuant to NRS 78.209
8-K 12/10/10 3/1/2004
3(i).5
Certificate of Merger as filed with the Secretary of State of Nevada on February 29, 2012
10-K 3/29/12 3(i).5
3(i).6
Articles of Amendment to Amended Articles of Incorporation as filed on February 29, 2012
10-K 3/29/12 3(i).6
3(i).7
Articles of Amendment to Amended Articles of Incorporation as filed on October 31, 2019
10-Q 5/15/20 3(i)7
3(ii).1
Amended and Restated By-Laws
10-K 3/31/10 3(ii).4
3(ii).2
Bylaw amendment adopted February 29, 2012
8-K 3/6/12 3(ii).1
10.1
Form of Securities Purchase Agreement dated June 4, 2020 by and between Inuvo, Inc. and the purchasers listed therein
8-K 6/04/20 10.1
31.1
Rule 13a-14(a)/15d-14(a) certification of Chief Executive Officer
Filed
31.2
Rule 13a-14(a)/15d-14(a) certification of Chief Financial Rule 13a-14(a)/15d-14(a) certification of Chief Financial Officer
Filed
32.1
Section 1350 certification of Chief Executive Officer
Filed
32.2
Section 1350 certification of Chief Financial Officer
Filed
101.INS XBRL Instance Document Filed
101.SCH XBRL Taxonomy Extension Schema Document Filed
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document Filed
101.DEF XBRL Taxonomy Extension Definition Linkbase Document Filed
101.LAB XBRL Taxonomy Extension Label Linkbase Document Filed
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document Filed
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document Filed

No.

Exhibit Description

Form

Date Filed

Number

Filed or Furnished Herewith

3(i).1

Articles of Incorporation, as amended

10-KSB

3/1/04

3(i).2

Amended to Articles of Incorporation filed March 14, 2005

10-KSB

3/31/06

3.2

3(i).3

Articles of Merger between Inuvo, Inc. and Kowabunga! Inc.

8-K

7/24/09

3.4

3(i).4

Certificate of Change Filed Pursuant to NRS 78.209

8-K

12/10/10

3/1/2004

3(i).5

Certificate of Merger as filed with the Secretary of State of Nevada on February 29, 2012

10-K

3/29/12

3(i).5

3(i).6

Articles of Amendment to Amended Articles of Incorporation as filed on February 29, 2012

10-K

3/29/12

3(i).6

3(i).7

Articles of Amendment to Amended Articles of Incorporation as filed on October 31, 2019

10-Q

5/15/20

3(i)7

3(i).8

Certificate of Validation of Amendment to Amended Articles of Incorporation as filed October 16, 2020.

10-Q

11/9/20

3(i)8

3(i).8

Articles of Amendment to Articles of Incorporation as filed January 7, 2021

10-K

2/11/21

3(i)9

3(ii).1

Amended and Restated By-Laws

10-K

3/31/10

3(ii).4

3(ii).2

Bylaw amendment adopted February 29, 2012

8-K

3/6/12

3(ii).1

10.1

Form of Securities Purchase Agreement, dated January 14, 2021, by and between Inuvo, Inc., and the purchasers therein.

8-K

1/14/21

10.1

10.2

Form of Securities Purchase Agreement, dated January 20, 2021, by and between Inuvo, Inc., and the purchasers therein.

8-K

1/20/21

10.1

10.3

Google Services Agreement by and between Vertro, Inc. and Google LLC, dated as of February 24, 2021 and effective as of March 1, 2021 *

8-K

3/1/21

10.1

31.1

Rule 13a-14(a)/15d-14(a) certification of Chief Executive Officer

Filed

31.2

Rule 13a-14(a)/15d-14(a) certification of Chief Financial Rule 13a-14(a)/15d-14(a) certification of Chief Financial Officer

Filed

32.1

Section 1350 certification of Chief Executive Officer

Filed

32.2

Section 1350 certification of Chief Financial Officer

Filed

101.INS

XBRL Instance Document

Filed

101.SCH

XBRL Taxonomy Extension Schema Document

Filed

101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document

Filed

101.DEF

XBRL Taxonomy Extension Definition Linkbase Document

Filed

101.LAB

XBRL Taxonomy Extension Label Linkbase Document

Filed

101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document

Filed

101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document

Filed

104

The cover page for Inuvo, Inc.’s quarterly report on Form 10-Q for the period ended March 31, 2021, formatted in Inline XBRL (included with Exhibit 101 attachments).

Filed

Certain portions of this exhibit have been redacted pursuant to Item 601(b)(10)(iv) of Regulation S-K. The omitted information is (i) not material and (ii) would likely cause competitive harm to Inuvo if publicly disclosed. Schedules, exhibits and similar attachments to this exhibit have been omitted pursuant to Item 601(a)(5) of Regulation S-K. Inuvo agrees to furnish copies of such omitted materials supplementally upon request by the Securities and Exchange Commission.

3024

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Inuvo, Inc.

~~August 14, 2020~~May 13, 2021

By:

/s/ Richard K. Howe

Richard K. Howe,

Chief Executive Officer, principal executive officer

~~August 14, 2020~~May 13, 2021

By:

/s/ Wallace D. Ruiz

Wallace D. Ruiz,

Chief Financial Officer, principal financial and accounting officer

3125


2020	$	932,752
2021	1,865,504
2022	1,071,294
2023	984,500
2024	769,917
Thereafter	3,504,874
Total	$	9,128,841


	June 30, 2020		December 31, 2019
Line of credit - 6.75 percent at June 30, 2020	$	2,158,443	$	—
Financed receivables - 5.75 percent at December 31, 2019 (prime plus 1 percent) on invoiced receivables; 6.75 percent December 31, 2019 (prime plus 2 percent) on uninvoiced receivables	$	—	$	3,381,364
Total	$	2,158,443	$	3,381,364


	June 30, 2020		December 31, 2019
PPP and SBA loans	$	1,258,900	$	—
Deferred revenue	498,763		—
Deferred rent	33,182		57,162
Total	$	1,790,845	$	57,162


Minimum future lease payments ended June 30, 2020
2020	166,179
2021	242,558
2022	163,284
	572,021
Less imputed interest	(35,913)
Total lease liabilities	$	536,108


Minimum future lease payments ended June 30, 2020
2020	$	125,166
2021	250,331
2022	55,956
2023	23,315
	454,768
Less imputed interest	(28,304)
Total lease liabilities	$	426,464


	December 31, 2019
Consolidated Balance Sheet Line Item	As Previously Reported		Adjustments		As Revised
Deferred tax liability	$	2,019,200	$	1,912,200	$	107,000
Accumulated deficit	$	130,958,001	$	(1,912,200)	$	129,045,801


	December 31, 2018
Consolidated Balance Sheet Line Item	As Previously Reported		Adjustments		As Revised
Accumulated deficit	$	126,469,894	$	(1,912,200)	$	124,557,694