UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended ~~September 30, 2021~~March 31, 2022

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

For the transition period from ______________________ to ______________________

Commission file number: 001-32442


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


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

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

(501) 205-8508

Registrant's telephone number, including area code

not applicable

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

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


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

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

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

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


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

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

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

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


Title of Class						~~November 5th~~May 6, 2022
Common Stock						~~118,747,447~~119,804,962

TABLE OF CONTENTS


		Page No.
Part I

Item 1.	Financial Statements.	5
	Consolidated Balance Sheets	5
	Consolidated Statements of Operations and Comprehensive Loss	6
	Consolidated Statements of Cash Flows	7
	Consolidated Statements of Stockholders' Equity	8
	Notes to Consolidated Financial Statements	109
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations.	1916
Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	2420
Item 4.	Controls and Procedures.	2420

Part II

Item 1.	Legal Proceedings.	2521
Item 1A.	Risk Factors.	2521
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	2622
Item 3.	Defaults upon Senior Securities.	2622
Item 4.	Mine Safety and Disclosures.	2622
Item 5.	Other Information.	2622
Item 6.	Exhibits.	2723
Signatures		2824

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the ~~"Securities Act"~~“Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the ~~"Exchange Act"~~“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,"~~“will,” “should,” “intend,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” or ~~"continue,"~~“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;~~a decline in general economic conditions;

•decreased market demand for our ~~reliance on revenues from a limited number of customers;~~products and services;

•customer revenue concentration;

•risks associated with customer collections;

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

•dependence on ~~our~~ advertising suppliers;

•~~our~~the ability to acquire traffic in a profitable manner;

•failure to keep pace with ~~technology~~technological changes;

•~~impact of possible interruption in~~interruptions within our ~~network~~information technology 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~~the ability to continue to meet the NYSE American listing standards;

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

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

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

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

These forward-looking statements were based on various factors and were derived utilizing numerous assumptions and other factors that could cause our actual results to differ materially from those in the forward-looking statements. Most of these factors are difficult to predict accurately and are generally beyond our control. You should consider the areas of risk described in connection with any forward-looking statements that may be made herein. Readers are cautioned not to place undue reliance on these forward-looking statements and readers should carefully review this report in its entirety, including the risks described in Part II, Item 1A. Risk Factors appearing in this report, together with those appearing in Item 1A. Risk Factors, in our Annual Report on Form 10-K for the year ended December 31, ~~2020~~2021 as filed with the Securities and Exchange Commission ("SEC") on ~~February 11, 2021, as amended on Form 10-K/A as filed with the SEC on~~ March ~~10, 2021~~17, 2022 and our subsequent filings with the SEC.

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

OTHER PERTINENT INFORMATION

Unless specifically set forth to the contrary, when used in this report the terms ~~"Inuvo,"~~“Inuvo,” the ~~"Company," "we," "us," "our"~~“Company,” “we,” “us,” “our” and similar terms refer to Inuvo, Inc., a Nevada corporation, and its subsidiaries. When used in this report, ~~"third~~“first quarter ~~2021"~~2022” means for the three months ended ~~September 30, 2021, "third~~March 31, 2022, “first quarter ~~2020"~~2021” means for the three months ended ~~September 30, 2020, "2020"~~March 31, 2021, “2021” means the fiscal year ended December 31, ~~2020~~2021 and ~~"2021"~~“2022” means the fiscal year ending December 31, ~~2021.~~2022. The information which appears on our corporate web site at www.inuvo.com and our various social media platforms are not part of this report.

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

INUVO, INC.

CONSOLIDATED BALANCE SHEETS

~~September 30, 2021~~March 31, 2022 (Unaudited) and December 31, ~~2020~~2021
September 30, 2021 December 31, 2020
Assets
Current assets
Cash and cash equivalent $ 11,702,464 $ 7,890,665
Marketable securities 2,925,785 —
Accounts receivable, net of allowance for doubtful accounts of $161,904 and $209,667, respectively 8,920,881 6,227,610
Prepaid expenses and other current assets 496,250 413,435
Total current assets 24,045,380 14,531,710
Property and equipment, net 1,422,422 1,187,061
Other assets
Right of use assets - operating lease 723,069 606,573
Right of use assets - finance lease 287,225 395,910
Referral and support services agreement advance 1,475,000 —
Intangible assets, net of accumulated amortization 7,186,961 8,586,089
Goodwill 9,853,342 9,853,342
Other assets 44,236 20,886
Total other assets 19,569,833 19,462,800
Total assets $ 45,037,635 $ 35,181,571
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable $ 4,680,629 $ 4,048,260
Accrued expenses and other current liabilities 5,861,885 4,216,448
Lease liability - operating lease 334,758 217,671
Lease liability - finance lease 147,661 246,793
Total current liabilities 11,024,933 8,729,172
Long-term liabilities
Deferred tax liability 107,000 107,000
Lease liability - operating lease 388,310 388,902
Lease liability - finance lease 136,385 93,426
Other long-term liabilities 11,945 573,957
Total long-term liabilities 643,640 1,163,285
Stockholders’ equity
Preferred stock, $0.001 par value:
Authorized shares 500,000, none issued and outstanding — —
Common stock, $0.001 par value:
Authorized shares 200,000,000 and 100,000,000, respectively; issued and outstanding shares 118,747,447 and 98,035,829, respectively.
118,748 98,036
Additional paid-in capital 175,960,347 161,541,448
Accumulated deficit (142,710,033) (136,350,370)
Total stockholders' equity 33,369,062 25,289,114
Total liabilities and stockholders' equity $ 45,037,635 $ 35,181,571


	March 31, 2022		December 31, 2021
Assets
Current assets
Cash and cash equivalents	$	5,743,149	$	10,475,964
Marketable securities - short term	2,478,628		1,927,979
Accounts receivable, net of allowance for doubtful accounts of $121,151 and $202,904, respectively.	10,049,987		9,265,813
Prepaid expenses and other current assets	2,257,404		1,408,186
Total current assets	20,529,168		23,077,942

Property and equipment, net	1,616,607		1,506,766
Other assets
Goodwill	9,853,342		9,853,342
Intangible assets, net of accumulated amortization	6,387,666		6,720,585
Referral and support services agreement advance	1,025,000		1,100,000
Marketable securities - long term	762,311		859,512
Right of use assets - operating lease	569,407		641,306
Right of use assets - finance lease	177,643		201,902
Other assets	35,720		35,719
Total other assets	18,811,089		19,412,366

Total assets	$	40,956,864	$	43,997,074

Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable	$	4,516,798	$	4,844,716
Accrued expenses and other current liabilities	4,389,777		5,374,391
Lease liability - operating lease	349,103		340,478
Lease liability - finance lease	106,130		102,954





Total current liabilities	9,361,808		10,662,539

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

Lease liability - operating lease	220,305		300,827
Lease liability - finance lease	77,828		105,411
Other long-term liabilities	14,226		13,302
Total long-term liabilities	419,359		526,540

Stockholders’ equity
Preferred stock, $0.001 par value:
Authorized shares 500,000, none issued and outstanding	—		—
Common stock, $0.001 par value:
Authorized shares 200,000,000; issued and outstanding shares 119,807,202 and 118,747,447, respectively.	119,808		118,748
Additional paid-in capital	177,140,590		176,586,529
Accumulated other comprehensive income	(44,419)		53,737
Accumulated deficit	(146,040,282)		(143,951,019)

Total stockholders' equity	31,175,697		32,807,995
Total liabilities and stockholders' equity	$	40,956,864	$	43,997,074

See accompanying notes to the consolidated financial statements.

INUVO, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(Unaudited)


		For the Three Months Ended September 30,				For the Nine Months Ended September 30,					For the Three Months Ended March 31,
		2021		2020		2021		2020			2022		2021
Net revenue	Net revenue	$	16,841,035	$	9,214,350	$	40,094,427	$	31,737,520	Net revenue	$	18,609,367	$	10,617,809
Cost of revenue	Cost of revenue	3,757,938		1,645,392		7,466,017		6,154,921		Cost of revenue	8,661,506		1,444,059
Gross profit	Gross profit	13,083,097		7,568,958		32,628,410		25,582,599		Gross profit	9,947,861		9,173,750
Operating expenses	Operating expenses									Operating expenses
Marketing costs	Marketing costs	10,163,006		5,668,707		25,681,930		19,148,925		Marketing costs	7,169,449		7,305,784
Compensation	Compensation	2,840,149		2,462,693		8,458,233		6,925,239		Compensation	3,157,706		2,737,867
Selling, general and administrative		1,824,869		1,870,258		5,226,737		5,710,221
General and administrative										General and administrative	1,726,672		1,724,978
Total operating expenses	Total operating expenses	14,828,024		10,001,658		39,366,900		31,784,385		Total operating expenses	12,053,827		11,768,629
Operating loss	Operating loss	(1,744,927)		(2,432,700)		(6,738,490)		(6,201,786)		Operating loss	(2,105,966)		(2,594,879)

Interest expense, net	Interest expense, net	(6,261)		(26,143)		(36,641)		(251,335)		Interest expense, net	(999)		(22,389)
Other income (expense), net		(79,080)		53,763		415,468		(136,483)
Other income, net										Other income, net	17,702		470,000

Net loss	Net loss	$	(1,830,268)	$	(2,405,080)	$	(6,359,663)	$	(6,589,604)	Net loss	(2,089,263)		(2,147,268)
Other comprehensive income										Other comprehensive income
Unrealized loss on marketable securities										Unrealized loss on marketable securities	(98,156)		—
Comprehensive loss										Comprehensive loss	$	(2,187,419)	$	(2,147,268)

Per common share data	Per common share data									Per common share data
Basic and diluted:	Basic and diluted:									Basic and diluted:

Net loss	Net loss	$	(0.02)	$	(0.03)	$	(0.05)	$	(0.09)	Net loss	$	(0.02)	$	(0.02)

Weighted average shares	Weighted average shares									Weighted average shares
Basic	Basic	116,645,509		92,110,881		117,230,419		70,652,630		Basic	119,282,114		114,430,201
Diluted	Diluted	116,645,509		92,110,881		117,230,419		70,652,630		Diluted	119,282,114		114,430,201

See accompanying notes to the consolidated financial statements.

INUVO, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


		For the Nine Months Ended September 30,					For the Three Months Ended March 31,
		2021		2020			2022		2021
Operating activities:	Operating activities:					Operating activities:
Net loss	Net loss	$	(6,359,663)	$	(6,589,604)	Net loss	$	(2,089,263)	$	(2,147,268)
Adjustments to reconcile net loss to net cash used in operating activities:	Adjustments to reconcile net loss to net cash used in operating activities:					Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	Depreciation and amortization	2,343,874		2,452,930		Depreciation and amortization	689,712		771,904
Depreciation-Right of Use Assets	Depreciation-Right of Use Assets	237,423		291,100		Depreciation-Right of Use Assets	24,259		80,117
Stock based compensation	Stock based compensation	1,566,016		660,615		Stock based compensation	671,158		394,870
Unrealized loss on purchase of marketable securities		(54,532)		—
Stock warrant expense						Stock warrant expense	12,483		—
Gain on marketable securities						Gain on marketable securities	(17,702)		—
Amortization of financing fees	Amortization of financing fees	8,750		11,092		Amortization of financing fees	2,500		1,250
Provision for doubtful accounts		(47,763)		(73,333)
Recovery of doubtful accounts						Recovery of doubtful accounts	(81,753)		(18,000)
Derecognition of contingency and grant						Derecognition of contingency and grant	(10,000)		(110,000)
Third party rights agreement termination	Third party rights agreement termination	(420,000)		—		Third party rights agreement termination	—		(420,000)
Derecognition of contingencies		(110,000)		—
Contract Cancellation		—		(1,260,978)
Amortization of debt discount		—		18,286
Amortization of OID interest expense		—		13,167
Mark to market fair value of derivative		—		102,664
Loss on extinguishment of convertible debt		—		65,700
Change in operating assets and liabilities:	Change in operating assets and liabilities:					Change in operating assets and liabilities:
Marketable securities		(2,871,253)		—

Accounts receivable	Accounts receivable	(2,645,508)		3,564,381		Accounts receivable	(702,421)		496,349
Prepaid expenses, unbilled revenue and other current assets						Prepaid expenses, unbilled revenue and other current assets	(849,218)		(136,586)
Referral and support services agreement advance	Referral and support services agreement advance	(1,500,000)		—		Referral and support services agreement advance	75,000		—
Prepaid expenses, unbilled revenue and other current assets		(77,503)		(225,771)
Accrued expenses and other liabilities						Accrued expenses and other liabilities	(977,599)		(97,455)
Accounts payable	Accounts payable	632,369		(3,031,304)		Accounts payable	(327,918)		(1,257,828)
Accrued expenses and other liabilities		1,754,574		(334,576)

Net cash used in operating activities	Net cash used in operating activities	(7,543,216)		(4,335,631)		Net cash used in operating activities	(3,580,762)		(2,442,647)
Investing activities:	Investing activities:					Investing activities:
Purchases of equipment and capitalized development costs	Purchases of equipment and capitalized development costs	(1,180,107)		(852,423)		Purchases of equipment and capitalized development costs	(466,634)		(411,400)
Purchase of marketable securities						Purchase of marketable securities	(1,081,080)		—
Proceeds from the sale of marketable securities						Proceeds from the sale of marketable securities	548,589		—
Net cash used in investing activities	Net cash used in investing activities	(1,180,107)		(852,423)		Net cash used in investing activities	(999,125)		(411,400)
Financing activities:	Financing activities:					Financing activities:
Proceeds from sale of common stock, net	Proceeds from sale of common stock, net	13,137,500		16,432,190		Proceeds from sale of common stock, net	—		13,137,500

Proceeds from ValidClick licensing agreement	Proceeds from ValidClick licensing agreement	—		500,000		Proceeds from ValidClick licensing agreement	—		(149,900)
Proceeds from PPP and SBA loans		—		1,258,900
Net payments on line of credit		—		(3,381,364)

Payments on finance lease obligations	Payments on finance lease obligations	(181,998)		(412,382)		Payments on finance lease obligations	(24,407)		(59,219)

Proceeds from exercise of options	Proceeds from exercise of options	1,569		—		Proceeds from exercise of options	—		1,569
SBA loan repayment		(149,900)		—

Net taxes paid on restricted stock unit grants exercised	Net taxes paid on restricted stock unit grants exercised	(272,049)		(54,065)		Net taxes paid on restricted stock unit grants exercised	(128,521)		(161,244)
Net cash provided by financing activities		12,535,122		14,343,279
Net cash (used in)/provided by financing activities						Net cash (used in)/provided by financing activities	(152,928)		12,768,706

Net change – cash	Net change – cash	3,811,799		9,155,225		Net change – cash	(4,732,815)		9,914,659
Cash and cash equivalent, beginning of year	Cash and cash equivalent, beginning of year	7,890,665		372,989		Cash and cash equivalent, beginning of year	10,475,964		7,890,665
Cash and cash equivalent, end of period	Cash and cash equivalent, end of period	$	11,702,464	$	9,528,214	Cash and cash equivalent, end of period	$	5,743,149	$	17,805,324
Supplemental information:	Supplemental information:					Supplemental information:
Interest paid	Interest paid	$	42,474	$	200,904	Interest paid	$	7,782	$	21,656

Non cash investing and financing activities:	Non cash investing and financing activities:					Non cash investing and financing activities:
Assets purchased under finance lease		$	125,825	$	524,368
Assets purchased under operating lease		$	344,311	$	249,595
Conversion of Debt and derecognition of derivative and discounts to common stock		$	—	$	923,810

Assets purchased under operating lease obligations						Assets purchased under operating lease obligations	$	—	$	303,031

See accompanying notes to the consolidated financial statements.

INUVO, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(unaudited)

For the ~~Nine~~Three Months Ended ~~September 30,~~March 31,


2021
2022												2022
		Common Stock			Additional Paid in Capital		Accumulated Deficit			Total			Common Stock			Additional Paid in Capital		Accumulated Deficit		Accumulated Other Comprehensive Income (Loss)		Total
		Shares	Stock										Shares	Stock
Balance as of December 31, 2020		98,035,829	$98,036		$	161,541,448	$	(136,350,370)		$	25,289,114
Balance as of December 31, 2021												Balance as of December 31, 2021	118,747,447	$	118,748	$	176,586,529	$	(143,951,019)	$	53,737	$	32,807,995
Net loss	Net loss						(2,147,268)			(2,147,268)		Net loss						(2,089,263)				(2,089,263)
Unrealized loss on debt securities												Unrealized loss on debt securities								(98,156)		(98,156)
Stock-based compensation	Stock-based compensation				394,870					394,870		Stock-based compensation				671,158						671,158
Stock issued for vested restricted stock awards	Stock issued for vested restricted stock awards	1,467,465	1,467		(1,467)					—		Stock issued for vested restricted stock awards	1,059,755	1,060		(1,060)						—
Shares withheld for taxes on vested restricted stock	Shares withheld for taxes on vested restricted stock				(161,244)					(161,244)		Shares withheld for taxes on vested restricted stock				(128,520)						(128,520)
Proceeds from exercise of options					1,569					1,569
Sale of common stock, net		19,015,151	19,016		13,118,484					13,137,500
Balance as of March 31, 2021		118,518,445	$118,519		$	174,893,660	$	(138,497,638)		$	36,514,541
Net loss							(2,382,127)			(2,382,127)
Stock-based compensation					557,602					557,602

Balance as of June 30, 2021		118,518,445	$	118,519	$	175,451,262	$	(140,879,765)		$	34,690,016
Net loss							(1,830,268)		—	(1,830,268)
Stock-based compensation					613,544					613,544
Shares withheld for taxes on vest restricted stock					(110,805)					(110,805)
Stock issued for vested restricted stock awards		229,002	229		(229)					—
Stock warrants issued for referral agreement	Stock warrants issued for referral agreement				6,575					6,575		Stock warrants issued for referral agreement				12,483						12,483
Balance as of September 30, 2021		118,747,447	$	118,748	$	175,960,347	$	(142,710,033)		$	33,369,062
Balance as of March 31, 2022												Balance as of March 31, 2022	119,807,202	$	119,808	$	177,140,590	$	(146,040,282)	$	(44,419)	$	31,175,697


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
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						(2,825,236)					(2,825,236)		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)				—
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
Net loss							(2,405,080)				—	(2,405,080)
Stock-based compensation					258,430							258,430
Shares withheld for taxes on vest restricted stock					(32,881)							(32,881)
Stock issued for vested restricted stock awards		269,281	269		(269)							—
Sale of common stock, net		21,500,000	21,500		9,909,995							9,931,495
Cancellation of treasury stock			(376)		(1,396,183)				1,396,559			—
Balance as of September 30, 2020		97,544,947	$	97,546	$	161,364,355	$	(135,635,405)	$	—		$	25,826,496
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

Inuvo, Inc.

Notes to Consolidated Financial Statements

(Unaudited)

Note 1 – Organization and Business

Company Overview

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

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

Inuvo technology can be consumed both as a managed service and software-as-a-service. For clients, Inuvo has also developed a collection of proprietary websites ~~including alot.com and earnspendlive.com,~~collectively branded as Bonfire Publishing where ~~Inuvo creates~~ content inis created specifically to attract qualified consumer traffic for clients through the publication of information across a wide range of topics including health, finance, travel, careers, auto, education and ~~living categories.~~lifestyle. These sites also provide the means to market test various Inuvo ~~technologies, while also delivering high quality consumers to these services clients through consumer interaction with the proprietary content within these sites.~~advertising technologies.

There are many barriers to entry associated with the Inuvo business model, including a proficiency in large scale information processing, predictive software development, marketing data products, analytics, artificial intelligence, integration to the internet of things ("IOT"), and the relationships required to execute within the IOT. Inuvo’s intellectual property is protected by 1817 issued and 7eight pending patents.

Liquidity

~~Throughout 2020~~As of March 31, 2022, we have approximately $9 million in cash, cash equivalents and ~~the first quarter of 2021, we raised capital, reversing a historical~~marketable securities. Our net working capital ~~deficit.~~ was $11.2 million. We have encountered recurring losses and cash outflows from operations, which historically we have funded through equity offerings and debt facilities. In addition, our investment in internally developed software consists primarily of labor costs which are of a fixed nature. Through March 31, 2022, our accumulated deficit was $146.0 million.

Our principal sources of liquidity ~~come as a result of~~are the sale ~~of common stock and use of a credit facility through Hitachi Capital America Corp. ("Hitachi") described in Note 6.~~

~~On March 20, 2020, we sold an aggregate of 3,931,428 shares~~ of our common stock and our credit facility with Hitachi described in Note 6 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 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 for gross proceeds of $245,050.

On April 10, 2020, we obtained an unsecured $1.1 million loan 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 ("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 for gross proceeds of $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.Consolidated Financial Statements. On January 19, 2021, we raised $8.0 million in gross proceeds in a registered direct offering, before expenses, through the sale of an aggregate of 13,333,334 shares of our common stock, and on January 22, 2021, we raised an additional $6.25 million in gross proceeds in a registered direct offering, before expenses, through the sale of an aggregate of 5,681,817 shares of our common stock.

On January 7, 2021, we filed ~~the~~ Articles of Amendment to our Articles of Incorporation in the ~~state~~State of Nevada increasing the number of authorized shares of our common stock from 100,000,000 to 150,000,000. On August 19, 2021, we filed Articles of Amendment to our Articles of Incorporation in the State of Nevada increasing the number of authorized shares of our common stock from 150,000,000 to 200,000,000.

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

needs. We placed $2 million in ~~a money market fund~~cash equivalent accounts and $10 million in an interest-bearing account. At ~~September 30, 2021,~~ March 31, 2022,

our ~~net deposits~~funds with the investment management company were $9approximately $6 million and were invested in ~~money market funds~~cash equivalent accounts and marketable debt and equity securities. A detail of the activity is described in Note 3 to our Consolidated Financial Statements.

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

days’ advance notice from one party to the other, or (c) the sale of the balance available under our Shelf Registration Statement. Under the terms of the Sales Agreement, the Sales Agent is entitled to a commission at a fixed rate of 3.0% of the gross proceeds from each sale of shares under the Sales Agreement.

~~On August 11, 2021,~~We have focused our ~~shareholders approved~~resources behind a ~~proposal~~plan to ~~amend~~grow our ~~articles of incorporation~~AI technology, the IntentKey, where we have a technology advantage

and higher margins. If we are successful in implementing our plan, we expect to ~~increase the number of authorized shares of our common stock~~return to a positive cash flow from ~~150,000,000~~operations.

However, there is no assurance that we will be able to 200,000,000, and on August 19, 2021, we filed Articles of Amendment to our Articles of Incorporation in the state of Nevada increasing the number of authorized shares of our common stock from 150,000,000 to 200,000,000.achieve this objective.

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

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

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

Customer concentration

~~Our~~For the three month period ending March 31, 2022, our four largest customers ~~are Google, Yahoo! and Proper Media and all are clients of the ValidClick platform. The percentages of overall Inuvo~~by revenue ~~associated with these clients is noted below:~~
For the Three Months Ended September 30, For the Nine Months Ended September 30,
2021 2020 2021 2020
Google 36.4% 29.1 % 38.3 % 23.1 %
Yahoo! 14.3% 22.2 % 16.7 % 39.4 %
Proper Media 13.6% — % 15.5 % — %
Total 64.3% 51.3 % 70.5 % 62.5 %

~~As of September 30, 2021, Google, Yahoo! and Proper Media~~ accounted for ~~44.0%~~67.0% of our overall revenue at 22%, 18.2%, 14.5%, and 12.3%, respectively. Those same four customers accounted for 64.1% of our gross accounts receivable ~~balance.~~balance as of March 31, 2022. As of December 31, ~~2020,~~2021, the same ~~three~~ customers accounted for ~~38.4%~~45.6% of our gross accounts receivable balance.

We still source the majority of our ValidClick revenue through these ~~services~~ relationships where we have access to advertiser ~~media spend~~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.

~~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 experienced a significant reduction in advertiser marketing budgets across both the ValidClick and IntentKey platforms as a ~~decrease in monetization rates which~~direct consequence of COVID-19. These reductions adversely impacted

~~ValidClick more severely than IntentKey. This resulted in a significant reduction in~~ our overall revenue ~~run rates during 2020 with the low point occurring during May~~throughout 2020.

In ~~response to COVID-19, we curtailed expenses, including compensation and travel throughout 2020, in addition to other actions. Additionally, in~~ April 2020, we obtained ~~an unsecured~~the $1.1 million PPP Loan ~~under the CARES Act of $1.1 million~~ which we used primarily for payroll costs. The ~~loan~~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. Due to the unprecedented sustainability of COVID-19 on our business, we were unable to predict with any certainty how our clients would adapt their business strategies within the context of COVID-19 and therefore how our revenue run rate would change as a result. We, therefore, ~~were focusing~~focused our resources on areas we ~~believe~~believed could have more immediate revenue potential, attempting to reduce expenses and raising additional capital so as to mitigate operating disruptions while the impact of COVID-19 abates. Since the start of ~~the year~~2021 with the roll out of vaccinations, we have seen an increase in our client’s willingness to spend on advertising and thereby an improvement in our revenue run rates.

~~Our net working capital was a positive $13.1 million as of September 30, 2021. During January 2021,~~ Though we ~~raised approximately $14.3 million, before expenses, through~~continue to monitor the ~~sale of our securities in two offerings. During the second~~pandemic and ~~third quarters of 2020, we raised approximately $16.5 million, before expenses, through the sale of our securities~~related government guidelines and ~~in April 2020, we obtained a $1.1 million PPP Loan. There is no assurance that we will be successful in obtaining additional funding to grow operations, but believe~~regulations, we have ~~sufficient capital~~returned to ~~operate during~~a hybrid working model where employees are working partially from the ~~next twelve months.~~office and partially from home.

1210

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, ~~2020,~~2021, was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States ("GAAP"). In our opinion, these consolidated financial statements reflect all adjustments that are necessary for a fair presentation of results of operations and financial condition for the interim periods shown including normal recurring accruals and other items. The results for the interim periods are not necessarily indicative of results for the full year. For a more complete discussion of significant accounting policies and certain other information, this report should be read in conjunction with the consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the year ended December 31, ~~2020,~~2021, which was filed with the SEC on ~~February 11, 2021, as amended on Form 10-K/A as filed with the SEC on~~ March ~~10, 2021.~~17, 2022.

Use of estimates

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

Revenue Recognition

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

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


		For the Three Months Ended September 30,								For the nine Months Ended September 30,									For the Three Months Ended March 31,
		2021				2020				2021				2020					2022				2021
ValidClick Platform	ValidClick Platform	$	11,742,855	69.7	%	$	6,239,406	67.7	%	$	29,955,169	74.7	%	$	24,966,122	78.7	%	ValidClick Platform	$	10,496,983	56.4	%	$	8,484,813	79.9	%
IntentKey Platform	IntentKey Platform	5,098,180		30.3	%	2,974,944		32.3	%	10,139,258		25.3	%	6,771,398		21.3	%	IntentKey Platform	8,112,384		43.6	%	2,132,996		20.1	%
Total	Total	$	16,841,035	100.0	%	$	9,214,350	100.0	%	$	40,094,427	100.0	%	$	31,737,520	100.0	%	Total	$	18,609,367	100.0	%	$	10,617,809	100.0	%

Recent Accounting Pronouncements Not Yet Adopted

In June 2016, the ~~Financial Accounting Standards Board ("FASB")~~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.

1311

Note 3 -– Fair Value Measurements

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

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

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

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

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

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

securities consist of investments in debt and equity securities. Debt securities are classified as ~~trading~~available for sale securities. We classify our cash equivalents and marketable securities within Level 1 because we use observable inputs that reflect quoted market prices ~~models utilizing market observable inputs~~for identical assets in active markets to determine their fair value.


	~~September 30, 2021~~
~~Cash and cash equivalents:~~
~~Cash~~	$	~~5,682,780~~
~~Money Market Funds~~	~~6,019,684~~
~~Total cash and cash equivalents~~	~~11,702,464~~

~~Marketable securities~~
~~Debt securities~~	~~2,020,563~~
~~Equity securities~~	~~905,222~~
~~Total marketable securities~~	~~2,925,785~~
~~Total cash and cash equivalents and marketable securities~~	$	~~14,628,249~~

We have classified debt securities as available for sale securities with unrealized gains and losses recorded as other comprehensive income. Equity securities are marked to market with changes recorded as other income on the income statement. Any interest income or dividends are recorded as interest income on the income statement.

The investments were purchased in April 2021 and therefore, no comparable first quarter 2021 change in fair value was available. The cost, gross unrealized ~~losses on our~~gains (losses) and fair value of marketable securities ~~was approximately $79 thousand and $54 thousand for the three and nine months ended September 30, 2021, respectively.~~by major security type as of March 31, 2022 were as follows:


	Cost		Unrealized Gain (Loss)		Fair Value

Marketable securities
Debt securities	$	908,059	$	(44,419)	$	863,640
Equity securities	2,645,869		(268,570)		2,377,299
Total marketable securities					3,240,939

Note 4 – Property and Equipment

The net carrying value of property and equipment was as follows as of:
September 30, 2021 December 31, 2020
Furniture and fixtures $ 293,152 $ 293,152
Equipment 1,129,835 1,052,199
Capitalized internal use and purchased software 12,532,394 11,475,683
Leasehold improvements 458,885 421,016
Subtotal 14,414,266 13,242,050
Less: accumulated depreciation and amortization (12,991,844) (12,054,989)
Total $ 1,422,422 $ 1,187,061

During the three and nine months ended September 30, 2021, depreciation expense was $325,112 and $944,746, respectively. During the three and nine months ended September 30, 2020, depreciation expense was $335,769 and $1,053,802, respectively.


	March 31, 2022		December 31, 2021
Furniture and fixtures	$	293,152	$	293,152
Equipment	1,188,802		1,164,671
Capitalized internal use and purchased software	13,357,323		12,914,820
Leasehold improvements	458,885		458,885
Subtotal	15,298,162		14,831,528
Less: accumulated depreciation and amortization	(13,681,555)		(13,324,762)
Total	$	1,616,607	$	1,506,766

1412

During the three months ended March 31, 2022 and March 31, 2021, depreciation expense was $356,793 and $305,528, respectively.

Note 5 – Other Intangible Assets and Goodwill

The following is a schedule of intangible assets and goodwill as of ~~September 30, 2021:~~March 31, 2022:


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

Customer list, Google	Customer list, Google	20 years	$	8,820,000	$	(4,226,250)	$	4,593,750	$	330,750	Customer list, Google	20 years	$	8,820,000	$	(4,446,750)	$	4,373,250	$	110,250
Technology	Technology	5 years	3,600,000		(3,360,000)		$	240,000	540,000		Technology	5 years	3,600,000		(3,600,000)		$	—	60,000
Customer list, ReTargeter	Customer list, ReTargeter	5 years	1,931,250		(836,875)		$	1,094,375	289,688		Customer list, ReTargeter	5 years	1,931,250		(1,030,000)		$	901,250	96,562
Customer list, all other	Customer list, all other	10 years	1,610,000		(1,542,956)		$	67,044	120,753		Customer list, all other	10 years	1,610,000		(1,610,000)		$	—	26,794
Brand name, ReTargeter	Brand name, ReTargeter	5 years	643,750		(278,958)		$	364,792	96,563		Brand name, ReTargeter	5 years	643,750		(343,333)		$	300,417	32,188
Customer relationships	Customer relationships	20 years	570,000		(133,000)		$	437,000	21,374		Customer relationships	20 years	570,000		(147,251)		$	422,749	7,125
Trade names, web properties (1)	Trade names, web properties (1)	—	390,000		—		$	390,000	—		Trade names, web properties (1)	-	390,000		—		$	390,000	—
Intangible assets classified as long-term	Intangible assets classified as long-term		$	17,565,000	$	(10,378,039)	$	7,186,961	$	1,399,128	Intangible assets classified as long-term		$	17,565,000	$	(11,177,334)	$	6,387,666	$	332,919

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

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

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


Remaining 2021		$	466,376
2022		1,071,294
2022 (remainder of year)				2022 (remainder of year)	$	738,375
2023	2023	984,500		2023	984,500
2024	2024	769,917		2024	769,917
2025	2025	469,500		2025	469,500
2026				2026	469,500
Thereafter	Thereafter	3,035,374		Thereafter	2,565,874
Total	Total	$	6,796,961	Total	$	5,997,666

Note 6 – Bank Debt

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. All obligations under the Amended and Restated Financing Agreement, as amended, with Western Alliance Bank have been met and 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 (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. ~~The~~We pay Hitachi a monthly interest at the rate ~~under the Hitachi agreement is~~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. WeThereafter, 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 exit our relationship with Hitachi before~~The Loan and Security Agreement continues for an indefinite term. At March 1,31, 2022, we are obligated to pay Hitachi an exit fee of $50,000. 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 under the Western Alliance Bank credit agreement and the balance was used for working capital. At December 31, 2020 and September 30, 2021, there were no outstanding balances due under the Loan and Security ~~Agreement with Hitachi.~~Agreement.

1513

Note 7 – Accrued Expenses and Other Current Liabilities

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


		September 30, 2021		December 31, 2020			March 31, 2022		December 31, 2021
Accrued marketing costs		$	4,794,137	$	3,234,192
Accrued marketing costs (TAC)						Accrued marketing costs (TAC)	$	3,531,936	$	4,267,980
Accrued expenses and other						Accrued expenses and other	534,148		956,998
Accrued payroll and commission liabilities	Accrued payroll and commission liabilities	593,419		423,373		Accrued payroll and commission liabilities	316,468		121,533
Accrued expenses and other		450,633		440,578
Accrued taxes		13,696		8,305
Accrued taxes, current portion						Accrued taxes, current portion	7,225		17,880
Arkansas grant contingency	Arkansas grant contingency	10,000		60,000		Arkansas grant contingency	—		10,000
Accrued sales allowance		—		50,000

Total	Total	$	5,861,885	$	4,216,448	Total	$	4,389,777	$	5,374,391

~~Note 8 – 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 certain planned, and since terminated, mergers with 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.

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.

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. On April 21, 2020, a noteholder converted $200,000 principal amount due under the Calvary Notes into 1,142,857 shares of our common stock. On May 5, 2020, a noteholder converted the 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:


		September 30, 2021		December 31, 2020			March 31, 2022		December 31, 2021
Deferred rent	Deferred rent	11,945		4,057		Deferred rent	$	14,226	$	13,302
Deferred revenue		—		420,000
SBA loan		—		149,900
Total	Total	$	11,945	$	573,957	Total	$	14,226	$	13,302

Note 109 – Commitments

On September 17, 2021, we signed ana multi-year agreement with a business development partner to provide referral and support services to ~~us for periods ranging from~~ ~~two~~ ~~to five years.~~us. The agreement required an advance fee of $1.5 million ~~and was~~with $300,000 recorded as a ~~long-term asset.~~current asset and $1.2 million as other assets. The advance is being amortized as marketing expenses over five years. As of March 31, 2022, $175,000 has been amortized. As part of the agreement, we granted a warrant exercisable into 300,000 shares of our common stock, which ~~vest~~vests over two years upon achieving certain performance metrics (see Note 1312 - ~~Stockholder's~~Stockholders' Equity). Additionally, we agreed to pay quarterly support fees upon reaching certain levels of operational activity.

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 recorded as deferred revenue in March 2020. Effective March 1, 2021, the agreement was canceled and the remaining deferred revenue balance of $420,000 was recognized as other income.

Note 1110 – Income Taxes

We have a deferred tax assets of ~~$37,693,100.~~$33,988,760. 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 ~~$35,848,400~~$33,988,760 for the deferred tax assets that may not be realized as of ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020.~~2021. We also have deferred tax liabilities totaling ~~$1,951,700~~$1,694,600 as of ~~September 30, 2021,~~March 31, 2022, related to intangible assets acquired in March ~~2012.~~2012 and February 2017. These balances are presented as a net deferred tax liability of $107,000 composed of indefinite lived intangible assets.

Note 1211 – 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 ~~2021~~2022 and ~~2020~~2021 periods, we granted restricted stock units ("RSUs") from the 2017 Equity Compensation Plan, as amended (“2017 ECP”). RSU vesting periods are generally up to three years and/or achieving certain financial targets.

On January 1, ~~2021,~~2022, in accordance with the plan provisions, the number of shares available for issuance under the 2017 ECP plan was increased by 150,000 shares.

Compensation Expense

~~During~~For the three ~~and nine~~ months ended ~~September 30,~~March 31, 2022 and 2021, we recorded stock-based compensation expense ~~was $613,544~~for all equity incentive plans of $671,158 and ~~$1,566,016, respectively. During the three and nine months ended September 30, 2020, stock-based compensation expense was $258,430 and $660,615,~~$394,870, respectively. Total compensation cost not yet recognized at ~~September 30, 2021~~March 31, 2022 was ~~$4,208,496 to~~$3,986,060, which will be recognized over a weighted-average recognition period of approximately two years.

The following table summarizes the stock grants outstanding under the 2017 ECP and the 2010 Equity Compensation Plan ("(“2010 ~~ECP"~~ECP”)~~, which expired on its terms in April 2020,~~ for the ~~nine~~three months ended ~~September 30, 2021:~~

Options Outstanding RSUs Outstanding Options and RSUs Exercised Available Shares Total
2017 ECP — 3,960,001 2,734,138 2,705,861 9,400,000
2010 ECP (*) 1,500 — 5,011,511 — 5,013,011
Total 1,500 3,960,001 7,745,649 2,705,861 14,413,011

~~(*) Expired April 2020~~

March 31, 2022:

1714


	Options Outstanding	RSUs Outstanding	Options and RSUs Exercised	Available Shares	Total Awards Authorized
2017 ECP	—	5,290,007	4,094,132	165,861	9,550,000
2010 ECP (*)	1,500	—	5,011,511	—	5,013,011
Total	1,500	5,290,007	9,105,643	165,861	14,563,011

(*) Expired April 2020

The following table summarizes the activity of stock option awards under the 2010 ECP for the ~~nine~~three months ended ~~September 30, 2021:~~March 31, 2022:
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 September 30, 2021 1,500 0.56
Stock options exercisable as of September 30, 2021 1,500 0.56


	Shares Subject to Options Outstanding
	Number of Shares	Weighted Average Exercise Price
Outstanding, beginning of period	1,500	$	0.56
Stock options exercised	—	$	—
Stock options canceled	—	$	—
Outstanding, end of period	1,500	0.56
Exercisable, end of period	1,500	0.56

The following table summarizes the activities for our unvested RSUs for the ~~nine~~three months ended ~~September 30, 2021:~~March 31, 2022:

Unvested RSUs
Number of Shares Weighted Average Grant Date Fair Value
Unvested as of December 31, 2020 1,930,526 $ 0.28
Granted 4,610,000 $ 1.36
Vested 2,171,331 $ 0.47
Forfeited 409,194 $ 1.23
Unvested as of September 30, 2021 3,960,001 $ 1.33


	Unvested RSUs
	Number of Shares	Weighted Average Grant Date Fair Value
Outstanding, beginning of period	3,960,001	$	1.33
Granted	2,690,000	$	0.39
Vested	1,359,994	$	1.37
Outstanding, end of period	5,290,007	$	0.85

Note 1312 – Stockholders Equity

Warrants

On September 17, 2021, we signed an agreement with a marketing platform and ~~consultancy~~consulting company to provide referral and support services to us for a period of five years (see Note 109 - Commitments).As part of that agreement, we granted a warrant exercisable into 300,000 shares of our common stock, which vests in two tranches when certain performance metrics are achieved. The warrant was valued using the Black Scholes option pricing model at a total of $149,551 based on a seven-year term, an implied volatility of 100%, a risk-free equivalent yield of 1.17%, and a stock price of $0.71. The warrant is classified as equity and will be expensed on a ratable basis over the ~~measurement~~vesting period of each tranche.For the three months ended ~~September 30, 2021,~~March 31, 2022, we recognized approximately $6$12 thousand in expense and ~~$143~~$118 thousand ~~is unrealized.~~in expense will be recognized over the remaining service period.

Earnings per Share

For the three ~~and nine~~ months ended ~~September 30,~~March 31, 2022 and 2021, ~~and 2020,~~ we generated a net loss from continuing operations and as a result, ~~all of our~~any potential common shares are anti-dilutive.

Note 1413 – Leases

We have entered into operating and finance leases primarily for real estate and equipment rental. These leases have terms which range from ~~two~~three years to ~~four~~five 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 our consolidated balance sheets and represent our right to use the underlying asset for the lease term. Our ~~obligations~~obligation to make lease payments ~~are~~is also listed as separate line items on our consolidated balance sheets. As of ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, total operating and financed right-of-use assets were ~~$723,069~~$569,407 and ~~$287,225,~~$177,643, and ~~$606,573~~$641,306 and ~~$395,910,~~$201,902, respectively.

As of ~~September 30,~~March 31, 2022 and 2021, ~~and 2020,~~ we recorded ~~$237,423~~$24,259 and ~~$291,100,~~$80,117, respectively, in amortization expense related to finance leases.

Because the rate implicit in each lease is not readily determinable, we use ~~the~~our incremental borrowing rate to determine the present value of the lease payments.

Information related to our operating lease liabilities are as follows:


	For the ~~Nine~~Three Months Ended ~~September 30,~~March 31,
Cash paid for operating lease liabilities	$	~~433,569~~112,695
Weighted-average remaining lease term	~~3.38~~3.5 years
Weighted-average discount rate	6.25		%


Minimum future lease payments ended September 30, 2021
2021		95,843
2022		380,482
Minimum future lease payments ended March 31, 2022				Minimum future lease payments ended March 31, 2022
2022 (remainder of the year)				2022 (remainder of the year)	287,795
2023	2023	297,921		2023	301,029
2024	2024	13,128		2024	16,236
2025	2025	2,143		2025	5,251
2026	2026	1,071		2026	1,590
		790,588			611,901
Less imputed interest	Less imputed interest	(67,520)		Less imputed interest	(42,493)
Total lease liabilities	Total lease liabilities	$	723,068	Total lease liabilities	$	569,408

Information related to our financed lease liabilities are as follows:


	For the ~~Nine~~Three Months Ended ~~September 30,~~March 31,
Cash paid for finance lease liabilities	$	~~172,459~~29,863
Weighted-average remaining lease term	~~2.45~~2.3 years
Weighted-average discount rate	6.25		%

Minimum future lease payments ended September 30, 2021
2021 $ 106,224
2022 119,452
2023 84,127
2024 3,856
313,659
Less imputed interest (29,613)
Total lease liabilities $ 284,046

~~Note 15 – 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 used the proceeds for general working capital.


Minimum future lease payments ended March 31, 2022
2022 (remainder of the year)	$	85,002
2023	84,127
2024	31,220
	200,349
Less imputed interest	(16,391)
Total lease liabilities	$	183,958

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

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 experienced a significant reduction in marketing budgets and a decrease in monetization rates which impacted ValidClick more severely than IntentKey. This resulted in a significant reduction in our overall revenue run rates during 2020 with the low point occurring during May 2020.

In response to COVID-19, we curtailed expenses, including compensation and travel throughout 2020 in addition to other actions. Additionally, in April 2020, we obtained the $1.1 million PPP Loan which we 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. Due to the unprecedented

sustainability of COVID-19 on our business, we were unable to predict with any certainty how our clients would adapt their

business strategies within the context of COVID-19 and therefore how our revenue run rate would change as a result. We,

therefore, ~~were focusing~~focused our resources on areas we ~~believe~~believed could have more immediate revenue potential, attempting to reduce

expenses and raising additional capital so as to mitigate operating disruptions while the impact of COVID-19 abates. Since the

start of ~~the year~~2021 with the roll out of vaccinations, we have seen an increase in our client’s willingness to spend on advertising and thereby an improvement in our revenue run rates.

Our net working capital was a positive $13.1 million as of September 30, 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. There is no assurance that we will be successful in obtaining additional funding to grow operations, but believe we have sufficient capital to 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 ~~2020~~2021 appearing in our Annual Report on Form 10-K for the year ended December 31, ~~2020 as filed with the SEC on February 11,~~ 2021 ~~as amended on Form 10-K/A~~ as filed with the SEC on March ~~10, 2021.~~17, 2022. 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 goodwill and purchased intangible asset valuations and ~~income tax~~ valuation allowance. Actual results may differ from the estimates and assumptions used in preparing the accompanying consolidated financial statements, and such differences could be material.

Results of Operations
For the Three Months Ended September 30, For the Nine Months Ended September 30,
2021 2020 Change % Change 2021 2020 Change % Change
Net Revenue $ 16,841,035 $ 9,214,350 $ 7,626,685 82.8 % $ 40,094,427 $ 31,737,520 $ 8,356,907 26.3 %
Cost of Revenue 3,757,938 1,645,392 2,112,546 128.4 % 7,466,017 6,154,921 1,311,096 21.3 %
Gross Profit $ 13,083,097 $ 7,568,958 $ 5,514,139 72.9 % $ 32,628,410 $ 25,582,599 $ 7,045,811 27.5 %


	For the Three Months Ended March 31,
	2022		2021		Change		% Change
Net Revenue	$	18,609,367	$	10,617,809	$	7,991,558	75.3	%
Cost of Revenue	8,661,506		1,444,059		7,217,447		499.8	%
Gross Profit	$	9,947,861	$	9,173,750	$	774,111	8.4	%

Net Revenue

We experienced 75% higher year over year revenue for the three ~~and nine~~ months ended ~~September 30, 2021~~March 31, 2022 as compared to the same ~~periods~~period in ~~2020.~~2021. Revenue from both platforms, ValidClick and IntentKey, exceeded the prior year. ValidClick YOY revenue ~~exceeded the~~was up by 24% and IntentKey YOY revenue ~~in the third quarter of last year~~ by ~~88%.IntentKey revenue for the three months ended September 30, 2021 exceeded the prior year quarter by 71%~~280%. Both platforms acquired new customers inwithin the ~~third quarter of this~~ year, benefiting from the agreement with a business development partner discussed in Note 109 to our Consolidated Financial Statements and ~~as a result~~because of the economic improvements associated with the COVID-19 pandemic recovery. Revenue in 2020 was affected by the COVID-19 which had a material impact on advertising budgets beginning in April of 2020. The renegotiation of payment terms and conditions as a trade-off for higher gross margins with ValidClick marketing clients in the quarter ended June 30, 2020 also contributed to the lower revenue in the third quarter of 2020.

Cost of Revenue

Cost of revenue for the ~~three- and nine-month periods~~three months ended ~~September 30, 2021~~March 31, 2022 was primarily generated by payments to adadvertising exchanges that provide access to a supply of advertising inventory where we serve advertisements using information predicted by the IntentKey platform and, to a lesser extent, ~~payments to website publishers and app developers that host advertisements we serve through ValidClick. Cost of revenue in the same 2020 time-periods 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 service has continued to expand its owned and operated publishing assets. The increase in the cost of revenue ~~for the three and nine months ended September 30, 2021 as compared to the same quarter in 2020~~ was ~~largely~~ due to the acquisition of new customers as mentioned in the Net Revenue section ~~above and the renegotiation of payment terms and conditions with a ValidClick marketing partner in the quarter ended June 30, 2020.~~

above.

Operating Expenses


	For the Three Months Ended March 31,
	2022		2021		Change		% Change
Marketing costs	$	7,169,449	$	7,305,784	$	(136,335)	(1.9	%)
Compensation	3,157,706		2,737,867		419,839		15.3	%
General and administrative	1,726,672		1,724,978		1,694		0.1	%
Operating expenses	$	12,053,827	$	11,768,629	$	285,198	2.4	%

~~Operating Expenses~~
For the Three Months Ended September 30, For the Nine Months Ended September 30,
2021 2020 Change % Change 2021 2020 Change % Change
Marketing costs $ 10,163,006 $ 5,668,707 $ 4,494,299 79.3 % $ 25,681,930 $ 19,148,925 $ 6,533,005 34.1 %
Compensation 2,840,149 2,462,693 377,456 15.3 % 8,458,233 6,925,239 $ 1,532,994 22.1 %
Selling, general and administrative 1,824,869 1,870,258 (45,389) (2.4 %) 5,226,737 5,710,221 $ (483,484) (8.5) %
Operating expenses $ 14,828,024 $ 10,001,658 $ 4,826,366 48.3 % $ 39,366,900 $ 31,784,385 $ 7,582,515 23.9 %

Marketing costs consists mostly of traffic acquisition costs and includes those expenses required to attract an audience to the ValidClick platform. ~~The increase in the cost~~Marketing costs as of ~~revenue for the three and nine month periods ended September 30, 2021 as~~March 31, 2022 compared to the same ~~time periods~~period in ~~2020 was largely due to~~2021 decreased as the ~~88% increase in ValidClick~~result of lower revenue ~~discussed above in the~~ ~~Net Revenue~~ ~~section.~~from owned and operated operations.

Compensation expense was higher for the three ~~and nine-months~~months ended ~~September 30, 2021~~March 31, 2022 compared to the same time ~~periods~~period in ~~2020~~2021 due primarily ~~due~~ to higher ~~employee~~ salary expense, stock-based compensation expense and ~~stock-based compensation.~~incentive expense. Our total employment, both full and part-time, was 83 at March 31, 2022 compared to 77 at September 30, 2021 compared to 70 at September 30, 2020. The higher headcount this year over last year was primarily due to hiring additional sales and sales support personnel for the IntentKey platform.March 31, 2021.

~~Selling, general~~General and administrative costs ~~were lower~~ for the three ~~and nine-month periods~~months ended ~~September 30, 2021~~March 31, 2022 compared to the same time ~~periods~~period in ~~2020, primarily due to lower~~2021 remained relatively flat. These costs included professional fees, facilities expenses, IT costs, corporate expenses and depreciation and amortization costs.

Interest expense, net

Interest expense, net, for the three ~~month period~~months ended ~~September 30, 2021~~March 31, 2022 was approximately $6$1 thousand, ~~and was~~ primarily ~~interest expense on~~due to finance lease obligations and the Hitachi Loan and Security Agreement ~~partially~~of approximately $8 thousand; offset by interest income ~~from our trading securities.~~on marketable securities of approximately $7 thousand.

Interest expense, net, for the ~~nine~~three months ended ~~September 30,~~March 31, 2021 was approximately ~~$37~~$22 thousand and primarily represents interest expense on finance lease obligations and the Hitachi Loan and Security Agreement.

~~Interest expense,~~Other income, net

Other income was approximately $18 thousand for the three months ended ~~September 30, 2020,~~March 31, 2022 and was ~~approximately $26 thousand and represented interest expense on financed receivables, capital lease obligations and~~from the PPP Loan. Interest expense, net, for the nine months ended September 30, 2020, was approximately $251 thousand and represents interest expense on financed receivables, change of the derivative liability associated with the convertible promissory notes, capital lease obligations and the PPP Loan.

~~Other income/(expense), net~~

~~Other income/expense, net, for the three months ended September 30, 2021 was an expense of approximately $79 thousand and represents~~ unrealized ~~losses on trading securities~~gain discussed in Note 3 to our Consolidated Financial Statements.

Other ~~income/expense,~~income, net, for the ~~nine~~three months ended ~~September 30,~~March 31, 2021 was ~~income of approximately $415~~$470 thousand and included the reversal of the deferred revenue from ~~the~~a contract cancellation ~~discussed in Note 10 to our Consolidated Financial Statements~~ and the reversal of anthe accrued sales reserve of $50 thousand.

Other income/expense, net, for the nine months ended September 30, 2020 was an expense of approximately $136 thousand and was primarily due to the conversion of the Calvary notes (see Note 8 to our Consolidated Financial Statements).

Liquidity and Capital Resources

As of March 31, 2022, we have approximately $9 million in cash, cash equivalents and marketable securities. Our net working capital was $11.2 million. We have encountered recurring losses and cash outflows from operations, which historically we have funded through equity offerings and debt facilities. In addition, our investment in internally developed software consists primarily of labor costs which are of a fixed nature. Through March 31, 2022, our accumulated deficit was $146.0 million.

Our principal sources of liquidity are the sale of our common stock and our credit facility with Hitachi described in Note 6 to our Consolidated Financial Statements. ~~During March 2020 and April 2020,~~On January 19, 2021, we raised ~~approximately $1.5~~$8.0 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 $5.5 million in gross proceeds,~~registered direct offering, before expenses, through the sale of ~~our common stock and on July 27, 2020, we raised~~ an ~~additional $10.75 million in gross proceeds, before expenses, through sales~~aggregate of ~~our common stock. On January 19, 2021, we raised an additional $8 million in gross proceeds, before expenses, through the sale~~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 ~~sales~~the sale of an aggregate of 5,681,817 shares of our common stock.

On January 7, 2021, we filed Articles of Amendment to our Articles of Incorporation in the State of Nevada increasing the number of authorized shares of our common stock from 100,000,000 to 150,000,000. On August 19, 2021, we filed Articles of Amendment to our Articles of Incorporation in the State of Nevada increasing the number of authorized shares of our common stock from 150,000 to 200,000.

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

needs. We placed $2 million in ~~a money market fund~~cash equivalent accounts and $10 million in an interest-bearing account. At ~~September 30, 2021,~~ March 31, 2022,

our ~~net deposits~~funds with the investment management company were $9approximately $6 million and were invested in ~~money market funds,~~cash equivalent accounts and marketable debt and equity securities. A detail of the activity is described in Note 3 to our Consolidated Financial Statements.

We have 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 and credit facility will be sufficient to sustain operations for the next twelve

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

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

In April 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 adversely impacted our overall revenue 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 curtailed expenses, including compensation and travel for the months of May and 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 continue to focus our resources on areas we believe have immediate revenue potential while concurrently reducing expenses where necessary with an objective to minimize daily operating disruptions.

Cash Flows

The table below sets forth a summary of our cash flows for the ~~nine~~three months ended ~~September 30, 2021~~March 31, 2022 and ~~2020:~~2021:


		For the Nine Months Ended September 30			For the Three Months Ended March 31,
		2021	2020		2022	2021
Net cash used in operating activities	Net cash used in operating activities	$(7,543,216)	$(4,335,631)	Net cash used in operating activities	$(3,580,762)	$(2,442,647)
Net cash used in investing activities	Net cash used in investing activities	$(1,180,107)	$(852,423)	Net cash used in investing activities	$(999,125)	$(411,400)
Net cash provided by financing activities		$12,535,122	$14,343,279
Net cash (used in)/provided by financing activities				Net cash (used in)/provided by financing activities	$(152,928)	$12,768,706

Cash Flows - Operating

Net cash used in operating activities was ~~$7,543,216~~$3,580,762 during the ~~nine~~three months ended ~~September 30, 2021.~~March 31, 2022. We reported a net loss of ~~$6,359,663,~~$2,089,263, which included non-cash ~~expenses;~~expenses of depreciation and amortization expense of ~~$2,343,874, other~~$689,712, depreciation ~~expense~~ of ~~$237,423~~right of use assets of $24,259 and stock-based compensation expense of ~~$1,566,016; partially offset by the $1.5 million referral agreement and the reversal of $420,000 in deferred revenue.~~$671,158. The change in operating assets and liabilities during the ~~nine~~three months ended ~~September 30, 2021 resulted in~~March 31, 2022 was a net use of cash ~~used in operations~~ of ~~$4,707,321~~$2,782,156 primarily due to a decrease in the ~~purchase~~accrued expenses of ~~marketable securities~~$977,599 and accounts payable balance of ~~$2,871,253,~~$327,918, partially offset by an increase in the accounts receivable balance by ~~$2,645,508 due to the increased~~$702,421 and prepaid expenses, unbilled revenue ~~in the third quarter of 2021; partially offset by an increase in accrued expenses~~ and other ~~liabilities~~assets of ~~$1,754,574 and accounts payable balance of $632,369. Though much of our~~$849,218. Our terms are such that we generally collect receivables prior to paying trade ~~payables, increasingly,~~payables. Our media sales ~~require us to prepay our support partners and our clients~~arrangements typically have ~~longer~~slower payment ~~terms.~~terms than the terms of related payables.

During the comparable ~~nine-month~~three-month period in ~~2020,~~2021, cash used in operating activities was ~~$4,335,631~~$2,442,647 from a net loss of ~~$6,589,604,~~$2,147,268, which included several non-cash ~~expenses;~~expenses of depreciation and amortization expense of ~~$2,452,930~~$771,904 and stock-based compensation expense of ~~$660,615.~~$394,870.

Cash Flows - Investing

Net cash used in investing activities was ~~$1,180,107~~$999,125 and ~~$852,423~~$411,400 for the ~~nine~~three months ended ~~September 30,~~March 31, 2022 and 2021, respectively. Cash used in investing activities in 2022 consisted primarily of the purchase of marketable securities and ~~2020, respectively, and primarily~~to a lesser extent, capitalized internal development costs. Cash used in investing activities in 2021 consisted of capitalized internal development costs.

Cash Flows - Financing

Net cash used in financing activities was $152,928 during the three months ended March 31, 2022.

Net cash provided by financing activities was ~~$12,535,122 and $14,343,279~~$12,768,706 during the ~~nine~~three months ended ~~September 30,~~March 31, 2021 ~~and 2020, respectively, and~~ was primarily from proceeds from the sale of common stock.

Off Balance Sheet Arrangements

As of ~~September 30, 2021,~~March 31, 2022, 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~~“disclosure controls and ~~procedures"~~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 ~~September 30, 2021,~~March 31, 2022, 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. As of the evaluation date, our Chief Executive Officer and Chief Financial Officer concluded that we maintain disclosure controls and procedures that 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.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the period ended ~~September 30, 2021~~March 31, 2022 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~~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, ~~2020,~~2021, as filed with the SEC on ~~February 11, 2021, as amended on Form 10-K/A filed with the SEC on~~ March ~~10, 2021~~17, 2022 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 rely on ~~three~~four customers for a significant portion of our revenues. We are reliant upon ~~Google, Yahoo! and Proper Media~~four customer for most of our revenue. During the ~~third~~first quarter of ~~2021, Google~~2022, they accounted for ~~36.4%~~22.0%, ~~Yahoo! 14.3%~~18.2%, 14.5% and ~~Proper Media 13.59%~~12.3% of our ~~revenues, respectively, and during~~revenues. During the same period in ~~2020, Yahoo! 22.2%~~2021, two customers made up 40.0% and ~~Google 29.1%, respectively.~~19.2%. 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 ~~that~~ they generate would have a material adverse impact on our business, results of operations and financial condition in future periods.

~~Our success is dependent upon our ability to establish and maintain direct relationships with advertisers and advertising agencies~~. Some of our solutions generate revenue directly from advertisers and advertising agencies. Accordingly, our ability to generate revenue for our solutions is dependent upon our ability to attract new advertisers, maintain relationships with existing advertisers and fulfill our advertisers’ orders. Our programs to attract advertisers include direct sales, agency sales, online promotions, referral agreements and participation in tradeshows. We attempt to maintain relationships with our advertisers through providing quality customer service and delivering on campaign goals. Our advertisers and advertising agency clients can generally terminate their contracts with us at any time and with limited or no advance notice. We believe that advertisers and advertising agencies will not continue to do business with us if their investment in advertising with us does not generate sales leads, and ultimately customers, or if we do not deliver their advertisements in an appropriate and effective manner. If we are unable to remain competitive and provide value to our advertisers, they may stop placing ads with us, which would have a material adverse effect on our business, prospects, financial condition and results of operations.

~~We are exposed to credit risk on our accounts receivable and this risk is heightened during periods when economic conditions worsen~~.We sell some of our solutions directly to advertisers and advertising agencies on credit. Our outstanding accounts receivables to advertisers and advertising agencies are not covered by collateral, third-party financing arrangements or credit insurance. Our exposure to credit and collectability risk on our accounts receivables is higher with some customers and our ability to mitigate such risks may be limited. As we continue to add new customers and expand our direct relationships with advertisers and advertising agencies our credit risk increases. Additionally, our credit risk increases during periods when economic conditions worsen. While we have procedures to monitor and limit exposure to credit risk on our accounts receivables there can be no assurance such procedures will effectively limit our credit risk and avoid losses.

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

On September 17, 2021, we issued a warrant to purchase 300,000 shares of our common stock at an exercise price of $0.72 to a business development partner that refers clients and provides support to our business. The warrant vests 50% on each of the first two anniversaries of the grant based on performance of the referred clients and expires on the fifth anniversary of grant. The offer, sale, and issuance of the warrant was deemed to be exempt from registration under the Securities Act of 1933, as amended (the “Securities Act”) in reliance on Section 4(a)(2) of the Securities Act as a transaction by an issuer not involving a public offering.

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None.

ITEM 4. MINE SAFETY AND DISCLOSURES.

Not applicable.

ITEM 5. OTHER INFORMATION.

None.

2622

ITEM 6. EXHIBITS

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(i)4.4

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)7.7

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)8.8

3(i).9

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

10-K

2/11/21

3(i)9.9

3(i).10

Articles of Amendment to Articles of Incorporation as filed on August 19, 2021

10-Q

~~Filed~~11/12/21

3(i).10

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

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~~Furnished

32.2

Section 1350 certification of Chief Financial Officer

~~Filed~~Furnished

101.INS

Inline XBRL Instance Document

Filed

101.SCH

Inline XBRL Taxonomy Extension Schema Document

Filed

101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase Document

Filed

101.DEF

Inline XBRL Taxonomy Extension Definition Linkbase Document

Filed

101.LAB

Inline XBRL Taxonomy Extension Label Linkbase Document

Filed

101.PRE

Inline XBRL Taxonomy Extension Presentation Linkbase Document

Filed

101.PRE

Inline 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 ~~September 30, 2021,~~March 31, 2022, formatted in Inline XBRL (included with Exhibit 101 attachments).

Filed

2723

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.

~~November~~May 12, ~~2021~~2022	By:	/s/ Richard K. Howe
		Richard K. Howe,
		Chief Executive Officer, principal executive officer

~~November~~May 12, ~~2021~~2022	By:	/s/ Wallace D. Ruiz
		Wallace D. Ruiz,
		Chief Financial Officer, principal financial and accounting officer

2824


Minimum future lease payments ended September 30, 2021
2021	$	106,224
2022	119,452
2023	84,127
2024	3,856
	313,659
Less imputed interest	(29,613)
Total lease liabilities	$	284,046