This Amendment No. 1 to our Quarterly Report on Form 10-Q (the “Form 10-Q/A”) amends our Quarterly Report on Form 10-Q for the period ended September 30, 2019 previously filed with the SEC on November 14, 2019 (the “Original Filing”). We are filing this Form 10-Q/A to correct inadvertent errors in Part I, Item 4 of the Original Filing regarding the results of the evaluation by our management of our disclosure controls and procedures for the period covered by this report.The correction of this error had no impact on the consolidated financial statements contained in the Original Filing and no other changes have been made to the Original Form 10-Q. This Form 10-Q/A speaks as of the filing date of the Original Filing, does not reflect events that may have occurred subsequent to the Original Filing, and does not modify or update in any way any other disclosures made in the Original Filing.~~This Form 10-Q/A also includes current dated certifications by the Company’s Chief Executive Officer and Chief Financial Officer filed as Exhibits 31.1, 31.2, 32.1 and 32.2.~~

Page No.

Part I

Item 1.

Financial Statements.

Consolidated Balance Sheets

Consolidated Statements of Operations

Consolidated Statements of Cash Flows

Consolidated Statements of Stockholders Equity

Notes to Consolidated Financial Statements

109

Item 2.

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

2221

Item 3.

Quantitative and Qualitative Disclosures About Market Risk.

Item 4.

Controls and Procedures.

Part II

Item 1.

Legal Proceedings.

Item 1A.

Risk Factors.

2726

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds.

2826

Item 3.

Defaults upon Senior Securities.

2827

Item 4.

Mine Safety and Disclosures.

2827

Item 5.

Other Information.

2827

Item 6.

Exhibits.

2928

Signatures

3029

This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to known and unknown risks, uncertainties and other factors which may cause actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “will,” “should,” “intend,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” or “continue,” or the negative of such terms or other comparable terminology. This report includes, among others, statements regarding our risks associated with:

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, ~~2018~~2019 as filed with the Securities and Exchange Commission ("SEC") on ~~March 15, 2019,~~May 12, 2020, 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.

Unless specifically set forth to the contrary, when used in this report the terms "Inuvo," the “Company,” "we," "us," "our" and similar terms refer to Inuvo, Inc., a Nevada corporation, and its subsidiaries. When used in this report, ~~"third~~"first quarter 2020" means for the three months ended March 31, 2020, "first quarter 2019" means for the three months ended ~~September 30,~~March 31, 2019, ~~"third quarter 2018" means for the three months ended September 30, 2018, “2018”~~“2019” means the fiscal year ended December 31, ~~2018~~2019 and ~~"2019"~~"2020" means the fiscal year ending December 31, ~~2019.~~2020. 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.


		September 30, 2019		December 31, 2018			March 31, 2020		December 31, 2019
Assets	Assets					Assets
Current assets	Current assets					Current assets
Cash	Cash	$	714,063	$	228,956	Cash	$	470,807	$	372,989
Accounts receivable, net of allowance for doubtful accounts of $125,000 and $63,727, respectively.		6,078,025		6,711,595
Accounts receivable, net of allowance for doubtful accounts of $225,000.						Accounts receivable, net of allowance for doubtful accounts of $225,000.	5,796,515		7,529,785
Prepaid expenses and other current assets	Prepaid expenses and other current assets	251,219		271,466		Prepaid expenses and other current assets	353,795		243,888
Total current assets	Total current assets	7,043,307		7,212,017		Total current assets	6,621,117		8,146,662
Property and equipment, net	Property and equipment, net	1,467,110		2,123,672		Property and equipment, net	1,315,633		1,374,152
Other assets	Other assets					Other assets
Intangible assets, net of accumulated amortization	Intangible assets, net of accumulated amortization	11,003,803		9,441,681		Intangible assets, net of accumulated amortization	9,985,217		10,451,593
Goodwill	Goodwill	9,853,342		9,853,342		Goodwill	9,853,342		9,853,342
Right of use assets - operating lease	Right of use assets - operating lease	864,058		—		Right of use assets - operating lease	646,727		756,115
Right of use assets - finance lease	Right of use assets - finance lease	132,476		—		Right of use assets - finance lease	476,209		88,178
Other assets	Other assets	35,170		35,170		Other assets	20,886		20,886
Total other assets	Total other assets	21,888,849		19,330,193		Total other assets	20,982,381		21,170,114
Total assets	Total assets	$	30,399,266	$	28,665,882	Total assets	$	28,919,131	$	30,690,928

Liabilities and Stockholders’ Equity	Liabilities and Stockholders’ Equity					Liabilities and Stockholders’ Equity
Current liabilities	Current liabilities					Current liabilities
Accounts payable	Accounts payable	$	6,535,436	$	9,499,541	Accounts payable	$	8,115,326	$	7,520,567
Accrued expenses and other current liabilities	Accrued expenses and other current liabilities	4,255,922		2,489,834		Accrued expenses and other current liabilities	3,759,314		3,614,433
Lease liability - operating lease						Lease liability - operating lease	301,641		362,130
Lease liability - finance lease						Lease liability - finance lease	211,285		80,777
Line of credit						Line of credit	1,503,147		—
Financed receivables	Financed receivables	2,427,950		1,859,853		Financed receivables	—		3,381,364
Convertible promissory note	Convertible promissory note	1,238,333		—		Convertible promissory note	271,108		536,806
Derivative liability	Derivative liability	460,800		—		Derivative liability	149,400		182,250
Notes payable		250,000		250,000

Total current liabilities	Total current liabilities	15,168,441		14,099,228		Total current liabilities	14,311,221		15,678,327

Long-term liabilities	Long-term liabilities					Long-term liabilities
Deferred tax liability	Deferred tax liability	2,339,832		2,339,832		Deferred tax liability	2,019,200		2,019,200
Convertible promissory note		—		1,000,000

Lease liability - operating lease	Lease liability - operating lease	440,561		—		Lease liability - operating lease	345,596		394,889

Lease liability - finance lease						Lease liability - finance lease	142,986		—
Other long-term liabilities	Other long-term liabilities	82,914		193,007		Other long-term liabilities	520,846		57,162
Total long-term liabilities	Total long-term liabilities	2,863,307		3,532,839		Total long-term liabilities	3,028,628		2,471,251

Stockholders’ equity	Stockholders’ equity					Stockholders’ equity
Preferred stock, $0.001 par value:	Preferred stock, $0.001 par value:					Preferred stock, $0.001 par value:
Authorized shares 500,000, NaN issued and outstanding	Authorized shares 500,000, NaN issued and outstanding	—		—		Authorized shares 500,000, NaN issued and outstanding	—		—
Common stock, $0.001 par value:	Common stock, $0.001 par value:					Common stock, $0.001 par value:
Authorized shares 60,000,000; issued shares 49,335,746 and 32,757,817, respectively; outstanding shares 48,959,219 and 32,381,290, respectively		49,336		32,759
Authorized shares 100,000,000; issued shares 60,729,560 and 52,222,538, respectively; outstanding shares 60,353,033 and 51,846,011, respectively						Authorized shares 100,000,000; issued shares 60,729,560 and 52,222,538, respectively; outstanding shares 60,353,033 and 51,846,011, respectively	60,730		52,223
Additional paid-in capital	Additional paid-in capital	143,814,121		138,867,509		Additional paid-in capital	146,698,348		144,843,687
Accumulated deficit	Accumulated deficit	(130,099,380)		(126,469,894)		Accumulated deficit	(133,783,237)		(130,958,001)
Treasury stock, at cost - 376,527 shares	Treasury stock, at cost - 376,527 shares	(1,396,559)		(1,396,559)		Treasury stock, at cost - 376,527 shares	(1,396,559)		(1,396,559)
Total stockholders' equity	Total stockholders' equity	12,367,518		11,033,815		Total stockholders' equity	11,579,282		12,541,350
Total liabilities and stockholders' equity	Total liabilities and stockholders' equity	$	30,399,266	$	28,665,882	Total liabilities and stockholders' equity	$	28,919,131	$	30,690,928


		For the Three Months Ended September 30,						For the Nine Months Ended September 30,							For the Three Months Ended March 31,
		2019		2018		2019		2018			2020		2019
Net revenue	Net revenue	$	13,789,754	$	16,806,170	$	43,302,230	$	56,315,006	Net revenue	$	14,932,983	$	15,464,569
Cost of revenue	Cost of revenue	4,955,508		6,196,057		17,310,496		21,965,955		Cost of revenue	3,439,501		6,680,628
Gross profit	Gross profit	8,834,246		10,610,113		25,991,734		34,349,051		Gross profit	11,493,482		8,783,941
Operating expenses	Operating expenses									Operating expenses
Marketing costs (traffic acquisition costs or TAC)	Marketing costs (traffic acquisition costs or TAC)	6,940,772		8,285,465		20,013,117		25,025,922		Marketing costs (traffic acquisition costs or TAC)	9,622,823		6,544,009
Compensation	Compensation	2,186,252		1,806,111		5,730,297		6,749,280		Compensation	2,344,235		1,808,556
Selling, general and administrative	Selling, general and administrative	2,081,547		1,859,020		6,672,115		5,968,233		Selling, general and administrative	2,058,842		2,377,061
Total operating expenses	Total operating expenses	11,208,571		11,950,596		32,415,529		37,743,435		Total operating expenses	14,025,900		10,729,626
Operating loss	Operating loss	(2,374,325)		(1,340,483)		(6,423,795)		(3,394,384)		Operating loss	(2,532,418)		(1,945,685)

Interest expense, net	Interest expense, net	(143,642)		(101,167)		(511,558)		(296,612)		Interest expense, net	(152,511)		(516,708)
Other income, net		3,305,867		—		3,305,867		—
Income (loss) before taxes		787,900		(1,441,650)		(3,629,486)		(3,690,996)
Income tax benefit		—		—		—		8,625
Other expense, net										Other expense, net	(140,307)		—

Net income (loss)		787,900		(1,441,650)		(3,629,486)		(3,682,371)

Net loss										Net loss	$	(2,825,236)	$	(2,462,393)

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

Net income (loss)		$	0.02	$	(0.04)	$	(0.10)	$	(0.12)
Net loss										Net loss	$	(0.05)	$	(0.08)

Weighted average shares	Weighted average shares									Weighted average shares
Basic	Basic	46,218,413		32,316,988		37,079,457		30,540,796		Basic	53,642,787		32,396,998
Diluted	Diluted	51,019,631		32,316,988		37,079,457		30,540,796		Diluted	53,642,787		32,396,998


		For the Nine Months Ended September 30,							For the Three Months Ended March 31,
		2019		2018			2020		2019
Operating activities:	Operating activities:					Operating activities:
Net loss	Net loss	$	(3,629,486)	$	(3,682,371)	Net loss	$	(2,825,236)	$	(2,462,393)
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:
Gain on merger termination		(3,766,667)		—
Loss on extinguishment of convertible debt						Loss on extinguishment of convertible debt	68,757		—

Depreciation and amortization	Depreciation and amortization	2,298,964		2,371,958		Depreciation and amortization	835,748		823,765
Depreciation-Right of Use Assets	Depreciation-Right of Use Assets	131,104		—		Depreciation-Right of Use Assets	105,678		—
Stock based compensation	Stock based compensation	594,630		827,595		Stock based compensation	208,897		96,871
Derivative liability		460,800		—
Provision (recovery) of doubtful accounts		61,273		(40,062)
Mark to market fair value of derivative						Mark to market fair value of derivative	71,550		333,333

Amortization of financing fees	Amortization of financing fees	43,402		19,200		Amortization of financing fees	10,198		21,182

Amortization of debt discount						Amortization of debt discount	14,982		—

Amortization of OID interest expense	Amortization of OID interest expense	93,333		—		Amortization of OID interest expense	10,787		—
Change in operating assets and liabilities:	Change in operating assets and liabilities:					Change in operating assets and liabilities:

Accounts receivable	Accounts receivable	572,297		5,183,579		Accounts receivable	1,737,568		557,332
Prepaid expenses and other current assets		11,374		74,634
Prepaid expenses, unbilled revenue and other current assets						Prepaid expenses, unbilled revenue and other current assets	(120,360)		(19,454)
Accrued expenses and other liabilities	Accrued expenses and other liabilities	1,450,574		(445,857)		Accrued expenses and other liabilities	108,172		592,293
Accounts payable	Accounts payable	(2,964,105)		(4,592,798)		Accounts payable	594,759		(990,764)

Net cash used in operating activities		(4,642,507)		(284,122)
Net cash provided by/(used in) operating activities						Net cash provided by/(used in) operating activities	821,500		(1,047,835)
Investing activities:	Investing activities:					Investing activities:
Purchases of equipment and capitalized development costs	Purchases of equipment and capitalized development costs	(893,104)		(1,300,179)		Purchases of equipment and capitalized development costs	(310,853)		(310,221)
Net cash used in investing activities	Net cash used in investing activities	(893,104)		(1,300,179)		Net cash used in investing activities	(310,853)		(310,221)
Financing activities:	Financing activities:					Financing activities:
Proceeds from sale of common stock		4,414,126		2,000,583
Net (payments) proceeds on revolving credit line		—		(75,000)
Proceeds from sale of common stock, net						Proceeds from sale of common stock, net	1,206,788		—

Proceeds from ValidClick licensing agreement						Proceeds from ValidClick licensing agreement	500,000		—
Proceeds from convertible promissory notes	Proceeds from convertible promissory notes	1,200,000		—		Proceeds from convertible promissory notes	—		1,200,000
Net proceeds from line of credit						Net proceeds from line of credit	(1,878,217)		—
Net proceeds from financed receivables	Net proceeds from financed receivables	568,097		—		Net proceeds from financed receivables	—		231,512
Shareholder Settlement		125,000		—
Payments on capital leases		—		(158,650)
Payments on financing leases		(151,409)		—
Prepaid financing fees		(24,529)		—
Debt issuance cost		(65,000)		—
Payments on finance lease obligations						Payments on finance lease obligations	(220,216)		(54,015)

Net taxes paid on RSU grants exercised	Net taxes paid on RSU grants exercised	(45,567)		(77,044)		Net taxes paid on RSU grants exercised	(21,184)		—
Net cash provided by financing activities		6,020,718		1,689,889
Net cash (used in)/provided by financing activities						Net cash (used in)/provided by financing activities	(412,829)		1,377,497

Net change – cash	Net change – cash	485,107		105,588		Net change – cash	97,818		19,441
Cash, beginning of year	Cash, beginning of year	228,956		4,084,686		Cash, beginning of year	372,989		228,956
Cash, end of period	Cash, end of period	$	714,063	$	4,190,274	Cash, end of period	$	470,807	$	248,397
Supplemental information:	Supplemental information:					Supplemental information:
Interest paid	Interest paid	$	306,073	$	287,374	Interest paid	$	126,236	$	117,609

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

Adoption of ASC 842	Adoption of ASC 842	$	1,437,526	$	—	Adoption of ASC 842	$	—	$	1,437,526
ReTargeter Intangible Assets		$	2,575,000	$	—
Conversion of Debt and derecognition of derivative and discounts to common stock						Conversion of Debt and derecognition of derivative and discounts to common stock	$	468,667	$	—
Assets purchased under finance lease obligations						Assets purchased under finance lease obligations	$	364,545	$	—

2019
Common Stock Additional Paid in Capital Accumulated Deficit Treasury Stock Total
Shares Stock
Balance as of December 31, 2018 32,381,290 $32,759 $ 138,867,509 $ (126,469,894) $ (1,396,559) $ 11,033,815
Net loss (2,462,393) (2,462,393)
Stock-based compensation 96,871 96,871
Stock issued for vested restricted stock awards 186,031 186 (186) —
Balance as of March 31, 2019 32,567,321 32,945 $ 138,964,194 $ (128,932,287) $ (1,396,559) $ 8,668,293
Net loss (1,954,993) — (1,954,993)
Stock-based compensation 49,822 49,822
Shares withheld for taxes on vest restricted stock (9,045) (9,045)
Stock issued for vested restricted stock awards 47,213 47 (47) —
Balance as of June 30, 2019 32,614,534 $ 32,992 $ 139,004,924 $ (130,887,280) $ (1,396,559) $ 6,754,077
Net income 787,900 787,900
Stock-based compensation 447,937 447,937
Shares withheld for taxes on vest restricted stock (36,522) (36,522)
Stock issued for vested restricted stock awards 532,185 531 (531) —
Capital Raise, net 15,812,500 15,813 4,398,313 4,414,126
Balance as of September 30, 2019 48,959,219 $ 49,336 $ 143,814,121 $ (130,099,380) $ (1,396,559) $ 12,367,518


2020
	Common Stock				Additional Paid in Capital		Accumulated Deficit		Treasury Stock		Total
	Shares	Stock
Balance as of December 31, 2019	51,846,011	$52,223	$	144,843,687	$	(130,958,001)	$	(1,396,559)	$	12,541,350
Net loss					(2,825,236)				(2,825,236)
Stock-based compensation			208,897						208,897
Stock issued for vested restricted stock awards	260,593	261	(261)						—
Shares withheld for taxes on vested restricted stock			(21,184)						(21,184)
Convertible Note Conversion	1,200,000	1,200	467,467						468,667
Sale of common stock, net	7,046,429	7,046	1,199,742						1,206,788
Balance as of March 31, 2020	60,353,033	60,730	$	146,698,348	$	(133,783,237)	$	(1,396,559)	$	11,579,282


2019
	Common Stock					Additional Paid in Capital		Accumulated Deficit		Treasury Stock		Total
	Shares	Stock
Balance as of December 31, 2018	32,381,290	$32,759		$	138,867,509	$	(126,469,894)	$	(1,396,559)	$	11,033,815
Net loss						(2,462,393)				(2,462,393)
Stock-based compensation				96,871						96,871
Stock issued for vested restricted stock awards	186,031	186		(186)						—
Balance as of March 31, 2019	32,567,321	$	32,945	$	138,964,194	$	(128,932,287)	$	(1,396,559)	$	8,668,293

2018
Common Stock Additional Paid in Capital Accumulated Deficit Treasury Stock Total
Shares Stock
Balance as of December 31, 2017 28,618,454 $28,996 $ 136,033,967 $ (120,579,062) $ (1,396,559) $ 14,087,342
Net loss (1,408,024) (1,408,024)
Stock-based compensation 377,847 377,847
Stock issued for vested restricted stock awards 178,744 178 (178) —
Balance as of March 31, 2018 28,797,198 $ 29,174 $ 136,411,636 $ (121,987,086) $ (1,396,559) $ 13,057,165
Net loss (832,697) — (832,697)
Stock-based compensation 289,950 289,950
Stock issued for vested restricted stock awards 40,406 40 (40) —
Shares withheld for taxes on vested restricted stock (1,702) (1,702)
Capital Raise, net 3,289,000 3,289 2,060,044 2,063,333
Balance as of June 30, 2018 32,126,604 $ 32,503 $ 138,759,888 $ (122,819,783) $ (1,396,559) $ 14,576,049
Net loss (1,441,650) (1,441,650)
Stock-based compensation 159,799 159,799
Stock issued for vested restricted stock awards 307,071 308 (308) —
Shares withheld for taxes on vested restricted stock (139,795) (139,795)
Balance as of September 30, 2018 32,433,675 $ 32,811 $ 138,779,584 $ (124,261,433) $ (1,396,559) $ 13,154,403

Inuvo is a technology company that ~~provides data-driven~~develops and sells information technology solutions for marketing. These platforms ~~that can automatically~~predictively identify and message online audiences for any product or service across devices, channels and formats, including video, mobile, connected TV, display, social and native. These capabilities allow Inuvo’s clients to engage with their customers and prospects in a manner that drives engagement from the first contact with the consumer. Inuvo facilitates ~~over a billion~~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. Inuvo ~~counts among its many~~has contractual relationships with 3 clients who collectively manage over 50% of all USU.S. digital ~~advertising~~media budgets.

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

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

There are many barriers to entry toassociated with Inuvo’s business ~~that would require~~model, including a proficiency in large scale ~~data center management,~~information processing, predictive software development, marketing data products, analytics, artificial intelligence, integration to the internet of things ~~or IOT,~~(IOT), and the relationships required to execute within the ~~IOT and the ability to process tens of billions of transactions daily. Our~~IOT. Inuvo’s intellectual property is protected by 1517 issued and 8 pending patents.

On August 21, 2019, our board of directors approved a proposal to amend our articles of incorporation to increase the number of authorized shares of our common stock from 60,000,000 to 100,000,000 in the form of the articles of amendment and was subsequently approved by stockholders on October 4, 2019 at the annual stockholders meeting. At our 2019 annual meeting of stockholders our stockholders also approved an increase of 6,800,000 shares of our common stock in the number of shares which are reserved for grants under our 2017 Equity Compensation Plan (“2017 ECP”).

On July 15, 2019, the Company closed on the underwritten public offering of 13,750,000 shares of common stock at a public offering price of $0.30 per share. On July 17, 2019, the Company issued 2,062,500 shares of common stock to Roth Capital Partners (the “Underwriter”) in connection with the Underwriter fully exercising its over-allotment option at the public offering price of $0.30 per share. After giving effect to the full exercise of the over-allotment option, the total number of shares sold by the Company in the public offering increased to 15,812,500 shares and gross proceeds increased to approximately $4.7 million. The net proceeds to the Company, after deducting the underwriting discounts and commissions and estimated offering expenses payable by the Company, were approximately $4.4 million.

On June 20, 2019, Inuvo entered into an Agreement and Plan of Merger Termination Agreement (the “Merger Termination Agreement”) with ConversionPoint Technologies Inc., a Delaware corporation (“CPT”), ConversionPoint Holdings, Inc., a Delaware corporation (“Parent”), CPT Merger Sub, Inc., a Delaware corporation, (“CPT Merger Sub”), and CPT Cigar Merger Sub, Inc., a Nevada corporation (“Inuvo Merger Sub”), which, among other things, (1) terminated the Agreement and Plan of Merger, dated November 2, 2018, by and among Inuvo, CPT, Parent, CPT Merger Sub, and Inuvo Merger Sub, as amended (the

~~“Merger~~ “Merger Agreement”), pursuant to which Inuvo would have merged with and into Inuvo Merger Sub and become a wholly-owned subsidiary of Parent, and CPT would have merged with and into CPT Merger Sub and become a wholly-owned subsidiary of Parent (the “Mergers”), and (2) terminated each of the Support Agreements that were entered into by certain officers and directors of Inuvo and the parties to the Merger Agreement. The Merger Agreement was terminated as a result of Parent’s inability to fulfill the closing condition of the Mergers that Parent raise $36,000,000 in gross proceeds from an equity, debt, or equity-linked offering of its securities which no longer obligated Inuvo to consummate the Mergers contemplated by the Merger Agreement.

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

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

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

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

On May 8, 2019, a Special Meeting of Stockholders (the “Special Meeting”) for the purposes of (i) approving and adopting the Merger Agreement; (ii) approving, on a non-binding advisory basis, the compensation that may be paid or become payable to the named executive officers of Inuvo that is based on or otherwise relates to the completion of the transactions contemplated by the Merger Agreement; (iii) approving and adopting an amendment to Inuvo’s articles of incorporation permitting Inuvo to increase the amount of authorized shares of its common stock from 40,000,000 to 60,000,000; and (iv) approving one or more adjournments of the Special Meeting, if necessary, to permit further solicitation of additional proxies in the event there are not sufficient votes present at the Special Meeting in person or by proxy, or at any adjournment or postponement of that Special Meeting, to approve and adopt the Merger Agreement. Stockholders approved the first three items. The fourth item was withdrawn as stockholders approved and adopted the Merger Agreement, although as noted above, the Mergers were subsequently terminated.

On May 1, 2019, effective April 30, 2019, we entered into the Second Amendment (the “Second Amendment”) to the Amended and Restated Business Financing Agreement dated October 11, 2018, as amended with Western Alliance Bank. The Second Amendment extended the expiration date with respect to the eligible unbilled receivable sublimit of $2,500,000 to the date that is the earlier to occur of (a) May 31, 2019, or (b) ~~three~~ (3) days after consummation of the Merger transactions; amended the definition of “Change of Control” to state that any change of control pursuant to the Merger Transactions will be deemed to occur ~~three~~ ~~days after the completion of the Merger Transactions; and imposed an amendment fee of $1,000 on Inuvo.~~

On June 6, 2019, we entered into the Third Amendment to the Business Financing Modification Agreement (the “Third Amendment”). The Third Amendment provides that with respect to the eligible unbilled receivable sublimit of $2,500,000, which expired May 31, 2019 under the Amended and Restated Financing Agreement, that: (i) lender has no obligation to finance unbilled receivables but may do so in its discretion; and (ii) lender may terminate financing of unbilled receivables upon written notice. The Third Amendment also imposed an amendment fee of $2,000 on Inuvo.

For the ~~nine~~three months ended ~~September 30, 2019,~~March 31, 2020, our revenues declined ~~23%~~3.4% from the same period in the prior year. The lower revenue and higher operating costs in the ~~nine-month~~three-month period of ~~2019~~2020 is principally responsible for our ~~$3.6~~$2.8 million net loss. ~~The net loss includes a one-time gain of $3.8 million related for the CPT Merger Termination fee, partially offset by $460,800 expense due to the derivative liability (see Note 8).~~ Of the loss, approximately ~~$2.9~~$1.1 million were the non-cash expenses of depreciation, amortization and stock-based compensation. ~~Further, we had roughly $1 million of Merger related costs within the nine-month period ending September 30, 2019.~~ Since our credit facility is dependent upon receivables, and we do not know when, if ever, that our revenues will return to historic levels or if we will be able to replace those lost revenues with revenues from other sources, the combination of lower credit availability ~~assuming that the lender will continue to finance unbilled receivables of which there are no assurances,~~ and negative cash flows generated from operating activities introduces potential risk to operation without interruption.As Our principal sources of liquidity are our borrowings under our credit facility which is described ~~earlier~~ in ~~this report, on November 2, 2018, we entered into~~Note 5, the ~~Merger Agreement which we terminated in June 2019 due to the acquirer's inability to fulfill the closing conditions. The termination~~sale of ~~the Merger Agreement resulted in a termination fee of $2.8 million that was partially satisfied by the termination~~our common stock and ~~cancellation of the CPTI Note Of approximately $1.1 million in July 2019.~~borrowings from non-bank financial institutions.

On ~~November 2, 2018, 4 directors of~~March 20, 2020, we closed a Loan and Security Agreement (the “Loan and Security Agreement”) dated February 28, 2020 by and between our company and our subsidiaries and Hitachi Capital America Corp. (“Hitachi”) replacing the ~~Company lent us $62,500 each, for an aggregate of $250,000, under~~previous credit facility with Western Alliance Bank. Under the terms of ~~10% Promissory Notes,~~the Loan and Security Agreement Hitachi has provided us with a $5,000,000 line of credit commitment. We are permitted to ~~cover certain costs associated~~borrow (i) 90% of the aggregate Eligible Accounts Receivable, plus (i) the lesser of 75% of the aggregate Unbilled Accounts Receivable (as those terms are defined in the Loan and Security Agreement) or 50% of the amount available to borrow under (i), up to the maximum credit commitment. On March 12, 2020 we drew $5,000,000 under this agreement, using $2,959,573 of these proceeds to satisfy our obligations to Western Alliance Bank under our credit agreement with it and the ~~Mergers. The Promissory Notes and related interest were due and satisfied on November 1, 2019. In~~balance is being used for working capital. Following the satisfaction of our obligations to Western Alliance Bank, all agreements with that entity have been terminated.

On March ~~2019,~~20, 2020, we sold an aggregate of ~~$1,440,000 Original Issue Discount Unsecured Subordinated Convertible Notes due September 1, 2020~~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 ~~$1,200,000~~proceeds of $688,000 in ~~proceeds~~this offering.

On April 10, 2020, we obtained an unsecured $1.1 million loan through Relyance Bank N.A. under the Paycheck Protection Program (the “PPP Loan”) pursuant to the Coronavirus Aid, Relief, and ~~commissions~~Economic Security Act (the “CARES Act”) and ~~estimated offering expenses payable~~is administered by the ~~Company.~~United States Small Business Administration. In accordance with the requirements of the CARES Act, the we will use proceeds from the PPP Loan primarily for payroll costs.

Though we believe current operating cash flows and the credit facility will be sufficient to sustain operations into the third quarter of 2020, if our plan to grow the IntentKey business is unsuccessful, we may need to fund operations through private or public sales of securities, debt financings or partnering/licensing transactions. There ~~are~~is no ~~assurances~~assurance that we will be successful in ~~our efforts~~obtaining funding to ~~generate revenues or report profitable~~continue operations in which case we would need to find additional sources of credit and make substantial reductions to ~~operating expense. We may have to find additional sources of credit and/or make substantial reductions in our~~ operating expense. A substantial reduction of operating expense may cause disruption to the business and the generation of future revenue. Given the above conditions, there is substantial doubt about the Company’s ability to continue as a going concern. The accompanying ~~unaudited condensed~~ consolidated financial statements have been prepared with the realization of assets and the satisfaction of liabilities in the normal course of business.


		For the Three Months Ended September 30,					For the Nine Months Ended September 30,						For the Three Months Ended March 31,
		2019	2018		2019		2018			2020	2019
Yahoo!	Yahoo!	59.9%	75.6	%	68.0	%	72.9	%	Yahoo!	51.4%	73.6	%
Google	Google	14.1%	8.5	%	12.4	%	9.0	%	Google	18.4%	11.7	%
Total	Total	74.0%	84.1	%	80.4	%	81.9	%	Total	69.8%	85.3	%

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

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, ~~2018,~~2019, 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, ~~2018,~~2019, which was filed with the SEC on ~~March 15, 2019.~~May 12, 2020.

The preparation of financial statements, in accordance with GAAP, requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, net revenues and expenses and disclosure of contingent assets and liabilities. The estimates and assumptions used in the accompanying consolidated financial statements are based upon management’s regular evaluation of the relevant facts and circumstances as of the date of the consolidated financial statements. We regularly evaluate estimates and assumptions related to allowances for doubtful accounts, ~~accrued sales reserve,~~ goodwill and purchased intangible asset valuations, ~~lives of intangible assets,~~ valuation of long-lived assets and derivative ~~liability and stock compensation.~~liability. Actual results may differ from the estimates and assumptions used in preparing the accompanying consolidated financial statements, and such differences could be material.

Contracts with Customers." Topic 606 supersedes the revenue recognition requirements in Topic 605 “Revenue Recognition” (Topic 605), and requires entities to recognize revenue when control of the promised goods or services is transferred to customers at an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. The Company adopted this guidance on January 1, 2018 using the modified retrospective approach and elected to apply the new guidance only to contracts that were not complete as of the date of adoption. The cumulative impact to retained earnings was not material.

transaction occurs and the other revenue recognition criteria are met. ~~Effective January 1, 2018, revenues~~Revenues are recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. We also recognize revenue from serving impressions when we complete all or a part of an order from an advertiser. The revenue is recognized in the period that the impression is served.

For the Three Months Ended September 30, For the Nine Months Ended September 30,
2019 2018 2019 2018
Partners $ 8,713,358 63.2 % $ 7,566,559 45.0 % $ 30,573,852 70.6 % $ 28,001,296 49.7 %
O&O 5,076,396 36.8 % 9,239,611 55.0 % 12,728,378 29.4 % 28,313,710 50.3 %
Total $ 13,789,754 100.0 % $ 16,806,170 100.0 % $ 43,302,230 100.0 % $ 56,315,006 100.0 %


	For the Three Months Ended March 31,
	2020						2019
ValidClick Platform	$	13,076,990	87.6	%	$	14,188,025	91.7	%
IntentKey Platform	1,855,993		12.4	%	1,276,544		8.3	%
Total	$	14,932,983	100.0	%	$	15,464,569	100.0	%


		For the Three Months Ended September 30,						For the Nine Months Ended September 30,							For the Three Months Ended March 31,
		2019		2018		2019		2018			2020		2019
Mobile	Mobile	$	8,032,115	$	12,532,579	$	27,402,314	$	39,800,781	Mobile	$	7,674,981	$	10,546,622
Desktop	Desktop	5,532,455		4,014,356		15,062,731		15,671,684		Desktop	6,887,241		4,594,622
Other	Other	225,184		259,235		837,185		842,541		Other	370,761		323,325
Total	Total	$	13,789,754	$	16,806,170	$	43,302,230	$	56,315,006	Total	$	14,932,983	$	15,464,569

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

We determine if an arrangement is a lease at inception. Operating and finance leases are included in Right Of Use ("ROU") assets, and lease liability obligations in our consolidated balance sheets. ROU assets represent our right to use an underlying asset for the lease term and lease liability obligations represent our obligation to make lease payments arising from the lease. ROU assets and liabilities are recognized at commencement date basedBased on the present value of the lease payments ~~over~~for the remaining lease ~~term. We have lease agreements with lease and non-lease components and account for such components as a single lease component. As most~~term of ~~our~~the Company's existing leases, ~~do not provide an implicit rate, we estimated our incremental borrowing rate based on~~ the information available at commencement date in determining the present value of lease payments. We use the implicit rate when readily determinable. The ROU asset also includes any lease payments made and excludes lease incentivesCompany recognized right-of-use assets and lease ~~direct costs. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense is recognized~~liabilities for operating leases of approximately $1.2 million and finance leases of approximately $265,000, respectively, on ~~a straight-line basis over the lease term. Please refer to Note 13 for additional information.~~January 1, 2019.

In June 2016, (FASB) issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (ASU 2016-13), which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. ASU 2016-13 replaces the existing incurred loss impairment model with a forward-looking expected credit loss model which will result in earlier recognition of credit losses. On November 15, 2019, the FASB delayed the effective date 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.


		September 30, 2019		December 31, 2018			March 31, 2020		December 31, 2019
Furniture and fixtures	Furniture and fixtures	$	293,152	$	293,152	Furniture and fixtures	$	293,152	$	293,152
Equipment	Equipment	1,013,792		1,527,054		Equipment	1,043,521		1,025,357
Capitalized internal use and purchased software	Capitalized internal use and purchased software	10,019,804		9,142,075		Capitalized internal use and purchased software	10,601,987		10,309,298
Leasehold improvements	Leasehold improvements	421,016		421,016		Leasehold improvements	421,016		421,016
Subtotal	Subtotal	11,747,764		11,383,297		Subtotal	12,359,676		12,048,823
Less: accumulated depreciation and amortization	Less: accumulated depreciation and amortization	(10,280,654)		(9,259,625)		Less: accumulated depreciation and amortization	(11,044,043)		(10,674,671)
Total	Total	$	1,467,110	$	2,123,672	Total	$	1,315,633	$	1,374,152


		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	$	(3,344,250)	$	5,475,750	$	330,750	Customer list, Google	20 years	$	8,820,000	$	(3,564,750)	$	5,255,250	$	110,250
Technology	Technology	5 years	3,600,000		(1,920,000)		1,680,000		540,000		Technology	5 years	3,600,000		(2,280,000)		1,320,000		180,000
Customer list, ReTargeter (2)	Customer list, ReTargeter (2)	5 years	1,931,250		—		1,931,250		—		Customer list, ReTargeter (2)	5 years	1,931,250		(257,500)		1,673,750		96,563
Customer list, all other	Customer list, all other	10 years	1,610,000		(1,220,947)		389,053		120,753		Customer list, all other	10 years	1,610,000		(1,301,450)		308,550		40,250
Brand name, ReTargeter (2)	Brand name, ReTargeter (2)	5 years	643,750		—		643,750		—		Brand name, ReTargeter (2)	5 years	643,750		(85,833)		557,917		32,188
Customer relationships	Customer relationships	20 years	570,000		(76,000)		494,000		21,375		Customer relationships	20 years	570,000		(90,250)		479,750		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	$	(6,561,197)	$	11,003,803	$	1,012,878	Intangible assets classified as long-term		$	17,565,000	$	(7,579,783)	$	9,985,217	$	466,376

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


2019		$	444,918
2020	2020	1,865,504		2020	$	1,399,128
2021	2021	1,865,504		2021	1,865,504
2022	2022	1,071,294		2022	1,071,294
2023	2023	984,500		2023	984,500
2023				2023	769,917
Thereafter	Thereafter	4,382,083		Thereafter	3,504,874
Total	Total	$	10,613,803	Total	$	9,595,217

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

On June 6, 2019, we entered into the Third Amendment to the Amended and Restated Financing. The Third Amendment ~~provides~~provided that with respect to the eligible unbilled receivable sublimit of $2,500,000, which expired May 31, 2019 under the Amended and Restated Financing Agreement, that: (i) lender ~~has~~had no obligation to finance unbilled receivables but may do so in its discretion; and (ii) lender may terminate financing of unbilled receivables upon written notice. The Third Amendment also imposed an amendment fee of $2,000.

~~Note 6 - Notes Payable~~On March 12, 2020, we closed on the Loan and Security Agreement dated February 28, 2020 with Hitachi. Under the terms of the Loan and Security Agreement, Hitachi has provided us with a $5,000,000 line of credit commitment. We are permitted to borrow (i) 90% of the aggregate Eligible Accounts Receivable, plus (i) the lesser of 75% of the aggregate Unbilled Accounts Receivable or 50% of the amount available to borrow under (i), up to the maximum credit commitment. On March 12, 2020 we drew $5,000,000 under this agreement, using $2,959,573 of these proceeds to satisfy our obligations to Western Alliance Bank under our credit agreement with it and the balance is being used for working capital. Following the satisfaction of our obligations to Western Alliance Bank, all agreements with that entity have been terminated. We pay Hitachi a monthly interest at the rate of 2% in excess of the Wall Street Journal Prime Rate, with a minimum rate of 6.75% per annum, on outstanding amounts. The principal and all accrued but unpaid interest are due on demand.

~~On November 2, 2018, each~~We agreed to pay Hitachi a commitment fee of ~~Messrs. Richard K. Howe,~~$50,000, with one half due upon the ~~Company’s Chief Executive Officer and member of our board of directors, and Charles D. Morgan, G. Kent Burnett and Gordon Cameron, members~~execution of the ~~Company’s board~~agreement and the balance due six months thereafter. Thereafter, we are obligated to pay Hitachi a commitment fee of ~~directors, lent~~$15,000 annually. We are also obligated to pay Hitachi a quarterly service fee of 0.30% on the ~~Company $62,500, for an aggregate~~monthly unused amount of ~~$250,000,~~the maximum credit line. In addition to a $2,000 document fee we have paid to Hitachi, if we should repay the amounts due under the ~~terms of 10% Promissory Notes. The Company used the proceeds from these notes~~Loan and Security Agreement before March 1, 2022, we are obligated to pay ~~certain costs associated with the Mergers. The notes are unsecured, bear interest at 10% per annum and the principal and accrued interest is due on November 2, 2019, subject to acceleration upon~~Hitachi an ~~Event~~exit fee of ~~Default or Change of Control (as both terms are defined in the note) (see Note 14 - Related Party Transactions). The notes and accrued interest were due and satisfied on November 1, 2019.~~

On March 1, 2019, Inuvo entered into a Securities Purchase Agreement with 3 accredited investors (the “Purchasers”) for the purchase and sale of an aggregate of $1,440,000 of principal of Original Issue Discount Unsecured Subordinated Convertible Notes due September 1, 2020 (the “Calvary Notes”) to fund working capital and additional expenses resulting from the delay in closing of the Mergers associated with the government shut down. The initial conversion price of the Calvary Notes iswas $1.08 per share which would make them convertible into 1,333,333 unregistered shares of Inuvo’s common stock upon conversion. The Calvary Notes were issued in a private placement and the shares of common stock issuable upon conversion are restricted, subject to resale under Rule 144. The proceeds to Inuvo from the offering were $1,200,000. Inuvo did not pay any commissions or finders fees in connection with the sale of the Calvary Notes and Inuvo utilized the proceeds for working capital. The Calvary Notes are reported net of unamortized original issue discounts and initial value attributed to the bifurcated embedded conversion feature. At March 31, 2020, the remaining principal amount outstanding is $315,000, with a carrying amount net of discounts of $271,108.

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

On November 11, 2019 we entered into Note Modification and Release Agreements with the holders of $1,080,000 principal amount of the Calvary ~~Notes~~Notes. Under the terms of ~~$1.08~~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 ~~was adjusted to~~and that the conversion price for any remaining amount due under the note would be $0.30 per share, subject to ~~equal~~future adjustments under the ~~equity offering~~terms of the note including dilutive issuances at a price ~~as discussed in Note 1. At September 30, 2019,~~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 ~~fair~~Calvary Notes into 2,886,792 shares of our common stock. Immediately prior to the conversion, the carrying value of the derivative was ~~determined~~marked-to-market. Upon converting, the issued shares were recorded at their fair value of $0.29 per share. This resulted in a loss on extinguishment. Both the loss due to ~~be $460,800~~the marking to market and the ~~expense was~~loss on extinguishment totaling approximately $193,000 were recorded to other income, net.

~~On November~~In January 2020, a noteholder of the Original Issue Discount Unsecured Subordinated Convertible Notes due September 1, ~~2018, the Company and CPT Investments entered into a Securities Purchase Agreement for up to $2 million pursuant to which the Company issued and sold a $1,000,000~~2020 converted $360,000 principal amount ~~10% senior unsecured subordinated convertible promissory note ("~~due under the ~~CPTI Note") to CPT Investments which we used for working capital.~~Note into 1,200,000 shares of our common stock. The CPTI Note, which bore interest at the rate of 10% per annum and the principal and accrued interest was due on November 1, 2021. On June 20, 2019, the Company entered into a Merger Termination Agreement with CPT and its affiliated companies and concurrently entered into a Note Termination Agreement with CPT Investments as partial satisfactioncarrying value of the ~~termination fee required by the Merger Agreement. On July 23, 2019, the Company received notice that the conditions precedent to effectiveness of the termination of the CPTI Note were met pursuant~~bifurcated derivative was marked-to-market immediately prior to the ~~Inuvo Note Termination Agreement, dated June 20, 2019, by~~conversion. Upon conversion, the issued shares were recorded at their fair value. Both the loss due to the marked-to-market and between the Company and CPT Investments, and the CPTI Note has been canceled and terminated in full and rendered null and void. All past, current, or future obligations under the CPTI Note have been extinguished. The terminationloss on extinguishment of ~~the note was~~approximately $69,000 were recorded to other income, net. See Note 8 for discussion.

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

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


		September 30, 2019		December 31, 2018			March 31, 2020		December 31, 2019
Capital leases, less current portion		$	—	$	80,969
Deferred revenue						Deferred revenue	$	500,000	$	—
Operating lease liability						Operating lease liability	345,596		394,889
Financing lease liability						Financing lease liability	142,986		—
Deferred rent	Deferred rent	69,152		98,276		Deferred rent	20,846		57,162
Accrued taxes, less current portion		13,762		13,762
Total	Total	$	82,914	$	193,007	Total	$	1,009,428	$	452,051

In March 2020, we entered into an agreement to allow a third party to license and use ValidClick technology. The agreement required a nonrefundable, fully earned fee of $500,000 in March with subsequent fees as earned in later quarters. The $500,000 fee was recognized as deferred revenue in March 2020. We are committed to paying a monthly development royalty and marketing services fee when certain adjusted gross profit targets are achieved.

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

For the three ~~and nine~~ months ended ~~September 30,~~March 31, 2020 and March 31, 2019, we recorded stock-based compensation expense for all equity incentive plans of ~~$447,937~~$208,897 and ~~$594,630,~~$96,871, respectively. ~~For the three and nine months ended September 30, 2018, we recorded stock-based compensation expense for all equity incentive plans of $159,799 and $827,595.~~ Total compensation cost not yet recognized at ~~September 30, 2019~~March 31, 2020 was ~~$409,899~~$424,464 to be recognized over a weighted-average recognition period of 1.0 ~~years.~~year.


		Options Outstanding	RSUs Outstanding	Options and RSUs Exercised	Available Shares	Total		Options Outstanding	RSUs Outstanding	Options and RSUs Exercised	Available Shares	Total
2017 ECP	2017 ECP	—	433,615	511,544	1,354,841	2,300,000	2017 ECP	—	1,165,479	728,346	7,356,175	9,250,000
2010 ECP		14,498	229,004	3,855,091	983,425	5,082,018
2010 ECP (**)							2010 ECP (**)	14,498	1,072,171	3,969,590	275,759	5,332,018
2005 LTIP (*)	2005 LTIP (*)	3,750	—	960,083	—	963,833	2005 LTIP (*)	—	—	953,835	—	953,835
Total	Total	18,248	662,619	5,326,718	2,338,266	8,345,851	Total	14,498	2,237,650	5,651,771	7,631,934	15,535,853

Shares Subject to Options Outstanding
Number of Shares Weighted Average Exercise Price Weighted Average Remaining Contractual Term (in years) Aggregate Intrinsic Value
Balance as of December 31, 2018 264,246 $ 2.84 2.7 $ 2,019
Stock options canceled 245,998 $ 2.92 — —
Balance as of September 30, 2019 18,248 $ 1.74 1.8 $ 2,019
Stock options exercisable as of September 30, 2019 18,248 $ 1.74 1.8 $ 2,019


	Shares Subject to Options Outstanding
	Number of Shares	Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value
Balance as of December 31, 2019	18,248	$	1.74	1.8	$	2,019
Stock options canceled	3,750	$	3.7	—	—
Balance as of March 31, 2020	14,498	$	1.23	1.64	$	2,019
Stock options exercisable as of March 31, 2020	14,498	$	1.23	1.64	$	2,019

The Company has entered into operating and finance leases primarily for real estate and equipment rental. These leases have terms which range from two to four years, and often include one or more options to renew or in the case of equipment rental, to purchase the equipment. These operating and finance leases are listed as separate line items on the Company's ~~September 30, 2019~~March 31, 2020 consolidated balance sheet and represent the Company’s right to use the underlying asset for the lease term. The Company’s obligation to make lease payments are also listed as separate line items on the Company's ~~September 30, 2019,~~March 31, 2020, consolidated balance sheet. Based on the present value of the lease payments for the remaining lease term of the Company's existing leases, the Company recognized right-of-use assets and lease liabilities for operating leases of approximately $1.2 million and finance leases of approximately $265,000, respectively, on January 1, 2019. Operating lease right-of-use assets and liabilities commencing after January 1, 2019 are recognized at commencement date based on the present value of lease payments over the lease term. As of ~~September 30,~~March 31, 2020 and 2019, total operating and financed right-of-use assets were ~~$864,058~~$646,727 and ~~$132,476,~~$476,209, and $756,115 and $88,178, respectively. The Company has entered into a short-term finance lease for equipment with a remaining term of twelve months or less and is included in the "Accrued expenses and other current liabilities" section of the consolidated balance sheet. All operating lease expense is recognized on a straight-line basis over the lease term. In the nine months ended September 30, 2019, the Company recognized approximately $460 thousand in total lease costs, which was comprised of $309 thousand in operating lease costs for right-of-use assets and $151 thousand in lease costs related to lease liabilities.


Minimum future lease payments ended September 30, 2019
2019		$	49,812
Minimum future lease payments ended March 31, 2020				Minimum future lease payments ended March 31, 2020
2020	2020	82,405		2020	$	178,957
2021				2021	194,376
		132,217			373,333
Less imputed interest	Less imputed interest	(3,888)		Less imputed interest	(19,062)
Total lease liabilities	Total lease liabilities	$	128,329	Total lease liabilities	$	354,271

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

In June 2019, the Company entered into a agreement with First Orion Corp., which is partially owned by 2 directors and shareholders of Inuvo, to provide office space. The lease is for ~~six-months~~eight-months commencing on July 1, 2019 and cost ~~$60,000~~$80,000 which was prepaid in June 2019. ~~Additionally, for the three and nine months ended September 30, 2018 the Company received $10,500 and $31,500, respectively, from First Orion Corp. for providing IT services.~~

On November 2, 2018, each of Messrs. Richard K. Howe, the Company’s Chief Executive Officer and member of our board of directors, and Charles D. Morgan, G. Kent Burnett and Gordon Cameron, members of the Company’s board of directors, lent the Company $62,500, for an aggregate of $250,000, under the terms of 10% Promissory Notes. The Company used the proceeds from these notes to pay certain costs associated with the Merger. The notes are unsecured, bear interest at 10% per annum and the principal and accrued interest is due on November 2, 2019, subject to acceleration upon an Event of Default or Change of Control (as both terms are defined in the note) (see Note 6 - Notes Payable).

~~Following approval by our stockholders~~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. The Company had not experienced 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. In April of 2020, the Company experienced a significant reduction in advertiser marketing budgets across both the ValidClick and IntentKey platforms as a direct consequence of Covid-19. The Company is unable at ~~our 2019 annual meeting,~~this time to predict with any certainty how the second quarter will materialize and as a result is taking a just-in-time approach to business operations, focusing resources on ~~October 31, 2019,~~areas with immediate revenue potential and reducing expenses where necessary.

On ~~November 11, 2019 we entered into Note Modification~~April 10, 2020, the Company obtained an unsecured $1.1 million loan through Relyance Bank N.A. under the Paycheck Protection Program (the “PPP Loan”) pursuant to the Coronavirus Aid, Relief, and ~~Release Agreements~~Economic Security Act (the “CARES Act”) and is administered by the United States Small Business Administration. In accordance with the ~~holders~~requirements of ~~$1,080,000~~the CARES Act, the Company will use proceeds from the PPP Loan primarily for payroll costs.

Effective April 20, 2020, the Company and the holder of the remaining Calvary Notes due September 1, 2020 in the principal amount of ~~the Calvary Notes. Under the terms of the~~$315,000 (the “Promissory Note”) as modified under that certain Note Modification and Release Agreement effective November 11, 2019 (the “Modification”) (the Promissory Note and Modification collectively referred to herein as, the ~~parties~~“Note”), agreed ~~that in consideration of such noteholder’s agreement~~ to ~~convert a minimum of 50% of~~amend the ~~outstanding amount of~~Note to extend the ~~note (the “First Conversion Amount”) that~~maturity date to December 31, 2020 and reduce the conversion price ~~for~~to $0.175 per share. On April 21,2020, the ~~First Conversion Amount would be $0.265 per share and that the conversion price for any remaining~~Noteholder converted $200,000 principal amount due under the note would be $0.30 per share, subject to future adjustment under the terms of the note including dilutive issuances at price below $0.30 per share. The agreement contains mutual general releases. These holders converted an aggregate of $765,000 due under the Calvary NotesNote into ~~2,886,792~~1,142,857 shares of our common stock. Following these conversions, there are $315,000 principal amount due under one note which is subject to the terms of the Note Modification and Release Agreement. The third note holder, who holds a $360,000 principal amount note, did not execute a Note Modification and Release Agreement.

On April 29, 2020, our Board of Directors implemented a temporary compensation change for senior officers and employees. Effective May 1, 2020, certain employees with salaries in excess of $100,000 per year will be required, on a temporary basis, to forego a specified percentage of their salary ranging from 50% to 7% (the “Reduction Percentage”). To incentivize these employees, each will be granted restricted stock unit awards (each, an “Award”) pursuant to the Company’s 2017 ECP. Management anticipates that these actions will reduce on-going expenses and assist the Company in achieving its short-term goals.The participants include the Company’s Chairman and CEO, Richard Howe, Chief Financial Officer, Wallace Ruiz, and Chief Operating Officer, Trey Barrett (collectively the “Named Executive Officers”). The temporary salaries for the Named Executive Officers are as follows:

The Awards to be issued to the effected employees will be issued at the end of each semi-monthly pay period commencing May 15, 2020. The number of shares of common stock to be issued pursuant to each Award shall be computed as follows: applicable Reduction Percentage of one one-twenty-fourth (1/24) of the employee’s annual salary prior to the reduction divided by the per share closing price of the Company’s common stock on the NYSE American on the trading day prior to the end of each semi-monthly pay period. The Awards will vest six months after issuance at which time the shares will be issued. Except as otherwise provided in the Plan or any applicable employment agreement, the employee must remain in the employ of the Company during the vesting period and the Awards are not transferable prior to vesting.These actions will remain in effect until June 30, 2020. The Board may modify, terminate or extend the program at its discretion.

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

~~The U.S. digital advertising is expected~~In response to ~~grow 19%~~COVID-19, we have started to curtail expenses, including compensation and travel, and we have issued a work from home policy to protect our employees and their families from virus transmission associated with co-workers. Additionally, in ~~2019 to $129 billion from $108 billion in 2018, with two companies, Facebook~~April 2020, we obtained an unsecured Paycheck Protection Program loan under the Coronavirus Aid, Relief and ~~Google capturing nearly 60%~~Economic Security Act of $1.1 million which we are using primarily for payroll costs.

Because of the ~~2019 digital ad investment, according~~impact of COVID-19 on our business, we are unable at this time to ~~eMarketer. In addition, mobile advertising spend~~predict with any certainty how the second quarter will materialize and whether our revenue run rate will improve. As a result of this uncertainty we are focusing our resources on areas we believe have immediate revenue potential and attempting to reduce expenses where necessary with as little disruption on our daily operations as possible. Should revenues continue to turn downwards or fail to return to historical levels, we may not be able to offset expenses quickly enough.

Our net working capital was negative $7.7 million as of March 31, 2020. During March 2020 and April 2020 we raised approximately $1.5 million of working capital through the sale of our securities and in April 2020 we obtained the PPP Loan of $1.1 million. With the reduction in our revenue run rate there is ~~expected~~an increased need for working capital to fund our operations. There is no assurance that we will be successful in obtaining funding to continue ~~to grow from $71 billion~~operations, particularly in ~~2018 to $87 billion in 2019, according to eMarketer. Additionally, eMarketer predicts programmatic display advertising spend will be over $59 billion in 2019, growing to $81 billion by 2021.~~light of the current impact of COVID-19 on the U.S. capital markets

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 ~~2018~~2019 appearing in our Annual Report on Form 10-K for the year ended December 31, ~~2018~~2019 as filed with the SEC on ~~March 15, 2019.~~May 12, 2020. The estimates and assumptions that management makes affect the reported amounts of assets, liabilities, net revenues and expenses and disclosure of contingent assets and liabilities. The estimates and assumptions that management makes affect the reported amounts of assets, liabilities, net revenues and expenses and disclosure of contingent assets and liabilities. The estimates and assumptions used are based upon management’s regular evaluation of the relevant facts and circumstances as of the date of the consolidated financial statements. We regularly evaluate estimates and assumptions related to allowances for ~~sale chargebacks, allowances for~~ doubtful accounts, goodwill and purchased intangible asset valuations, ~~lives of intangible assets,~~ valuation of long-lived assets ~~contingent liabilities,~~and derivative ~~liability and stock compensation. Though actual~~liability. Actual results may differ from the estimates and assumptions used in preparing the accompanying consolidated financial statements, ~~in the past~~and such differences ~~have been immaterial. Because our procedures require review~~could be material.

For the Three Months Ended September 30, For the Nine Months Ended September 30,
2019 2018 Change % Change 2019 2018 Change % Change
Net Revenue $ 13,789,754 $ 16,806,170 $ (3,016,416) (17.9) % $ 43,302,230 $ 56,315,006 $ (13,012,776) (23.1) %
Cost of Revenue 4,955,508 6,196,057 (1,240,549) (20.0) % 17,310,496 21,965,955 (4,655,459) (21.2) %
Gross Profit $ 8,834,246 $ 10,610,113 (1,775,867) (16.7) % $ 25,991,734 $ 34,349,051 $ (8,357,317) (24.3) %

~~Net revenue for the third quarter of 2019 was 17.9% lower than the same quarter of 2018, and 23.1% lower for the nine months ended September 30, 2019 from the comparable period in 2018.~~ We experienced lower year over year revenue for the first quarter 2020 as compared to the first quarter of 2019 due primarily to ~~reduced~~lower monetization from advertising inventory sold to our largest ~~Demand~~demand partners resulting in part from a focus shift associated with the Mergers which was terminated in June 2019. In addition, the previously announced strategy to reduce focus on the non-strategic publisher side technologies resulted in lower revenue this year compared to last year. For the nine months ended September 30, 2019, revenue associated with these publisher technologies was down $2.9 million. Overall revenue from the IntentKey business was approximately $2.6 million, 61.6% higher in the third quarter of 2019 compared to the same period last year, partially offsetting the lower revenue in the ValidClick ~~and alot~~ operations. ~~Following the integration with the AppNexus Platform~~Due to seasonality, revenue is typically lower in the first quarter of ~~2019,~~the year compared to the sequentially prior quarter. The lower ValidClick revenue is partially offset by a 45% increase in the IntentKey ~~has continued~~revenue and to deliver strong results for clients with a sequential quarterly growth rate in 2019 that is expected to be approximately 30%. We have not seen an appreciable change in monetization for our inventory in ourhigher ValidClick revenue from owned and ~~alot operations and we do not know whether monetization will return to former levels.~~operated sites.

Cost of revenue is primarily generated by payments to website publishers and app developers that host advertisements we serve through ValidClick and to ad exchanges that provide access to a supply of advertising inventory where we serve ~~advertisements.~~advertisements using information predicted by the IntentKey. The decrease in the cost of revenue in the three ~~and nine~~ months ended ~~September 30, 2019~~March 31, 2020 compared to the same time periods in ~~2018~~2019 is due primarily to lower ValidClick revenue.


		For the Three Months Ended September 30,														For the Nine Months Ended September 30,											For the Three Months Ended March 31,
		2019		2018		Change		% Change		2019		2018		Change		% Change			2020		2019		Change		% Change
Marketing costs	Marketing costs	$	6,940,772	$	8,285,465	$	(1,344,693)	(16.2	%)	$	20,013,117	$	25,025,922	$	(5,012,805)	(20.0)	%	Marketing costs	$	9,622,823	$	6,544,009	$	3,078,814	47.0	%
Compensation	Compensation	2,186,252		1,806,111		380,141		21.0	%	5,730,297		6,749,280		$	(1,018,983)	(15.1)	%	Compensation	2,344,235		1,808,556		535,679		29.6	%
Selling, general and administrative	Selling, general and administrative	2,081,547		1,859,020		222,527		12.0	%	6,672,115		5,968,233		$	703,882	11.8	%	Selling, general and administrative	2,058,842		2,377,061		(318,219)		(13.4	%)
Operating expenses	Operating expenses	$	11,208,571	$	11,950,596	$	(742,025)	(6.2	%)	$	32,415,529	$	37,743,435	$	(5,327,906)	(14.1)	%	Operating expenses	$	14,025,900	$	10,729,626	$	3,296,274	30.7	%

~~Compensation~~higher stock compensation, incentive expense ~~increased 21.0% in the three months ended September 30, 2019~~ and ~~decreased 15.1% in the nine months ended September 30, 2019 compared~~ to the ~~same period in 2018. The reason~~hiring of salespeople for the higher expense this year in spite of a lower payroll is due to the modification of RSU grants described in Note 11 - Stock-Based Compensation and the reversal of incentive plan expense in the prior year. IntentKey.Our total employment, both ~~full-time~~full and part-time was 5869 at ~~September 30, 2019~~March 31, 2020 compared to 6566 at ~~the same time last year.~~

Selling, general and administrative costs ~~for the three~~include professional fees, IT costs, facilities, corporate and ~~nine months ended September 30, 2019 increased 12.0%~~travel and ~~11.8% respectively, over~~entertainment expenses. They remained relatively flat compared to the same time ~~periods~~period in ~~2018. The increase in the third quarter this year is primarily due to expenses associated~~2019 with the ~~equity raise and the legal settlement (see Note 1). The increase in the nine month period this year is primarily due to the Merger related costs of $1 million.~~largest decrease coming from professional fees.

Interest expense, net, ~~which~~for March 31, 2020 was approximately $152,000 and represents interest expense on financed receivables ~~finance leases~~ and ~~notes payable~~capital lease obligations. Interest expense, net, as of March 31, 2019 was ~~$42 thousand~~approximately $517,000 and $215 thousand higher for the three and nine months ended September 30, 2019, respectively, compared to the same period in 2018. The higher expense is due primarily to higher interest rates on our financed receivables this year compared to last year.included a derivative liability charge of $333,333.

Other ~~income,~~expense, net, was ~~$3.3 million~~approximately $140,000 for the three ~~and nine~~ months ended ~~September 30, 2019~~March 31, 2020 and ~~represents~~is related to the one-time gain recognized for the CPT Merger Termination fee and the one time excess fair value over assets received from ReTargeter, offset by $460,800 in expense from the derivative liability associated with the Calvary Notes(see Note 8).conversion of promissory notes.

The change in operating assets and liabilities during the ~~nine~~three months ended ~~September 30, 2019~~March 31, 2020 was a ~~use~~provision of cash of ~~$929,860~~$821,500 primarily due to an decrease the accounts receivable balance by ~~$572,297, an increase of accrued expenses and other current liabilities of $1,450,574, offset by a decrease in the accounts payable balance by $2,964,105.~~$1,737,568. The seasonal nature of our business is such that the first half year revenue is typically less than the second half year revenue and therefore, the related accounts receivable balance is lower. Our terms are such that we generally collect receivables prior to paying trade payables. Media sales typically have slower payment terms than the terms of related payables.

Our principal sources of liquidity are our borrowings under our credit facility, the Amended and Restated Financing Agreement with Western Alliance Bank (see Note 5), the sale of our common stock and borrowings from non-bank financial institutions. Our net working capital was negative $8.1 million as of September 30, 2019 compared to negative $6.9 million as of December 31, 2018. The lower net working capital is primarily due to a $3.6 million net loss for the nine months ended September 30, 2019, which is net of certain one-time gains of approximately $3.3 million, and which included approximately $1 million of expense associated with the failed Mergers (see Note 1).

For the ~~nine~~three months ended ~~September 30, 2019,~~March 31, 2020, our revenues declined ~~23%~~3.4% from the same period in the prior year. We reported losses from operations of approximately $2.37 million and approximately $6.23 million, respectively, for the three and nine months ended September 30, 2019. In addition to the $1 million Mergers costs described above, theThe lower revenue and higher operating costs in the ~~nine-month~~three-month period of ~~2019~~2020 is principally responsible for our ~~losses.~~$2.8 million net loss. Of the ~~net~~ loss, ~~after the one time gains described above for the nine months ended September 30, 2019,~~ approximately ~~$2.9~~$1.1 million were the non-cash expenses of depreciation, amortization and stock-based compensation. Since our credit facility is dependent upon receivables, and we do not know when, if ever, that our revenues will return to historic levels or if we will be able to replace those lost revenues with revenues from other sources, the combination of lower credit availability and recent negative cash flows generated from operating activities introduces potential risk to operation without interruption. Our principal sources of liquidity are our borrowings under our credit facility with Hitachi which is described in Note 5, the sale of our common stock and borrowings from non-bank financial institutions. During March 2020 and April 2020 we raised $1,474,175 in gross proceeds through sales of our common stock, and in April 2020 we received a $1.1 million PPP Loan. In April of 2020, the Company experienced a significant reduction in advertiser marketing budgets across both the ValidClick and IntentKey platforms as a direct consequence of COVID-19. These reductions will adversely impact our revenues and liquidity in the second quarter of 2020 and beyond, although we are unable at this time to quantify the ultimate impact on our company.

We have pooled our resources behind a plan to grow ~~its~~our AI technology, the IntentKey, where we have a technology advantage and higher margins. ~~The~~If we are successful in implementing our plan, ~~expects~~we expect to return to a positive cash flow ~~by the second half of 2020.~~from operations. However, there is no assurance that we will be able to achieve this objective. We use ~~the Financing Agreement~~our credit facility with Hitachi discussed above to partially fund operations. However, if we continue to experience losses, we may be unable to borrow funds under this agreement.

Though we believe current operating cash flows and the credit facility will be sufficient to sustain operations into at least the third quarter of 2020, if our plan to grow the IntentKey business is unsuccessful, we may need to fund operations through private or public sales of securities, debt financings or partnering/licensing transactions. During March 2020 and April 2020, we raised approximately $1.5 million of working capital through the sale of our securities and in April 2020 we obtained the unsecured PPP Loan of $1.1 million which we are using primarily for payroll costs. The PPP Loan is scheduled to mature two years from the date of issuance and has a 1% interest rate. Commencing on the date which is seven months following the date of the loan and continuing on the same day of each following month, we are obligated to pay principal and interest payments which will fully amortize all principal and interest (including accrued interest prior to the initial payment date) by the maturity date. The promissory note evidencing the PPP Loan contains customary events of default relating to, among other things, payment defaults and provisions of the promissory note. Under the terms of the CARES Act, PPP Loan recipients can apply for and be granted forgiveness for all or a portion of loans granted under the PPP Loan. Such forgiveness will be determined, subject to limitations, based on the use of loan proceeds for payroll costs and mortgage interest, rent and utility costs. No assurance is provided that we will apply for and obtain forgiveness of the PPP Loan in whole or in part.

Given the above conditions, there is substantial doubt about the Company’s ability to continue as a going concern. The report of our independent registered public accounting firm on our audited consolidated financial statements at December 31, 2019 and 2018 and for the years then ended contains an explanatory paragraph regarding substantial doubt of our ability to continue as a going concern based upon the Company having suffered recurring losses from operations and having a net capital deficiency.

Net cash ~~used in~~provided by operating activities was ~~$4,642,507~~$821,500 during the ~~nine~~three months ended ~~September 30, 2019.~~March 31, 2020. We reported a net loss of ~~$3,629,486,~~$2,825,236, which included non-cash expenses; ~~gain on merger termination fee of $3,766,667, partially offset by~~ depreciation and amortization expense of ~~$2,298,964,~~$835,748, depreciation expense from right of use assets ~~$131,104,~~$105,678 and stock-based compensation expense of ~~$594,630 and a derivative liability of $460,800. The~~$208,897. Cash provided by the change in operating assets and liabilities during the ~~nine~~three months ended ~~September 30, 2019~~March 31, 2020 was ~~a use of cash of $929,860~~$2,320,139 primarily due to an decrease the accounts receivable balance by ~~$572,297,~~$1,737,568 and an increase in the balances of accrued expenses and other current liabilities of ~~$1,450,574, offset by a decrease in the~~$108,172 and accounts payable ~~balance~~ by ~~$2,964,105.~~$594,759.

As of ~~September 30, 2019,~~March 31, 2020, 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.

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

Our management does not expect that our disclosure controls will prevent all errors and fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. In addition, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns

can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the control. The design of any systems of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of these inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

As required by Rule 13a-15 under the Securities Exchange Act of 1934, as of ~~September 30, 2019,~~March 31, 2020, 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 a result of this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that we did ~~not~~ maintain disclosure controls and procedures that were effective in providing reasonable assurance that information required to be disclosed in our reports under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods prescribed by SEC rules and regulations, and that such information is accumulated and communicated to our management to allow timely decisions regarding required ~~disclosure as a result of a material weakness in our disclosure controls.~~

On August 14, 2019, the Nominating, Corporate Governance and Compensation Committee of our board of directors approved modifications to the outstanding RSU grants under the 2010 ECP and 2017 ECP plans. The modifications included deeming the performance criteria for the performance based RSU grants with a measurement period based on June 30, 2019 as met and vested. In addition, any remaining RSU grants outstanding were modified to vest in three equal parts on August 19, 2019, January 1, 2020 and July 1, 2020 as long as the grantee is employed by our company on the vesting date. During the initial preparation of our unaudited consolidated financial statements the calculation and recording of stock compensation was not completed in accordance with ASC 718-30-35 with respect to the modification of share-based payments, which such error was corrected prior to the filing of this report. This failure to initially properly account for the modification of the stock awards was a material weakness in our disclosure controls. Subsequent to September 30, 2019, we have undertaken certain remedial actions to ensure that any future modification of the options or other awards are properly accounted for in accordance with ASC 718-30-55.disclosure.

On November 2, 2018, Inuvo entered into the Merger Agreement with CPT, Parent, CPT Merger Sub and CPT Cigar Merger Sub, Inc. pursuant to which, among other things, Inuvo would merge with and into Inuvo Merger Sub and become a wholly-owned subsidiary of Parent, and ConversionPoint would merge with and into CPT Merger Sub and become a wholly-owned subsidiary of Parent (collectively, the “Merger Transactions”). On June 20, 2019, the parties to the Merger Agreement terminated the Merger Agreement pursuant to an Agreement and Plan of Merger Termination Agreement. Prior to June 20, 2019, Inuvo and ConversionPoint were subject to litigation (as described below) related to the Merger Transactions.

On December 19, 2018 and December 20, 2018, respectively, Peter D’Arcy and Morris Akerman, both of whom claim to be stockholders of Inuvo, filed separate putative class action lawsuits, captioned D’Arcy v. Inuvo, Inc. et al., No. 1:18-cv-02023-UNA, in the United States District Court for the District of Delaware; and Akerman v. Inuvo, Inc. et al., No. 2:18-cv-02407, in the United States District Court for the District of Nevada. The two lawsuits each named Inuvo and the members of Inuvo’s board of directors as defendants. The D’Arcy action also named ConversionPoint and various entities created to effect the Merger Transaction as defendants.

Each of the foregoing lawsuits sought, among other relief, an injunction preventing the parties from consummating the Merger Transactions, damages in the event the Merger Transactions were consummated, and an award of attorneys’ fees. In the Akerman action, following the filing of Parent’s amended S-4 Registration Statement on March 15, 2019, Plaintiff Akerman filed a stipulation of dismissal, dismissing the entire action, except with respect to a fee and expense request. In the Spagnolo action, the plaintiff withdrew his motion for preliminary injunction following Parent’s filing of its amended S-4 Registration Statement on March 15, 2019 and the court dismissed the Spagnolo action as moot.

On January 4, 2019 and January 8, 2019, respectively, two more purported stockholders of Inuvo, Adam Franchi and Les Thomas, commenced substantially similar putative class action lawsuits under Nevada state law, captioned Franchi v. Inuvo, Inc. et al., No. A-19-787021-C and Thomas v. Inuvo, Inc. et al., No. T19-57, in the District Court of the State of Nevada in the County of Clark. These complaints named Inuvo and the members of Inuvo’s board of directors as defendants. The Franchi action also named ConversionPoint and various entities created to effect the Merger Transactions as defendants. Both complaints sought an injunction preventing the parties from consummating the Merger Transactions, damages in the event the Merger Transactions were consummated and an award of attorneys’ fees. Following the filing of Parent’s amended S-4 Registration Statement on March 15, 2019, Plaintiff Thomas filed a stipulation of dismissal, dismissing the action. On April 11, 2019, Plaintiff Franchi filed a notice of voluntary dismissal and, as of date, has never made any claim for fees and expenses.

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, ~~2018,~~2019, filed with the Securities and Exchange Commission on ~~March 15, 2019,~~May 12, 2020, and our subsequent filings with the SEC, subject to the new or modified risk factors appearing below that should be read in conjunction with the risk factors disclosed in such Form 10-K and our subsequent filings. We expect that these risks will continue to be exacerbated by the impact of the Covid-19 pandemic on our company and any worsening of the economic environment.

We rely on two customers for a significant portion of our revenues. We are reliant upon Yahoo! and Google for most of our revenue. During the ~~third~~first quarter of ~~2019,~~2020, Yahoo! accounted for ~~59.9%~~51.4% and Google accounted for ~~14.1%~~18.4% of our revenues, respectively, and during the same period in 2018, ~~75.6%~~73.6% and ~~8.5%~~11.7%, respectively. The amount of revenue we receive from these customers is dependent on a number of factors outside of our control, including the amount they charge for advertisements, the depth of advertisements available from them, and their ability to display relevant ads in response to end-user queries.

We would likely experience a significant decline in revenue and our business operations could be significantly harmed if these customers do not approve our new websites and applications, or if we violate their guidelines or they change their guidelines. In addition, if any of these preceding circumstances were to occur, we may not be able to find a suitable alternate paid search results provider or otherwise replace the lost revenues. The loss of any of these customers or a material change in the revenue or gross profit they generate would have a material adverse impact on our business, results of operations and financial condition in future periods.

~~Ability to maintain our credit facility could impact our ability to access capital as needed.~~ We have a credit facility with Western Alliance Bank, the parent company of Bridge Bank, N.A. our original lender, expired in October 2018. Effective October 11, 2018, we entered into a new agreement with Western Alliance Bank which superseded the expiring facility. The new agreement may be terminated by either party at any time and has a sub-limit provision that expired on April 30, 2019. On

April 30, 2019, Western Alliance Bank agreed to extend the $2.5 million sub-limit provision of uninvoiced eligible receivables until May 31, 2019. Thereafter, on June 6, 2019 we entered into the Third Amendment to the Amended and Restated Financing Agreement which provides that (i) the lender has no obligation to finance unbilled receivables but may do so at its discretion, and (ii) the lender may terminate the financing of unbilled receivables upon written notice to us. There are no assurances that we will be able to renew or find a suitable alternative. In that event, our liquidity in future periods would be materially adversely impacted.

In the event we are unable to renew the Western Alliance Bank facility or find a suitable alternative, Western Alliance Bank could declare all borrowings outstanding, if any, to be due and payable. If this occurs and we have outstanding obligations and are not able to repay, Western Alliance Bank could require us to apply all of our available cash to repay the debt amounts and could then proceed against the underlying collateral. Should this occur, we cannot assure you that our assets would be sufficient to repay our debt in full, we would be able to borrow sufficient funds to refinance the debt. In such an event, our ability to conduct our business as it is currently conducted would be in jeopardy.

On ~~November 11, 2019 we issued an aggregate~~May 5, 2020, the Noteholder of ~~2,886,792~~the remaining Calvary Note converted the final $115,000 principal amount due under the Note into 657,143 shares of our common stock, ~~to two~~thereby satisfying the Note in full. The Noteholder was an accredited ~~investors upon~~investor and the ~~conversion of $765,000 principal amount of Calvary Notes at a conversion price of $0.265 per share. The~~ issuance of ~~these~~the shares ~~are~~was exempt from registration under the Securities Act of 1933, as amended, in reliance on an exemption provided by Section 3(a)(9) of that act.

~~On November 11, 2019~~In March 2020, we entered into Note Modification and Release Agreements with the holders of $1,080,000 principal amount of the Calvary Notes, the terms of which such notes are described in Note 8 of the Notes to Consolidated Financial Statements (unaudited) appearing earlier in this report. Under the terms of the Note Modification and Release Agreement, the parties agreed that in consideration of such noteholder’san agreement to ~~convert~~allow 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~~third party to license and that the conversion price for any remaining amount due under the note would be $0.30 per share, subject to future adjustment under the terms of the note including dilutive issuances at price below $0.30 per share.use ValidClick technology. The agreement ~~contains mutual general releases. As set forth~~required a nonrefundable, fully earned fee of $500,000 in ~~Part II, Item 2 hereof, these holders converted an aggregate of $765,000 due under~~March with subsequent fees as earned in later quarters. The $500,000 fee was recognized as deferred revenue in the Calvary Notes into 2,886,792 shares of our common stock. Following these conversions, there are $315,000 principal amount due under one note which is subject to the terms of the Note Modification and Release Agreement. The third note holder, who holds a $360,000 principal amount note, did not execute a Note Modification and Release Agreement. The foregoing description of the terms of the Note Modification and Release Agreements is qualified in their entirety by reference to the form of agreement which is filed as Exhibit 10.1 to this report.


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)~~principal executive offices)			(Zip Code)


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


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


Title of Class						~~November~~May 8, ~~2019~~2020
Common Stock						~~49,013,375~~63,607,474


	March 31, 2020		December 31, 2019
Accrued marketing costs (TAC)	$	2,389,201	$	2,200,014
Accrued expenses and other	1,011,802		1,152,267
Accrued payroll and commission liabilities	226,901		115,707
Arkansas grant contingency	75,000		85,000
Accrued sales allowance	50,000		50,000
Accrued taxes	6,410		11,445
Operating lease liability	301,641		362,130
Financing lease liability	211,285		80,777

Total	$	4,272,240	$	4,057,340


Inuvo, Inc.
(Exact ~~Name~~name of ~~Registrant~~registrant as ~~Specified~~specified in its ~~Charter)~~charter)


	September 30, 2019		December 31, 2018
Finance receivables - 6.0 percent at September 30, 2019 (prime plus 1 percent) on invoiced receivables; 7.0 percent at September 30, 2019 (prime plus 2 percent) on uninvoiced receivables	$	2,427,950	$	1,859,853
Total	$	2,427,950	$	1,859,853


	March 31, 2020		December 31, 2019
Line of credit - 6.75 percent at March 31, 2020 (prime plus 2 percent)	$	1,503,147	$	—
Financed receivables - 5.75 percent at December 31, 2019 (prime plus 1 percent) on invoiced receivables; 6.75 percent December 31, 2019 (prime plus 2 percent) on uninvoiced receivables	$	—	$	3,381,364
Total	$	1,503,147	$	3,381,364


	Unvested RSUs
	Number of Shares	Weighted Average Grant Date Fair Value
Unvested as of December 31, 2018	1,571,864	$	0.79
Granted	1,155,097	$	0.33
Vested	944,052	$	0.58
Forfeited	1,120,290	$	0.83
Unvested as of September 30, 2019	662,619	$	0.21


			~~For the three months ended~~
			~~September 30, 2019~~
~~Weighted Average Shares Outstanding for basic EPS~~			~~46,218,413~~
~~Effect of dilutive securities:~~
~~Options~~			—
~~Restricted Stock Units~~			~~4,801,218~~
~~Weighted Average Shares Outstanding for diluted EPS~~			~~51,019,631~~


	For the ~~Nine~~Three Months Ended ~~September 30,~~March 31,
Cash paid for operating lease liabilities	$	~~316,416~~115,751
Weighted-average remaining lease term	~~2.3~~1.9 years
Weighted-average discount rate	6.25		%


Minimum future lease payments ended March 31, 2020
2020	287,220
2021	242,558
2022	163,284
	693,062
Less imputed interest	(45,825)
Total lease liabilities	$	647,237


Minimum future lease payments ended September 30, 2019
2019	$	121,041
2020	408,262
2021	242,558
2022	163,284
	935,145
Less imputed interest	(70,040)
Total lease liabilities	$	865,105


Name and Principal Position			Temporary Salary
Richard K. Howe, Chairman and Chief Executive Officer			$212,500
Wallace Ruiz, Chief Financial Officer			$200,750
Don (Trey) Barrett III			$200,000

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

Cash paid for finance lease liabilities

~~223,471~~220,216

Weighted-average remaining lease term

Weighted-average discount rate