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Item 9A. Controls and Procedures

2021-02-11 compared with 2020-05-12 · 258 added, 766 removed, 656 unchanged (61% of the section changed)

10 unchanged sentences

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.

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.

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 for the three and nine months ended September 30, 2019 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 undertook 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.

As required by Rule 13a-15 under the Securities Exchange Act of 1934, as of December 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 of the evaluation date, our Chief Executive Officer and Chief Financial Officer concluded that we

maintain disclosure controls and procedures that are effective in providing reasonable assurance that information required to be disclosed in our reports under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods prescribed by SEC rules and regulations, and that such information is accumulated and communicated to our management to allow timely decisions regarding required disclosure.

As of the evaluation date, our Chief Executive Officer and Chief Financial Officer concluded that we maintain disclosure controls and procedures that are effective in providing reasonable assurance that information required to be disclosed in our reports under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods prescribed by SEC rules and regulations, and that such information is accumulated and communicated to our management to allow timely decisions regarding required disclosure.

Management’s Report on Internal Control Over Financial Reporting

11 unchanged sentences

Changes in Internal Control over Financial Reporting

During the fourth quarter of 2019, we undertook certain actions to remediate the material weakness in our disclosure controls that was determined during the preparation of the unaudited consolidated financial statements for the periods ended September 30, 2019 and as further described earlier in this section which, if not remediated, may have led to a material weakness in our internal control over financial reporting at December 31, 2019.

These changes in our internal control over financial reporting related to the calculation and recording of stock compensation to ensure such calculations were completed in accordance with ASC 718-30-35.

Except for these changes, there were no changes in our internal control over financial reporting identified in connection with our evaluation that occurred during the year ended December 31, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Except for the remediation procedures related to ASC 740 (see Note 19), which were completed in our most recent fiscal quarter, there were no changes in our internal controls over financial reporting that occurred during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

OTHER INFORMATION .

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.

Directors and Executive Officers

Below are the names and certain information regarding our executive officers and directors.

Name Age Positions

Howe 57 Chairman of the Board of Directors, Chief Executive Officer, Class I director

Ruiz 68 Chief Financial Officer

Pisaris, Esq.

53 General Counsel, secretary

Don Walker “Trey” Barrett III 55 Chief Operating Officer

Cameron 55 Class I director

Kent Burnett 74 Class II director

Morgan 76 Class III director, Lead Independent Director

Patrick Terrell 65 Class III director

Howe has been a member of our board of directors since November 2008 and has served as Executive Chairman of the board since March 2012 and as our Chief Executive Officer since December 2012.

Previously, he served as our President and Chief Executive Officer from November 2008 until March 2012.

Prior to joining Inuvo, Mr.

Howe served as Chief Marketing, Strategy and M&A Officer at the billion dollar multi-channel marketing services leader Acxiom Corporation (NasdaqGS:

ACXM) where, since 2004, he led the company's transition to online marketing services, the expansion into China and the development of the big data consulting services group.

From 2001 to 2004, he served as general manager of Global Marketing Services (GMS) at Fair Isaac & Company (NYSE:

FICO), a leading provider of analytics products and services where he drove the company's online initiatives.

Between 1999 and 2001, Mr.

Howe started, grew and sold private Internet search innovator, ieWild.

Howe has over his career led the acquisition, merger or divestiture of a dozen companies on three continents worth many hundreds of millions of dollars to shareholders.

Howe earned a bachelor’s degree with distinction in engineering from Concordia University, Canada, and he earned his master’s degree in engineering from McGill University, Canada, Mr.

Howe’s track record as a successful high-technology operating and marketing executive in data, analytics, and marketing services as a result of building and/or running over a dozen businesses in five countries were factors considered by the Nominating, Corporate Governance and Compensation Committee and the board.

Specifically, the Nominating, Corporate Governance and Compensation Committee and the board viewed favorably his position at companies that include Inuvo as president and CEO, Acxiom Corporation as chief marketing, business strategy and M&A officer, Fair Isaac & Company where he served as general manager, and ieWild, Inc.

as co-founder and chairman and CEO;

his service as a board member for the non-profit organization Business for Diplomatic Action;

and his academic achievements at Concordia University and McGill University in making their recommendation.

Ruiz has served as our Chief Financial Officer since June 2010.

From 2005 until April 2009, Mr.

Ruiz was Chief Financial Officer and Treasurer of SRI Surgical Express, Inc.

STRC), a Tampa, Florida provider of outsourced sterilization and supply chain management services to healthcare providers that was acquired by Synergy Health plc .

From 1995 until 2004 he was Chief Financial Officer of Novadigm, Inc.

NVDM), a developer and worldwide marketer of enterprise infrastructure software that was acquired by Hewlett-Packard Company.

Since March 2018 he has been a member of the board of directors of Recruiter.com Group, Inc.

Ruiz received a B.S.

in Computer Science from St.

John’s University and a M.B.A.

in Accounting and Finance from Columbia University.

Ruiz is a Certified Public Accountant.

Pisaris has served as our General Counsel since March 2012 following our acquisition of Vertro, Inc.

He served as general counsel of Vertro, Inc.

from October 2004 until March 2012.

From February 2004 to September 2004, Mr.

Pisaris served as vice president of legal of Vertro, Inc., and prior to that was a partner at Porter Wright Morris& Arthur, LLP, a law firm, from January 2002 to January 2004.

Don Walker “Trey” Barrett, III.

Barrett, 53, joined Inuvo in February 2010 as Senior Vice President of Corporate Strategy and Business Development, and was promoted to Chief Operating Officer in February 2013.

Prior to joining Inuvo, Mr.

Barnett served as Acxiom Corporation's Director of Interactive Media Products overseeing the innovation and development of the Relevance-X product line.

With over 25 years of data-driven direct marketing experience, he has been involved in several successful business start-ups in the direct and interactive marketing industries.

Barnett earned a bachelor’s degrees in Marketing and Economics from the University of Arkansas at Fayetteville.

Cameron has been a member of our board of directors since November 2016.

He is a business transformation executive with three decades of success in growing businesses while managing risk.

Cameron is currently a three Chief Consumer Credit Risk Officer at Fifth Third Bank.

Prior to Fifth Third, Mr.

Cameron was EVP of consumer risk at PNC Financial Services from 2008 until 2019.

He was the Chief Credit Officer, Retail and Small Business Lending, at Canadian Imperial Bank of Commerce from 2005 to 2008.

Cameron was the Chief Scientist Transaction Analytics, Global Account Management Solutions at Fair Isaac Corporation FICO from 2001 to 2005.

Prior to his tenure with Fair Isaac Corporation, Mr.

Cameron held executive positions at IeWild Inc., HNC Software Inc., Advanta National Bank/Fleet, The

Cambell Group LTD and Fidelity Bank N.A.

Cameron received a MBA from Widener University School of Management and a B.S.

in Finance from Pennsylvania State University.

Cameron's track record as a senior executive in a variety of business segments and his in excess three decades of experience in building successful businesses were factors considered by the Nominating, Corporate Governance and Compensation Committee and the board.

Specifically, the Nominating, Corporate Governance and Compensation Committee and the board viewed favorably his position as Executive Vice President in Retail Lending at PNC Financial Services, one of the largest diversified financial services institutions in the United States, as well as his positions with companies such as Canadian Imperial Bank of Commerce, Fair Isaac Corporation FICO, IeWild Inc., HNC Software Inc., Advanta National Bank/Fleet, The Cambell Group LTD and Fidelity Bank N.A and his academic achievements at Widener University School of Management and Pennsylvania State University in making their recommendation.

Kent Burnett .

Burnett has been a member of our board of directors since November 2016.

He is a retired technology and ecommerce executive.

Burnett joined Dillard’s, Inc., one of the nation’s largest fashion retailers, in 1979.

Burnett held various executive level technology positions at Dillard’s, including Chief Information Officer, Western Division Chairman and from 2009 to 2016 was Vice President of Technology and Ecommerce.

Prior to joining Dillard’s Mr.

Burnett held various marketing, technology and engineering positions with IBM.

Since 2012 he has been a member of the Board of Directors of First Orion Corp., a phone call protection and data provider, and from February 2012 to April 2013 he served as a member of the Board of Directors of Acumen Brands, an ecommerce retailer.

Burnett received his undergraduate degree from the University of Arkansas.

Burnett's track record as a successful technology and ecommerce executive holding executive level technology positions were factors considered by the Nominating, Corporate Governance and Compensation Committee of the board.

Specifically, the Nominating, Corporate Governance and Compensation Committee and the board viewed favorably his experience at Dillard’s including as Chief Information Officer, Western Division Chairman and Vice President of Technology and Ecommerce, as well as his experience in various marketing, technology and engineering positions with IBM and his membership on the boards of directors of First Orion Corp.

and Acumen Brands in making their recommendation.

Morgan has been a member of our board of directors since June 2009.

Since 2008, he has been the Chief Executive Officer of First Orion Corp., a private company that developed and markets PrivacyStar, an application that helps protect the mobile phone users' privacy.

He also serves as a member and is the past Chairman of the Board of Trustees of Hendrix College.

Morgan has extensive experience managing and investing in both private and public companies including Acxiom Corporation (NasdaqGS:

ACXM), an information services company he helped grow from an early stage company to $1.4 billion in revenues during his tenure as Chief Executive Officer from 1975 to 2008.

Morgan has served on the board and in various leadership roles with the Direct Marketing Association (DMA) throughout his career, serving in 2001 as chairman of the DMA board.

Morgan was employed by IBM as a systems engineer for six years prior to joining Acxiom, and he holds a mechanical engineering degree from the University of Arkansas.

Morgan’s successful track record as a high-technology executive in data, analytics, outsourcing and marketing services with a network of relationships worldwide as a result of building a billion dollar annual revenue enterprise as chairman and chief executive officer were factors considered by the Nominating, Corporate Governance and Compensation Committee and the board.

Specifically, the Nominating, Corporate Governance and Compensation Committee and the board viewed favorably his experience at companies such as Acxiom Corporation as Chairman and CEO and IBM as a systems engineer;

his role as an equity owner of Bridgehampton Capital Management LLC and a significant investor in its funds;

his service as Chairman of the Advisory Board and co-manager of investments for Bridgehampton Capital Management LLC;

his leadership on the board and in various leadership roles with the Direct Marketing Association (DMA) including his service as chairman of the DMA in 2001;

his service as a member and past chairman of the board of trustees of Hendrix College;

and his academic achievements at the University of Arkansas in making their recommendation.

Patrick Terrell.

Terrell has been a member of our board of directors since January 2013.

Since 2002 and 2004, respectively, Mr.

Terrell has been the managing member of both PatRick Investments, LLC and Terrell Group Management, private equity and real estate investment companies.

He also serves on the board of directors of Routeware Inc.

Terrell served as founder and CEO of Leading Technology, a $300 million per year manufacturer of personal computers.

Additionally, he founded Byte Shops Northwest, which serviced personal computers, and grew to $50 million in annual revenues.

Terrell attended Oregon State University.

Terrell’s track record as a successful operating executive and investor were factors considered by the Nominating, Corporate Governance and Compensation Committee and the board.

Specifically, the Nominating, Corporate Governance and Compensation Committee and the board viewed favorably Mr.

Terrell’s services as founder and CEO of Leading Technology, a manufacturer of personal computers, his founding of Byte Shops Northwest, and his services as managing member of Terrell Group Management and PatRick Investments, LLC in making their recommendation.

There are no family relationships between any of the directors.

CORPORATE GOVERNANCE

We are committed to maintaining the highest standards of honest and ethical conduct in running our business efficiently, serving our stockholders interests and maintaining our integrity in the marketplace.

To further this commitment, we have adopted our Code of Conduct and Business Code of Ethics, which applies to all our directors, officers and employees.

To assist in its governance, our board has formed two standing committees composed entirely of independent directors, Audit and Nominating, Corporate Governance and Compensation.

A discussion of each committee’s function is set forth below.

Additionally, we have adopted and published to all employees our Whistleblower Notice establishing procedures by which any employee may bring to the attention of our Audit Committee any disclosure regarding accounting, internal control or other auditing issues affecting our company or any improper activities of any officer or employee.

Disclosure may be made anonymously.

Our bylaws, the charters of each board committee, the independent status of a majority of our board of directors, our Code of Conduct and Business Code of Ethics and our Whistleblower Notice provide the framework for our corporate governance.

Copies of our bylaws, committee charters, Code of Conduct and Business Code of Ethics and Whistleblower Notice may be found on our website at www.inuvo.com .

Copies of these materials also are available without charge upon written request to our corporate secretary.

Board of directors

The board of directors oversees our business affairs and monitors the performance of management.

In accordance with our corporate governance principles, the board of directors does not involve itself in day-to-day operations.

The directors keep themselves informed through discussions with the Executive Chairman and Chief Executive Officer and our Chief Financial Officer and by reading the reports and other materials that we send them and by participating in board of directors and committee meetings.

Commencing with our 2008 annual meeting, our directors were divided into three classes and designated Class I, Class II and Class III.

Directors may be assigned to each class in accordance with a resolution or resolutions adopted by the board of directors.

Directors are elected for a full term of three years.

Our directors hold office until their successors have been elected and duly qualified unless the director resigns or by reason of death or other cause is unable to serve in the capacity of director.

If any director resigns, dies or is otherwise unable to serve out his or her term, or if the board increases the number of directors, the board may fill any vacancy by a vote of a majority of the directors then in office, although less than a quorum exists.

A director elected to fill a vacancy shall serve for the unexpired term of his or her predecessor.

Vacancies occurring by reason of the removal of directors without cause may only be filled by vote of the stockholders.

Board leadership structure and board’s role in risk oversight

Howe serves as both the Executive Chairman of our board of directors and our Chief Executive Officer.

Morgan, an independent director, serves as our Lead Independent Director.

Our board believes our current structure provides independence, oversight and facilitates the communication between senior management and the full board of directors regarding risk oversight, which the board believes strengthens its risk oversight activities.

Moreover, the structure allows the Executive Chairman and Chief Executive Officer to better focus on his responsibilities of running the company, enhancing stockholder value and expanding and strengthening our business, while allowing the Lead Independent Director to lead the board in its fundamental role of providing independent oversight of management.

Risk is inherent with every business, and how well a business manages risk can ultimately determine its success.

We face a number of risks, including credit risk, interest rate risk, liquidity risk, operational risk, strategic risk and reputation risk.

Management is responsible for the day-to-day management of the risks we face, while the board, as a whole and through its committees, has responsibility for the oversight of risk management.

In its risk oversight role, the board of directors has the responsibility to satisfy itself that the risk management processes designed and implemented by management are adequate and functioning as designed.

To do this, the board of directors meets regularly with management, as well as independently, to review Inuvo's risks.

Both our General Counsel and our Chief Financial Officer attend many of the board meetings and are available to address any questions or concerns raised by any member of the board on risk management and any other matter.

The independent members of the board work together to provide strong, independent oversight of our management and affairs through the board's standing committees and, when necessary, special meetings of independent directors.

Our independent directors may meet at any time in their sole discretion without any other directors or representatives of management present.

Each independent director has access to the members of our management team or other employees as well as full access to our books and records.

We have no policy limiting, and exert no control over, meetings of our independent directors.

Board committees

The board of directors has standing Audit and Nominating, Corporate Governance and Compensation Committees.

Each committee has a written charter.

The charters are available on our website at www.inuvo.com .

Except as set forth below, all

committee members are independent directors.

Information concerning the current membership and function of each committee is as follows:

Director Audit Committee Member Nominating, Corporate Governance and Compensation Committee Member

Patrick Terrell ✓

Cameron ✓(1) ✓

Kent Burnett ✓ ✓ (1)

(1) Denotes Chairperson.

Audit Committee

The Audit Committee assists the board in fulfilling its oversight responsibility relating to:

● the integrity of our financial statements;

● our compliance with legal and regulatory requirements;

● the qualifications and independence of our independent registered public accountants.

The Audit Committee is composed of three directors, each of whom have been determined by the board of directors to be independent as defined by the NYSE American Company Guide.

The board has determined that each of Mr.

Terrell and Mr.

Burnett qualifies as an “audit committee financial expert” as defined by the SEC.

Nominating, Corporate Governance and Compensation Committee

The Nominating, Corporate Governance and Compensation Committee is responsible for:

● overseeing our compensation programs and practices, including our executive compensation plans and incentive compensation plans;

● recommending the slate of director nominees for election to our board of directors;

● identifying and recommending candidates to fill vacancies occurring between annual stockholder meetings;

● reviewing the composition of board committees;

● monitoring compliance with, reviews, and recommends changes to our various corporate governance policies and guidelines.

The Chief Executive Officer provides input to the committee with respect to the individual performance and compensation recommendations for the other executive officers.

The committee’s charter authorizes the committee to retain an independent consultant, and from time to time has done so.

The committee also prepares and supervises the board’s annual review of director independence and the board’s annual self-evaluation.

A majority of the persons serving on our board of directors must be independent.

Thus, the committee has considered transactions and relationships between each director or any member of his immediate family and us or our affiliates, including those reported under “Certain Relationships and Related Transactions” below.

The committee also reviewed transactions and relationships between directors or their affiliates and members of our senior management or their affiliates.

As a result of this review, the committee affirmatively determined that each of Messrs.

Morgan, Terrell, Cameron and Burnett are independent as defined by the NYSE American Company Guide.

The committee considers all qualified candidates for our board of directors identified by members of the committee, by other members of the board of directors, by senior management and by our stockholders.

The committee reviews each candidate including each candidate’s independence, skills and expertise based on a variety of factors, including the person’s experience or background in management, finance, regulatory matters and corporate governance.

Further, when identifying nominees to serve as director, while we do not have a policy regarding the consideration of diversity in selecting directors, the committee seeks to create a board that is strong in its collective knowledge and has a diversity of skills and experience with respect to accounting and finance, management and leadership, vision and strategy, business operations, business judgment, industry knowledge and

corporate governance.

In addition, prior to nominating an existing director for re-election to the board of directors, the committee will consider and review an existing director’s board and committee attendance and performance, length of board service, experience, skills and contributions that the existing director brings to the board, equity ownership in Inuvo and independence.

The committee follows the same process and uses the same criteria for evaluating candidates proposed by stockholders, members of the board of directors and members of senior management.

Based on its assessment of each candidate, the committee recommends candidates to the board.

However, there is no assurance that there will be any vacancy on the board at the time of any submission or that the committee will recommend any candidate for the board.

The Nominating, Corporate Governance and Compensation Committee is composed of three directors, all of whom have been determined by the board of directors to be independent as defined by the NYSE American Company Guide.

Stockholder nominations

Stockholders who would like to propose a candidate to serve on our board of directors may do so by submitting the candidate’s name, resume and biographical information to the attention of our corporate secretary.

All proposals for nomination received by the corporate secretary will be presented to the committee for appropriate consideration.

It is the policy of the Nominating, Corporate Governance and Compensation Committee to consider director candidates recommended by stockholders who appear to be qualified to serve on our board of directors.

The Nominating, Corporate Governance and Compensation Committee may choose not to consider an unsolicited recommendation if no vacancy exists on the board of directors and the Nominating, Corporate Governance and Compensation Committee does not perceive a need to increase the size of the board of directors.

In order to avoid the unnecessary use of the Nominating, Corporate Governance and Compensation Committee’s resources, the Nominating, Corporate Governance and Compensation Committee will consider only those director candidates recommended in accordance with the procedures set forth below.

To submit a recommendation of a director candidate to the Nominating, Corporate Governance and Compensation Committee, a stockholder should submit the following information in writing, addressed to the corporate secretary of Inuvo at our main office:

● the name and address of the person recommended as a director candidate;

● all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors pursuant to Regulation 14A under the Exchange Act;

● the written consent of the person being recommended as a director candidate to be named in the proxy statement as a nominee and to serve as a director if elected;

● as to the person making the recommendation, the name and address, as they appear on our books, of such person, and number of shares of our common stock owned by such person;

provided, however, that if the person is not a registered holder of our common stock, the person should submit his or her name and address along with a current written statement from the record holder of the shares that reflects the recommending person’s beneficial ownership of our common stock;

● a statement disclosing whether the person making the recommendation is acting with or on behalf of any other person and, if applicable, the identity of such person.

DIRECTOR COMPENSATION

We do not compensate Mr.

Howe separately for serving as a member of our board of directors.

During 2019 our independent directors each received the following compensation:

During 2019 each independent member of our board of directors was entitled to the following fees:

● $30,000 annual retainer payable quarterly;

● $30,000 of restricted stock units, calculated at fair market value on the date of grant, vesting March 31.

The following table provides information concerning the compensation paid to our independent directors for their services as members of our board of directors for 2019.

The information in the following table excludes any reimbursement of out-of-pocket travel and lodging expenses which we may have paid.

Name Fees earned or paid in cash ($)

Option awards ($)

Non-equity incentive plan compensation

($) Nonqualified deferred compensation

compensation ($)

Morgan 7,500 9,800 — — — — 17,300

Patrick Terrell 7,500 9,800 — — — — 17,300

Cameron 7,500 9,800 — — — — 17,300

Kent Burnett 7,500 9,800 — — — — 17,300

The information required by this Item will be contained in our proxy statement for our 2021 Annual Meeting of Shareholders to be filed on or prior to April 30, 2021 (the “Proxy Statement”) and is incorporated herein by this reference.

EXECUTIVE COMPENSATION.

Compensation philosophy

The fundamental objectives of our executive compensation program are to attract and retain highly qualified executive officers, motivate these executive officers to materially contribute to our long-term business success, and align the interests of our executive officers and stockholders by rewarding our executives for individual and corporate performance based on targets established by the Nominating, Corporate Governance and Compensation Committee.

We believe that achievement of these compensation program objectives enhances long-term stockholder value.

When designing compensation packages to reflect these objectives, the Nominating, Corporate Governance and Compensation Committee has adopted the following four principles as a guide:

● Alignment with stockholder interests:

Compensation should be tied, in part, to our stock performance through the granting of equity awards to align the interests of executive officers with those of our stockholders;

● Recognition for business performance:

Compensation should correlate in large part with our overall financial performance;

● Accountability for individual performance:

Compensation should partially depend on the individual executive’s performance, in order to motivate and acknowledge the key contributors to our success;

● Competition:

Compensation should generally reflect the competitive marketplace and be consistent with that of other well-managed companies in our peer group.

In implementing this compensation philosophy, the Nominating, Corporate Governance and Compensation Committee takes into account the compensation amounts from the previous years for each of the named executive officers, and internal compensation equity between the named executive officers and other employees.

2019 compensation determination process

In 2019, the compensation program for our executive officers consisted of the following components:

● base salary;

● plan awards;

● other fringe benefits and perquisites.

The Nominating, Corporate Governance and Compensation Committee believes that our executive compensation package consists of elements of compensation that are typically used to incentivize and reward executive management at other companies of our size, in our geographic area or in our industry.

Each of these components is designed to meet the program's objectives of providing a combination of fixed and variable, performance-based compensation linked to individual and corporate performance.

In the course of setting the initial compensation level for new hires or adjusting the compensation of existing employees, the Nominating, Corporate Governance and Compensation Committee considered the advice and input of our management.

Our Chief Executive Officer typically makes recommendations to the Nominating, Corporate Governance and Compensation Committee for any proposed changes in salary, as well as performance-based awards and stock option grants, for the other named executive officers.

The Nominating, Corporate Governance and Compensation Committee decides any salary change, as well as performance-based awards and stock option grants, for the Chief Executive Officer.

Base salary is an important component of executive compensation because it provides executives with an assured-level of income, assists us in attracting executives and recognizes different levels of responsibility and authority among executives.

The determination of base salaries is based upon the executive’s qualifications and experience, scope of responsibility and potential to achieve the goals and objectives established for the executive.

Additionally, contractual provisions in executive employment agreements, past performance, internal pay equity and comparison to competitive salary practices are also considered.

In general, the Nominating, Corporate Governance and Compensation Committee considers two types of potential base salary increases including “merit increases” based upon the executives’ individual performance and/or “market adjustments” based upon the peer group salary range for similar executives.

The objective of our long-term incentive program is to provide a long-term retention incentive for the named executive officers and others and to align their interests directly with those of our stockholders by way of stock ownership.

Under our 2010 Plan and our 2017 Plan, the board of directors or the Nominating, Corporate Governance and Compensation Committee has the discretion to determine whether equity awards will be granted to named executive officers and if so, the number of shares subject to each award.

Both plans allow the board or the Nominating, Corporate Governance and Compensation Committee to grant options and restricted stock and other stock-based awards with respect to up to shares of our common stock, valued in whole or in part by reference to the fair market value of the stock.

In most instances, these long-term grants vest over a multi-year basis.

The board or the Nominating, Corporate Governance and Compensation Committee determines the recipients of long-term incentive awards based upon such factors as performance, the length of continuous employment, managerial level, any prior awards, and recruiting and retention demands, expectations and needs.

All our employees are eligible for awards.

The board or the Nominating, Corporate Governance and Compensation Committee grants such awards by formal action, which awards are not final until a stock option agreement is delivered by us and executed by both the company and the employee.

There is no set schedule for the board or the Nominating, Corporate Governance and Compensation Committee to consider and grant awards.

The board and the Nominating, Corporate Governance and Compensation Committee have the discretion to make grants whenever it deems it appropriate in our best interests.

The Nominating, Corporate Governance and Compensation Committee has discretion to grant equity awards at any time.

We do not have any program, plan or practice in place to time option or other award grants with the release of material, non-public information and does not release such information for the purpose of affecting the value of executive compensation.

The exercise price of stock subject to options awarded under our plans is the fair market value of the stock on the date the grant is approved by the board or the Nominating, Corporate Governance and Compensation Committee.

Under the terms of each plan, the fair market value of the stock is the closing sales price of the stock on the date the grant is approved by the board or the Nominating, Corporate Governance and Compensation Committee as reported by the NYSE American.

Other compensation and benefits

We have historically provided perquisites and other types of non-cash benefits on a very limited basis in an effort to avoid an entitlement mentality, reinforce a pay-for-performance orientation and minimize expense.

Such benefits, when provided, can include additional health care benefits and additional life insurance.

Retirement and other post-termination benefits

Other than our 401(k) plan, employment agreements with our named executive officers and certain other employment agreements which provide for severance for termination without cause, we have not entered into any employment agreements that provide for a continuation of post-employment benefits.

Our benefits plans are generally the same for all employees, and so as of the date of this report, the Nominating, Corporate Governance and Compensation Committee does not believe that any such plans in their present forms would continue post-employment, except as required by law (including with respect to COBRA), or otherwise set forth in this report.

We do not currently maintain any other retirement or post-termination benefits plans.

Change in control severance policy

We do not currently maintain any change in control severance plans or severance policies, except as provided in the executive employment agreements and the 2010 Plan and 2017 Plan, both of which are discussed in this section.

Therefore, none of our

named executive officers will receive any cash severance payments in the event we undergo a change in control, unless their employment agreement otherwise provides.

All full-time employees, including the named executive officers, are eligible to participate in our standard medical, dental and life insurance plans.

The terms of such benefits for the named executive officers are generally the same as those for all other company employees, with the exception of the level of life insurance coverage.

We pay approximately 95% of the annual health insurance premium with employees paying the balance through payroll deductions.

We pay for up to $1,000,000 of basic life insurance and AD&D insurance for our CEO, CFO, COO and General Counsel.

All other full-time employees can elect basic life insurance and AD&D insurance coverage equal to their annual salary, up to $50,000, paid by us.

Our employees can participate in a 401(k) plan, which is a qualified defined contribution retirement plan, sponsored by Insperity, professional employer organization that provides services to us.

Participants are provided the opportunity to make salary reduction contributions to the plan on a pre-tax basis.

We have the ability to make discretionary matching contributions and discretionary profit sharing contributions to such plan.

Our practice has been to match participant’s contributions up to the first four percent of their annual earnings.

We match is fully vested when made.

We suspended our match throughout 2019.

Other benefits

We seek to maintain an open and inclusive culture in our facilities and operations among executives and other company employees.

Thus, we do not provide executives with separate dining or other facilities, nor do we have programs for providing personal-benefit perquisites to executives, such as defraying the cost of personal entertainment or family travel.

Our basic health care and other insurance programs are generally the same for all eligible employees, including the named executive officers.

Summary Compensation Table

The following table summarizes all compensation recorded by us in each of the last two completed fiscal years for:

● all individuals serving as our principal executive officer or acting in a similar capacity during the year ended December 31, 2019;

● our two most highly compensated named executive officers at December 31, 2019 whose annual compensation exceeded $100,000;

● up to two additional individuals for whom disclosure would have been made in this table but for the fact that the individual was not serving as a named executive officer of our company at December 31, 2019.

The value attributable to any restricted stock unit awards is computed in accordance with FASB ASC Topic 718.

Name and principal position Year Salary

($) Nonequity incentive plan compen-sation ($) Non-qualified deferred compen-sation earnings ($) All

other compen-sation

Howe, 2019 379,073 — 102,460 — — — 4,280 485,813

Chairman and Chief Executive Officer 2018 425,000 — 272,897 — — — 11,000 708,897

Ruiz, 2019 262,625 — 36,490 — — — 7,200 306,315

Chief Financial Officer 2018 275,000 — 97,463 — — — 11,000 383,463

Don (Trey) Barrett III 2019 240,625 — 49,372 — — — 2,619 292,616

Chief Operating Officer 2018 250,000 — 129,951 — — — 6,220 386,171

On March 1, 2012, we entered into employment agreements with each of Messrs.

Howe and Ruiz.

Barrett does not have an employment agreement and his compensation is set by the Nominating, Corporate Governance and Compensation Committee.

Executive Employment Agreements

The employment agreements entered into by Messrs.

Howe and Ruiz, each referred to as an executive, have an initial term of one year, after which each executive’s employment agreement automatically renews for additional one-year periods on the same terms and conditions, unless either party to the agreement exercises the respective termination rights available to such party in the agreement.

The employment agreements currently provide for a minimum annual base salary of $425,000 for Mr.

Howe, and $275,000 for Mr.

The employment agreements require our company to compensate the executives and provide them with certain benefits if their employment is terminated.

The compensation and benefits the executives are entitled to receive upon termination of employment vary depending on whether their employment is terminated:

● by us for cause (as defined in the employment agreements);

● by us without cause, or by the executive for good reason (as defined in the employment agreements);

● due to death or disability;

● by the executive without good reason.

In the event of a termination by our company without cause or a termination by the executive for good reason, the executive would be entitled to receive the following:

● his earned but unpaid basic salary through the termination date, plus a portion of the executive’s bonus based upon the bonus he would have earned in the year in which his employment was terminated, pro-rated for the amount of time employed by us during such year and paid on the original date such bonus would have been payable;

● an amount payable over the 12-month period following termination equal to one times the sum of his basic salary at the time of termination, plus a termination bonus equal to the bonus paid to the executive during the four fiscal quarters prior to the date of termination (except that if a target bonus has been established for Mr.

Howe, each such person’s termination bonus is equal to his target bonus for the fiscal year in which the termination occurs, increased or decreased pursuant to actual performance versus targeted performance in the then current plan measured as of the end of the calendar month preceding the termination date), or in the event of a change of control (as defined below), the greater of the relevant calculation above or the bonus paid to the executive during the four fiscal quarters prior to the change of control;

● any other amounts or benefits owing to the executive under our then-applicable employee benefit, long-term incentive, or equity plans and programs, within the terms of such plans, payable over the 12-month period following termination;

● benefits (including health, life, and disability) as if the executive was still an employee during the 12-month period following termination.

Finally, in the event of a termination without cause by our company, with good reason by the executive, or following a change of control (as defined in the employment agreements), any equity award held by the executive will immediately and fully vest and become exercisable throughout the full term of such award as if the executive were still employed by us.

In the event of a termination by us with cause, Messrs.

Ruiz and Howe would be entitled to receive the earned but unpaid portion of such executive’s base salary through the date of termination.

In the event of a termination by us of Mr.

Ruiz upon the death or permanent disability of such executive, the executive would be entitled to receive the earned but unpaid portion of such executive’s base salary through the date of termination, the earned but unpaid portion of any vested incentive compensation under and consistent with plans adopted by us prior to the date of termination, and over the 12 months following the date of termination an amount equal to 20% base salary at the time of termination for each year of employment with us, capped at 100% of the base salary.

In the event of a termination by us of Mr.

Howe upon the death or permanent disability of such executive, the executive would be entitled to receive the earned but unpaid portion of such executive’s base salary through the date of termination, any other amounts or benefits owing to the executive under any of our then-applicable employee benefit, long-term incentive or equity plans and programs, and over the 12 months following the date of termination an amount equal to 20% base salary at the time of termination for each year of employment with us, capped at 100% of the base salary.

In the event of a termination by Mr.

Ruiz without good reason, such executive is entitled to receive the earned but unpaid portion of such executive’s base salary through the date of termination, and the earned but unpaid portion of any vested incentive compensation under and consistent with our plans adopted by us prior to the date of termination.

In the event of a termination by Mr.

Howe without good reason, such executive is entitled to receive the earned but unpaid portion of his base salary through the termination date and any other amounts and benefits owing to the executive under our then applicable employee benefit, long term incentive or equity plans and programs.

The executive may terminate employment for any reason (other than good reason) upon giving 30 days’ advance written notice to us.

As to a termination by Mr.

Ruiz for any reason other than a good reason, we will pay the executive the earned but unpaid portion of his base salary through the termination date and any earned but unpaid vested incentive compensation under and consistent with plans adopted by us prior to the date of termination.

As to a termination by Mr.

Howe for any reason other than a good reason, we will pay the executive the earned but unpaid portion of his base salary through the termination date and any other amounts and benefits owing to the executive under our then applicable employee benefit, long term incentive or equity plans and programs.

Outstanding equity awards at year end

The following table provides information concerning unexercised options, stock that has not vested and equity incentive plan awards for each named executive officer outstanding as of December 31, 2019.

OPTION AWARDS

Name Number of securities under-lying un-exercised options

(#) exercisable

Number of securities under-lying un-exercised options

(#) un-exercisable

Equity incentive plan awards:

Number of securities underlying unexercised unearned options

Option exercise price

Option expiration date

Number of shares or units of stock that have not vested (#)

Market value of shares or units of stock that have not vested ($)

Equity incentive plan awards:

Number of unearned shares, units or other rights that have not vested (#)

Equity incentive plan awards:

Market or payout value of unearned shares, units or other rights that have not vested (#)

Howe - - - - - 627,000 188,000 - -

Ruiz - - - - - 219,167 65,750 - -

Don (Trey) Barrett III - - - - - 325,556 97,667 - -

Our equity compensation plans

Information regarding our 2010 Plan and 2017 Plan is contained in Note 12 to the notes to our audited consolidated financial statements appearing for 2019 appearing later in this report.

The information required by this item will be contained in our Proxy Statement and is incorporated herein by this reference.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.

At April 30, 2020, we had 63,607,474 shares of common stock outstanding, which includes 376,527 shares held in treasury but is net of 54,030 shares held in the record name of a wholly-owned subsidiary.

The following table sets forth information known to us as of April 30, 2020 relating to the beneficial ownership of shares of our common stock by:

● each person who is known by us to be the beneficial owner of more than 5% of our outstanding common stock;

● each director and nominee;

● each named executive officer;

● all named executive officers and directors as a group.

Unless otherwise indicated, the address of each beneficial owner in the table set forth below is care of 500 President Clinton Avenue, Suite 300, Little Rock, Arkansas 72201.

We believe that all persons, unless otherwise noted, named in the table have sole voting and investment power with respect to all shares of common stock shown as being owned by them.

Under securities laws, a person is considered to be the beneficial owner of securities owned by him (or certain persons whose ownership is attributed to him) and that can be acquired by him within 60 days from April 30, 2020, including upon the exercise of options, warrants or convertible securities.

We determine a beneficial owner’s percentage ownership by assuming that options, warrants or convertible securities that are held by him, but not those held by any other person, and which are exercisable within 60 days of the that date, have been exercised or converted.

Name of Beneficial Owner No.

of Shares Beneficially Owned

Charles Morgan (1)

5,139,771 8.2 %

1,808,032 2.9 %

Patrick Terrell (2)

1,665,980 2.6 %

Ruiz 398,033 *

Pisaris 361,053 *

Don Walker “Trey” Barrett III 423,345 *

Kent Burnett (1)

1,442,256 2.3 %

All named executive officers, directors and director nominees as a group (eight persons) (1)(2)(3)

11,644,999 18.5 %

Ingalls & Snyder, LLC (4)

5,362,886 8.5 %

Herald Investment Management Limited (5)

6,142,857 9.8 %

* represents less than 1%.

(1) Includes shares of common stock held by Ingalls & Snyder, LLC on his behalf.

See footnote 5.

(2) Includes 334,000 shares of common stock held by trusts where Mr.

Terrell claims an indirect beneficiary ownership.

(3) Includes 6,630 shares held by Mr.

Cameron’s spouse.

(4) Pursuant to the Schedule 13D filed with the SEC on July 19, 2019, Ingalls & Snyder, LLC has dispositive power over shares held by Mr.

Morgan and Mr.

Kent Burnett who serve as members of Inuvo's board of directors and Mr.

Howe who serves as Inuvo’ s Chairman and CEO.

The principal business address of Ingalls & Snyder, LLC is 1325 Avenue of the Americas, 18th Floor, New York, NY 10019-6066.

See footnote 1.

(5) Herald Investment Management Limited’s address is 10-11 Charterhouse Square, London EC1M6EE UK.

Securities Authorized for Issuance under Equity Compensation Plans

The following table sets forth securities authorized for issuance under any equity compensation plans approved by our stockholders as well as any equity compensation plans not approved by our stockholders as of December 31, 2019.

Plan category

Number of securities to be issued upon exercise of outstanding options, warrants and rights(a) (1)

Weighted average exercise price of outstanding options, warrants and rights (a)($) (2)

Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)

Plans approved by our stockholders:

2005 Long-Term Incentive Plan*

2010 Equity Compensation Plan

1,201,168 - 25,759

2017 Equity Compensation Plan

1,382,281 - 7,206,175

Plans not approved by stockholders - - -

(1) The numbers in this column (a) reflect shares of common stock to be issued upon exercise of outstanding stock options and the vesting of outstanding RSUs.

(2) The weighted-average exercise prices in this column are based on outstanding options and do not take into account unvested awards of RSUs as these awards do not have an exercise price.

* Expired June 2005.

The information required by this item will be contained in our Proxy Statement and is incorporated herein by this reference.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.

In June 2019, the Company entered into a agreement with First Orion Corp., which is partially owned by two directors and

shareholders of Inuvo, to provide office space.

The lease is for six-months commencing on July 1, 2019 and cost $60,000

which was prepaid in June 2019.

Additionally, in 2018, the Company received a total of $31,500 from First Orion Corp.

for providing IT services.

On November 2, 2018, each of Messrs.

Howe, the Company’s Chief Executive Officer and member of our board of directors, and Charles D.

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 terminated Merger.

The notes were unsecured, bore interest at 10% per annum and were due and satisfied on November 1, 2019.

Other than these transactions, there have been no transactions since January 1, 2018 nor are there any currently proposed transactions in which we were or are to be participant in which any related person had or will have a direct or indirect material interest.

PRINCIPAL ACCOUNTING FEES AND SERVICES.

The following table shows the fees that were billed for the audit and other services provided for the years indicated.

Audit Fees $ 235,000 $ 262,000

Audit-Related Fees 21,360 32,000

All Other Fees — —

Total $ 256,360 $ 294,000

Audit Fees - This category includes the audit of our annual financial statements, review of financial statements included in our quarterly reports on Form 10-Q and services that are normally provided by the independent registered public accounting firm in connection with engagements for those fiscal years.

This category also includes advice on audit and accounting matters that arose during, or as a result of, the audit or the review of interim financial statements.

Audit-Related Fees - This category consists of assurance and related services by the independent registered public accounting firm that are reasonably related to the performance of the audit or review of our financial statements and are not reported above under “Audit Fees.” The services for the fees disclosed under this category include consultation regarding our correspondence with the Securities and Exchange Commission and other accounting consulting.

Tax Fees - This category consists of professional services rendered by CBIZ MHM, an affiliate of our independent registered public accounting firm, for tax compliance and tax advice.

The services for the fees disclosed under this category include tax return preparation and technical tax advice.

All Other Fees - This category consists of fees for other miscellaneous items.

Mayer Hoffman McCann P.C.

leases substantially all of its personnel, who work under the control of Mayer Hoffman McCann P.C.

shareholders, from wholly-owned subsidiaries of CBIZ, Inc., in an alternative practice structure.

Our board of directors has adopted a procedure for pre-approval of all fees charged by our independent registered public accounting firm.

Under the procedure, the Audit Committee of the board approves the engagement letter with respect to audit, tax and review services.

Other fees are subject to pre-approval by the Audit Committee of the board.

The audit fees paid to the auditors with respect to 2019 were pre-approved by the Audit Committee of the board of directors.

The information required by this item will be contained in our Proxy Statement and is incorporated herein by this reference.

PRINCIPAL ACCOUNTANT FEES AND SERVICES.

The information required by this item will be contained in our Proxy Statement and is incorporated herein by this reference.

EXHIBITS, FINANCIAL STATEMENT SCHEDULES.

Financial Statements

The consolidated financial statements and Report of Independent Registered Accounting Firm are listed in the “Index to Financial Statements and Schedules” beginning on page 1 and included on pages 2 through 23.

The consolidated financial statements and Report of Independent Registered Accounting Firm are listed in the “Index to Financial Statements and Schedules” beginning on page F-1 and included on pages F-2 through F-26.

Financial Statement Schedules

3 unchanged sentences

The omitted material has been filed separately with the Commission.

Certain portions of this exhibit have also been redacted pursuant to Item 601(b)(10)(iv) of Regulation S-K.

The omitted information is (i) not material and (ii) would likely cause competitive harm to Inuvo if publicly disclosed.

The location of the omitted confidential information is indicated in the exhibit with asterisks (***).

Exhibit Description Form Date Filed Number Filed or Furnished Herewith

1.1 Underwriting Agreement dated May 11, 2018

8-K 5/11/18 1.1

1.2 Underwriting Agreement dated July 11, 2019

8-K 7/11/19 1.2

2.1 Agreement and Plan of Merger dated June 5, 2009 between Inuvo, Inc.

35 unchanged sentences

10-K 3/29/12 3(i).6

3(i).7 Articles of Amendment to Articles of Incorporation as filed on October 31, 2019

10-Q 5/15/20 3(i).7

3(i).8 Certificate of Validation of Amendment to Amended Articles of Incorporation as filed October 16, 2020

10-Q 11/9/20 3(i)(8)

3(i).9 Articles of Amendment to Articles of Incorporation as filed January 7, 2021

3(ii).1 Amended and Restated By-Laws

2 unchanged sentences

8-K 3/6/12 3(ii).1

4.1 Rights Agreement dated as of February 14, 2008 by and between Inuvo, Inc.

and Colonial Stock Transfer Company, Inc.

8-K 2/19/08 4.1

4.2 Amendment No.

1 to the Rights Agreement dated as of August 31, 2011

8-K 10/17/11 10.23

4.3 Amendment No.

2 to the Rights Agreement dated February 28, 2018

8-K 3/6/18 4.1

10.1 Business Financing Agreement, dated March 1, 2012, with Bridge Bank, National Association (Incorporated by reference to the Registrant's Current Report on Form 8-K as filed on March 6, 2012.)

8-K 3/6/12 10.1

10.2 Intellectual Property Security Agreement, dated March 1, 2012, between Inuvo, Inc.

and Bridge Bank, National Association (Incorporated by reference to the Registrant's Current Report on Form 8-K as filed on March 6, 2012.)

8-K 3/6/12 10.6

10.3 Intellectual Property Security Agreement, dated March 1, 2012, between subsidiaries and Bridge Bank, National Association

8-K 3/6/12 10.7

10.4 First Business Financing Modification Agreement with Bridge Bank, National Association, dated June 29, 2012

10-Q 8/9/12 10.1

10.5 Second Business Financing Modification Agreement with Bridge Bank, National Association, dated October 11, 2012

10-Q 11/8/12 10.1

10.6 Third Business Financing Modification Agreement, dated March 29, 2013, effective May 1, 2013, with Bridge Bank, National Association.

10-Q 5/9/13 10.8

10.7 Fourth Business Financing Modification Agreement, dated March 6, 2014, with Bridge Bank, National Association

10-K 3/10/14 10.27

10.8 Fifth Business Financing Modification Agreement, dated September 29, 2014 with Bridge Bank N.A.

(Incorporated by reference to the n Form 10-Q for the period ended September 30, 2014).

10-Q 10/30/14 10.1

10.9 Bridge Bank BFA Modification, dated October 9, 2014.

10-Q 10/30/14 10.2

10.10 Sixth Business Financing Modification Agreement, dated September 27, 2016 with Bridge Bank N.A.

Form 10-Q for the period ended September 30, 2016).

10-Q 10/26/16 10.26

10.11 Seventh Business Financing Modification Agreement, dated December 9, 2016 with Bridge Bank N.A.

10-K 2/16/17 10.31

10.12 Eight Business Financing Modification Agreement dated March 27, 2017 by and among Western Alliance Bank, Inuvo, Inc., BabytoBee LLC, Kowabunga Marketing, Inc., Vertro, Inc.

and Alot, Inc.

10-Q 5/5/17 10.26

10.13 Ninth Business Financing Modification Agreement, dated August 7, 2017, with Bridge Bank N.A.

10-Q 8/8/17 10.29

10.14 Form of Amended and Restated Business Financing Agreement dated October 11, 2018 with Western Alliance Bank

10-Q 11/7/18 10.4

10.15 First Amendment dated February 1, 2019 to Amended and Restated Business Financing Agreement with Western Alliance Bank

10-K 3/15/19 10.7

10.16 Google Services Agreement dated February 1, 2013 ***

10-K/A 5/21/13 10.25

10.17 Google Services Agreement, effective February 1, 2015, with Google, Inc.

10-Q 4/29/15 10.31

10.18 Google Services Agreement Amendment No.

1 dated February 28, 2017.

10-K 2/16/17 10.32

4.1 Description of Securities

10.1 Google Services Agreement effective March 1, 2017 by and between Vertro, Inc.

33 unchanged sentences

10-K 3/15/19 10.6

10.30 Form of Indemnification Agreement

10.12 Amendment #28 to the Yahoo!

Publisher Network Contract #1-19868214, dated as of November 11, 2020***

8-K 11/16/20 10.1

10.13 Form of Indemnification Agreement with Direc tors of Inuvo, Inc.

10-Q 11/7/18 10.5

10.31 Form of Securities Purchase Agreement, dated March 1, 2019.

10.32 Form of $1,440,000 Original Issue Discount Unsecured Subordinated Convertible Notes due September 1, 2020.

10.14 Form of Securities Purchase Agreement dated June 4, 2020 by and between Inuvo, Inc, and the purchasers listed therein

10.15 Form of Securities Purchase Agreement, dated January 14, 2021 by and between Inuvo, 2019.Inc, and the purchasers listed therein

8-K 1/14/21 10.1

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

8-K 1/20/21 10.1

10.17 2010 Equity Compensation Plan

5 unchanged sentences

DEF14A 4/28/2017 A

10.20 Amendment No.

1 to the 2017 Equity Compensation Plan

DEF14 9/3/2019 B

10.21 Quick Action Closing Fund Grant Agreement, dated January 25, 2013, with the Arkansas Economic Development Commission

2 unchanged sentences

10-K 3/13/2013 10.24

10.38 Lease Agreement, dated April 8, 2015, with Arkansas Democrat-Gazette, Inc.

10-Q 4/29/2015 10.30

10.39 Lease Agreement, dated June 5, 2017, with KBSIII ALMADEN FINANCIAL PLAZA, LLC.

10-Q 8/8/2017 10.28

10.23 Employment Agreement dated March 1, 2012 between Inuvo, Inc.

6 unchanged sentences

8-K 3/6/2012 10.5

10.43 Asset Purchase Agreement dated February 6, 2017 by and among Inuvo, Inc., NetSeer Acquisition, Inc.

and NetSeer, Inc.

8-K 2/7/2017 10.1

10.44 Business Financing Modification Agreement dated April 30, 2019 (Second Amendment to the Amended and Restated Business Financing Agreement with Western Alliance Bank)

8-K 5/6/2019 10.1

10.45 Business Financing Modification Agreement dated June 5, 2019 (Third Amendment to the Amended and Restated Business Financing Agreement with Western Alliance Bank)

8-K 6/12/2019 10.1

10.46 Inuvo Note Termination Agreement dated June 20, 2019 by and between CPT Investments, LLC and Inuvo, Inc.

8-K 6/21/2019 2.2

10.47 Form of Note Modification and Release Agreement

10-Q 11/14/2019 10.1

10.26 Loan and Security Agreement dated February 28, 2020 effective March 12, 2020 by and between Inuvo, Inc.

3 unchanged sentences

8-K 3/20/20 10.1

21.1 Subsidiaries of the Registrant

10.28 Form of Subscription Agreement

8-K 4/01/20 10.1

10.29 2017 Equity Compensation Plan Restricted Stock Unit Agreement

21.1 Subsidiaries of the Registrant

23.1 Consent of Mayer Hoffman McCann P.C

9 unchanged sentences

101.PRE XBRL Taxonomy Extension Presentation Linkbase Document Filed

104 The cover page for Inuvo, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2020, formatted in Inline XBRL (included within Exhibit 101 attachments).

* The Company has omitted schedules and similar attachments to the subject agreement pursuant to Item 601(b) of Regulation S-K.

2 unchanged sentences

The omitted confidential material has been filed separately.

Certain portions of this exhibit have also been redacted pursuant to Item 601(b)(10)(iv) of Regulation S-K.

The omitted information is (i) not material and (ii) would likely cause competitive harm to Inuvo if publicly disclosed.

The location of the omitted confidential information is indicated in the exhibit with asterisks (***).

2 unchanged sentences

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

May 12, 2020 By:

February 11, 2021 By:

/s/ Wallace D.

3 unchanged sentences

/s/ Richard K.

Howe Chairman of the Board of Directors, Chief Executive Officer, and principal executive officer May 12, 2020

Howe Chairman of the Board of Directors, Chief Executive Officer, and principal executive officer February 11, 2021

/s/ Wallace D.

Ruiz Chief Financial Officer, principal financial and accounting officer May 12, 2020

Kent Burnett Director May 12, 2020

Ruiz Chief Financial Officer, principal financial and accounting officer February 11, 2021

Kent Burnett Director February 11, 2021

/s/ Gordon J.

Cameron Director May 12, 2020

Cameron Director February 11, 2021

/s/ Charles D.

Morgan Director May 12, 2020

/s/ Patrick Terrell Director May 12, 2020

Patrick Terrell

Morgan Director February 11, 2021

CONSOLIDATED FINANCIAL STATEMENTS

29 unchanged sentences

We believe that our audits provide a reasonable basis for our opinion.

Material Uncertainty Regarding Continuation as a Going Concern

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern.

As discussed in Note 1 to the consolidated financial statements, the Company has suffered recurring losses from operations and has a net capital deficiency that raise substantial doubt about its ability to continue as a going concern.

Management's plans in regard to these matters are also described in Note 1.

The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Adoption of New Accounting Standard

1 unchanged sentence

Our opinion is not modified with respect to this adoption.

Critical Audit Matters

Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (i) relate to accounts or disclosures that are material to the financial statements and (ii) involved our especially challenging, subjective, or complex judgements.

We determined that there are no critical audit matters.

/s/ Mayer Hoffman McCann P.C.

We have served as the Company’s auditor since 2009.

February 11, 2021

Clearwater, Florida

5 unchanged sentences

6,227,610 7,529,785

Unbilled revenue 5,813 11,754

Prepaid expenses and other current assets 413,435 243,888

3 unchanged sentences

Intangible assets, net of accumulated amortization 8,586,089 10,451,593

Right of use assets - operating lease 606,573 756,115

Right of use assets - finance lease 395,910 88,178

Other assets 20,886 20,886

5 unchanged sentences

Accrued expenses and other current liabilities $ 4,216,448 $ 3,614,433

Notes payable — 250,000

Lease liability - operating lease $ 217,671 362,130

Lease liability - finance lease $ 246,793 80,777

Derivative liability $ — 182,250

4 unchanged sentences

Deferred tax liability 107,000 107,000

Convertible promissory notes, net of current portion (net) $ — 1,000,000

Lease liability - operating lease 388,902 394,889

Lease liability - finance lease 93,426 —

Other long-term liabilities 573,957 57,162

5 unchanged sentences

Authorized shares 100,000,000 ;

issued shares 52,222,538 and 32,757,817 respectively;

Authorized shares 40,000,000 ;

issued and outstanding shares 98,035,829 and 52,222,538 respectively;

issued and outstanding shares 98,035,829 and 51,846,011 , respectively

98,036 52,223

1 unchanged sentence

Accumulated deficit ( 136,350,370 ) ( 129,045,801 )

Treasury stock, at cost - 376,527 shares

Treasury stock, at cost - — and 376,527 shares, respectively

— ( 1,396,559 )

35 unchanged sentences

Shares withheld for taxes on vested restricted stock ( 45,565 ) ( 45,565 )

Cancellation of common stock ( 54,030 ) ( 54 ) 54 — — —

Convertible Note Conversion 2,886,792 2,887 834,283 — — 837,170

Balances as of December 31, 2019 51,846,011 $ 52,223 $ 144,843,687 $ ( 129,045,801 ) $ ( 1,396,559 ) $ 14,453,550

1 unchanged sentence

Stock-based compensation — — 858,683 — — 858,683

Cancellation of treasury stock — ( 376 ) ( 1,396,183 ) — 1,396,559 —

Stock issued for vested restricted stock awards 1,020,882 1,020 ( 1,020 ) — — —

9 unchanged sentences

Adjustments to reconcile net loss to net cash used in operating activities:

PPP loan forgiveness ( 1,109,000 ) —

Contract cancellation ( 1,260,978 ) —

Gain on merger termination — ( 3,766,667 )

6 unchanged sentences

Amortization of financing fees 11,092 59,245

Deferred income taxes — 7,931

(Recovery)/Provision for doubtful accounts ( 15,333 ) 161,273

1 unchanged sentence

Amortization of debt discount 18,286 168,105

Third party rights agreement ( 78,762 ) —

Change in operating assets and liabilities:

Accounts receivable and unbilled revenue ( 973,522 ) 4,058,591

Prepaid expenses and other assets 20,893 139,031

Accounts receivable 1,317,508 ( 973,522 )

Prepaid expenses, unbilled revenue and other assets ( 175,702 ) 20,893

Accounts payable ( 2,271,578 ) ( 1,978,974 )

6 unchanged sentences

Proceeds from sale of common stock, net of expenses 16,432,190 4,349,123

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

Proceeds from ValidClick licensing agreement 500,000 —

Proceeds from financed receivables — 1,521,511

Proceeds from convertible promissory note — 1,200,000

(Payments)/Proceeds on note payable ( 250,000 ) 250,000

Payments on note payable — ( 250,000 )

Net proceeds on revolving line of credit ( 3,381,364 ) —

3 unchanged sentences

Shareholder settlement — 125,000

Debt issuance cost ( 65,000 ) —

Net cash provided by (used in) financing activities

Net cash provided by financing activities

14,302,346 6,676,580

5 unchanged sentences

Non-cash investing and financing activities:

Conversion of Debt and derecognition of derivative and discounts to common stock $ 923,810 $ —

Assets purchased under finance lease obligations $ 547,303 $ —

Assets purchased under operating lease obligations $ 249,595 $ —

Debt conversion and related activities $ — $ 837,170

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Inuvo facilitates the delivery of hundreds of millions of marketing messages to consumers every single month and counts among its clients, numerous world- renowned names in industries that have included retail, automotive, insurance, health care, technology, telecommunications and finance.

Inuvo has contractual relationships with three clients who collectively manage over 50 % of all U.S.

digital media budgets.

Inuvo’s solution incorporates a proprietary form of artificial intelligence, or AI, branded the IntentKey.

The Inuvo solution incorporates a proprietary form of artificial intelligence, or AI, branded the IntentKey.

This sophisticated machine learning technology uses interactions with Internet content as a source of information from which to predict consumer intent.

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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 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 associated with Inuvo’s business model, including a proficiency in large scale information processing, predictive software development, marketing data products, analytics, artificial intelligence, integration to the internet of things (IOT), and the relationships required to execute within the IOT.

Inuvo’s intellectual property is protected by 17 issued and eight pending patents.

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

As part of the Inuvo technology strategy, it owns a collection of websites including alot.com and earnspendlive.com, where Inuvo creates content in health, finance, travel, careers, auto, education and living categories.

These sites provide the means to test the Inuvo technologies, while also delivering high quality consumers to clients through the interaction with proprietary content in the form of images, videos, slideshows and articles.

There are many barriers to entry associated with the Inuvo business model, including a proficiency in large scale information processing, predictive software development, marketing data products, analytics, artificial intelligence, integration to the internet of things (IOT), and the relationships required to execute within the IOT.

Inuvo's intellectual property is protected by 18 issued and seven pending patents.

Mergers Termination

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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.

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 CPT Investments, and (4) terminate the Registration Rights Agreement, dated November 1, 2018, by and between Inuvo and CPT Investments.

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

(1) $ 1,063,288 of the Termination Fee (the “Indebtedness Satisfaction Amount”) was satisfied in consideration of the termination and cancellation of the Outstanding Indebtedness pursuant to the CPTI Note Termination Agreement that was approved by CPT’s senior lenders Montage Capital II, L.P.

(1) $ 1,063,288 of the Termination Fee was satisfied in consideration of the termination and cancellation of the Outstanding Indebtedness pursuant to the CPTI Note Termination Agreement that was approved by CPT’s senior lenders Montage Capital II, L.P.

and Partners for Growth IV, L.P.

(the “Senior Lenders”) of CPT’s issuance of a replacement note to CPT Investments that was entered into in July 2019;

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

and CPT’s issuance of a replacement note to CPT Investments that was entered into in July 2019;

(2) $ 1,611,712 of the Termination Fee 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 free and clear of all liabilities, encumbrances, or liens, to Inuvo.

The enterprise valuation of the ReTargeter Business was determined to be $ 2.57 million.

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

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

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.

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Inuvo, however, will be able to pursue any claims against CPT and its affiliates for breaches of the Merger Termination Agreement.

The change in operating assets and liabilities during 2019 was a use of cash of $ 5,338,383 primarily due to a net loss of $ 4,488,107 , decrease in the accounts payable balance by $ 1,978,974 , an increase of accounts receivable of $ 973,522 , offset by a increase in accrued expenses and other liabilities balance by $ 1,348,033 The seasonal nature of our business is such that the second half year revenue is typically greater than the first half year revenue and therefore, the related accounts receivable balance is higher.

The change in operating assets and liabilities during 2020 was a use of cash of $ 5,599,335 primarily due to a net loss of $ 7,304,569 , a decrease in the accounts payable balance by $ 2,271,578 , partially offset with the decrease in the accounts receivable balance of $ 1,317,508 and the increase in accrued expenses and other liabilities balance by $ 623,576 .

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 which is described in Note 6 to our 2019 audited consolidated financial statements appearing elsewhere in this report, the sale of our common stock and borrowings from non-bank financial institutions.

In March 2020, this credit facility was replaced by our credit facility with Hitachi.

Our net working capital was negative $ 7.5 million as of December 31, 2019 compared to negative $ 6.9 million as of December 31, 2018.

The lower net working capital is primarily due to a $ 4.4 million net loss for the year ended December 31, 2019, which is net of certain one-time gains of approximately $ 3.7 million, and which included approximately $ 1 million of expense associated with the failed Mergers described earlier in this section.

On March 1, 2019, we entered into a Securities Purchase Agreement with three accredited investors pursuant to which we sold an aggregate of $ 1,440,000 of principal of Original Issue Discount Unsecured Subordinated Convertible Notes due September 1, 2020.

On November 11, 2019 we entered into Note Modification and Release Agreements with the holders of two of these notes representing an aggregate of $ 1,080,000 principal amount of these notes.

The third noteholder did not enter into a Note Modification and Release Agreement.

Under the terms of the Note Modification and Release Agreement, the parties agreed that in consideration of such noteholder’s agreement to convert a minimum of 50 % of the outstanding amount of the note (the “First Conversion Amount”) that the conversion price for the First Conversion Amount would be $ 0.265 per share and that the conversion price for any remaining amount due under the note would be $ 0.30 per share, subject to future adjustment under the terms of the note including dilutive issuances at price below $ 0.30 per share.

Following the execution of the Note Modification and Release Agreement, the noteholders converted an aggregate of $ 765,000 principal amount due under the notes into 2,886,792 shares of our common stock.

Additionally, the company derecognized a proportionate amount of the derivative liability totaling $ 72,170 .

In January 2020, a noteholder converted $ 360,000 principal amount due under the note into 1,200,000 shares of our common stock.

After this conversion, $ 315,000 of the original principal amount was outstanding under all of these notes.

For 2019, our revenues declined 16 % from the same period in the prior year.

We reported losses from operations of approximately $ 7.7 million for the year ended December 31, 2019.

In addition to the $ 1 million Mergers costs described above, the lower revenue in 2019 is principally responsible for our losses.

Of the net loss after the one-time gains described above for 2019, approximately $ 4.3 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.

We have pooled our resources behind a plan to grow our AI technology, the IntentKey, where we have a technology advantage and higher margins.

If we are successful in implementing our plan, we expect to return to a positive cash flow from operations by the second half of 2020.

However, there is no assurance that we will be able to achieve this objective.

We use the Financing Agreement 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.

There is no assurance that we will be successful in obtaining funding to continue operations in which case we would need to find additional sources of credit and make substantial reductions to 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 consolidated financial statements have been prepared with the realization of assets and the satisfaction of liabilities in the normal course of business.

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 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 areas with immediate revenue potential and reducing expenses where necessary.

Our principal sources of liquidity are the sale of our common stock, our borrowings under our credit facility with Hitachi, described in Note 6, and borrowings from non-bank financial institutions (see Note 7).

During March 2020 and April 2020, we raised approximately $ 1.5 million in gross proceeds, before expenses, through sales of our common stock and in April 2020 we received a $ 1.1 million PPP Loan.

On June 8, 2020, we raised an additional $ 5.5 million in gross proceeds, before expenses, through the sale of our common stock and on July 27, 2020, we raised an additional $ 10.75 million in gross proceeds, before expenses, through sales of our common stock.

On January 19, 2021, we raised an additional $ 8.0 million in gross proceeds, before expenses, through the sale of our common stock, and on January 22, 2021, we raised an additional $ 6.25 million in gross proceeds, before expenses, through sales of our common stock.

In April 2020, the Company experienced a significant reduction in advertiser marketing budgets across both the ValidClick and IntentKey platforms as a direct consequence of COVID-19.

These reductions have adversely impacted our overall revenue throughout 2020.

We are unable at this time to quantify the ultimate long-term impact on our company.

As a result, in May 2020 and June 2020 we implemented a temporary compensation change for senior officers and employees.

Certain employees with salaries in excess of $ 100,000 per year had forgone a percentage of their salary.

We have curtailed expenses, including compensation and travel for the months of May and June, and we issued a work from home policy to protect our employees and their families from virus transmission associated with co-workers.

As a result of this uncertainty we are focusing 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.

On October 7, 2020, we held a Special Meeting of Stockholders for the purpose of approving and adopting the ratification and validation of the amendment to our articles of incorporation to increase the number of authorized shares of common stock that we may issue from 60,000,000 to 100,000,000 .

The proposal was approved.

On December 16, 2020, stockholders approved an amendment to our articles of incorporation increasing the number of authorized shares of common stock, $ 0.001 par value per share from 100,000,000 to 150,000,000 .

Revisions of Previously Issued Consolidated Financial Statements

During the second quarter of 2020, the Company identified an error in the accounting for deferred tax asset valuation allowance originating in 2012 and continuing in its previously issued 2019 annual consolidated financial statements and the first quarter of 2020.

Although the Company assessed the materiality of the error and concluded that the error was not material to the previously issued annual or interim financial statements, the Company is revised its previously issued 2019 annual balance sheet to correct for the error in connection with the filing of its Quarterly Report on Form 10-Q for the period ended June 30, 2020.

Additionally, in connection with the filing of this Annual Report on Form 10-K, the Company has disclosed the impact of the revision to the consolidated balance sheet to correct for the impact of the error.

See Note 19, "Revisions of Previously Issued Consolidated Year-end Financial Statements" for reconciliations between as reported and as revised amounts as of and for the period ended December 31, 2019 and 2018.

Note 2 – Summary of Significant Accounting Policies

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Cash and cash equivalents - Cash and cash equivalents consist of highly liquid investments with original maturities of three months or less.

Revenue recognition - In May 2014, the FASB issued Accounting Standards Update No.

2014-09 (Topic 606) "Revenue from

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.

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

recognize revenue from clicks in the period in which the click occurs.

Payments to partners who display advertisements on our

behalf are recognized as cost of revenue.

Revenue from data sales and commissions is recognized in the period in which the

transaction occurs and the other revenue recognition criteria are met.

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

We recognize revenue from clicks in the period in which the click occurs.

Payments to partners who display advertisements on our behalf are recognized as cost of revenue.

Revenue from data sales and commissions is recognized in the period in which the transaction occurs and the other revenue recognition criteria are met.

Revenues are recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services.

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The revenue is recognized in the period that the impression is served.

The below table is the proportion of revenue that is generated through advertisements on our partners sites and owned sites:

For the Years Ended December 31,

Partners $ 41,763,064 67.9 % $ 52,087,368 71.0 %

Owned Sites 19,762,150 32.1 % 21,243,274 29.0 %

Total $ 61,525,214 100.0 % $ 73,330,642 100.0 %

The following table presents our revenue disaggregated by channel:

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

For the Years Ended December 31,

Mobile $ 37,120,187 $ 50,785,680

Desktop 23,390,006 21,398,065

Other 1,015,021 1,146,897

ValidClick Platform $ 34,233,638 76.7 % $ 53,006,638 86.2 %

IntentKey Platform 10,406,369 23.3 % 8,518,576 13.8 %

Total $ 44,640,007 100.0 % $ 61,525,214 100.0 %

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Goodwill - Goodwill is recorded as the difference, if any, between the aggregate consideration paid for an acquisition and the fair value of the net tangible and intangible assets acquired.

In accordance with ASC 350, Goodwill and Other Intangible Assets (“ASC 350”), we test goodwill for impairment at the reporting unit level (operating segment or one level below an operating segment) on an annual basis or more frequently if we believe indicators of impairment exist.

The impairment test involves comparing the fair values of the applicable reporting units with their aggregate carrying value, including goodwill.

We generally determine the fair value of our reporting units using the income approach methodology of valuation that includes the undiscounted cash flow method as well as other generally accepted valuation methodologies.

ASU 2017-04 simplifies the accounting for goodwill impairments by eliminating the requirement to compare the implied fair value of goodwill with its carrying amount as part of step two of the goodwill impairment test referenced in Accounting Standards Codification (“ASC”) 350, Intangibles - Goodwill and Other (“ASC 350”).

As a result, we perform our annual goodwill impairment test by comparing the fair value of our reporting unit with its carrying amount.

We generally determine the fair value of our reporting unit using the income approach methodology of valuation that includes the undiscounted cash flow method as well as other generally accepted valuation methodologies.

If the carrying amount of a reporting unit exceeds the reporting unit’s fair value, the amount it exceeds fair value is equivalent to the amount of impairment loss.

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We recorded no impairment of intangible assets during 2020 or 2019.

We recorded $ 2.57 million in intangible assets from the CPT Merger Termination Agreement.

In 2019, we recorded $ 2.57 million in intangible assets from the CPT Merger Termination Agreement.

An independent valuation of the assets was performed to determine the carrying value of the assets listed above.

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A valuation allowance is recorded when it is more likely than not that some of the deferred tax assets will not be realized.

In assessing the need for a valuation allowance, we must project future levels of taxable income, which requires significant judgment.

In assessing the need for a valuation allowance, we must project future levels of taxable income.

We examine evidence related to the history of taxable losses or income, the economic conditions in which we operate, organizational characteristics, our forecasts and projections, as well as factors affecting liquidity.

All our deferred tax assets and liabilities are recorded as long-term assets and liabilities in the consolidated balance sheets.

We believe it is more likely than not that essentially none of our deferred tax assets will be realized, and we have recorded a full valuation for the net deferred tax assets as of December 31, 2019 and 2018.

We believe it is more likely than not that essentially none of our deferred tax assets will be realized, and we have recorded a valuation for a significant portion of the net deferred tax assets as of December 31, 2020 and 2019.

We have adopted certain provisions of ASC 740.

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We deferred grant funds related to capitalized costs and classified them as current or long-term liabilities on the balance sheet according to the classification of the associated asset.

As of December 31, 2019, there were 33 employees in Arkansas, thirteen employees under the required 50 .

As of December 31, 2020, there were 38 employees in Arkansas, twelve employees under the required 50 .

As such, we recorded a contingent liability $ 60,000 .

As of December 31, 2019, there were 33 employees in Arkansas, seventeen employees under the required 50 .

As such, we recorded a contingent liability $ 85,000 .

Treasury Stock - The cost method was used in recording the purchase of the treasury stock.

Treasury stock changes as a result of common stock we acquire in the market.

On July 14, 2020, our Board of Directors authorized the cancellation of 376,527 shares of treasury stock.

Earnings per share - During the periods presented, we had securities that could potentially dilute basic earnings per share in the future, but were excluded from the computation of diluted net loss per share, as their effect would have been anti-dilutive.

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Given the consolidated level of review by the Company’s chief executive officer, the Company operates as one reportable segment.

Most net revenue is earned in the United States and all long-lived assets are located in the United States.

Concentration of credit risk - We are exposed to concentrations of risk primarily in cash and accounts receivable, which are generally not collateralized.

Our policy is to place our cash with high credit, quality financial institutions in order to limit the amount of credit exposure.

At times, deposits may exceed FDIC limits.

Our cash deposits exceed FDIC limits.

We do not require collateral from our customers, but our credit extension and collection policies include monitoring payments and aggressively pursuing delinquent accounts.

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GAAP"), requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, net revenues and expenses and disclosure of contingent assets and liabilities.

The estimates and assumptions used in the accompanying consolidated financial statements are based upon management’s regular evaluation of the relevant facts and circumstances as of the date of the consolidated financial statements.

We regularly evaluate estimates and assumptions related to allowances for doubtful accounts, goodwill and purchased intangible asset valuations, valuation of long-lived assets and derivative liability.

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.

Actual results may differ from the estimates and assumptions used in preparing the accompanying consolidated financial statements, and such differences could be material.

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We elected the package of practical expedients permitted under the transition guidance, which allowed us to carryforward our historical lease classification, our assessment on whether a contract is or contains a lease, and our initial direct costs for any leases that exist prior to adoption of the new standard.

We also elected to

combine lease and non-lease components and to keep leases with an initial term of 12 months or less off the balance sheet and recognize the associated lease payments in the consolidated statements of income on a straight-line basis over the lease term.

We also elected to combine lease and non-lease components and to keep leases with an initial term of 12 months or less off the balance sheet and recognize the associated lease payments in the consolidated statements of income on a straight-line basis over the lease term.

Based on the present value of the lease payments for the remaining lease term of the Company's existing leases, the Company recognized right-of-use assets and lease liabilities for operating leases of approximately $ 1.2 million and finance leases of approximately $ 265,000 , respectively, on January 1, 2019.

In January 2017, the FASB issued ASU 2017-04, Intangibles—Goodwill and Other (Topic 350)—Simplifying the Test for Goodwill Impairment (“ASU 2017-04”).

As a result, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount.

An impairment charge should be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value.

However, the impairment loss recognized should not exceed the total amount of goodwill allocated to that reporting unit.

ASU 2017-04 is effective for annual reporting periods beginning after December 15, 2019, including any interim impairment tests within those annual periods, with early application permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017.

In January 2019, we elected to early adopt ASU 2017-04, and the adoption had no impact on our consolidated financial statements.

We will perform future goodwill impairment tests according to ASU 2017-04.

Recent Accounting Pronouncements Not Yet Adopted

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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.

We will adopt the new standard effective January 1, 2020 and do not expect the adoption of this guidance to have a material impact on our consolidated financial statements.

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.

Reclassifications

Certain amounts previously presented for prior periods have been reclassified to conform to the current presentation.

The reclassifications had no effect on net loss, working capital or equity previously reported.

N ote 3 – Allowance for Doubtful Accounts

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Balance at the beginning of the year $ 225,000 $ 63,727

Provision/(recoveries) for bad debts 189,441 ( 14,000 )

Provision for bad debts 135,000 189,441

Charge-offs ( 150,333 ) ( 28,168 )

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Technology 5 years 3,600,000 ( 2,100,000 ) 1,500,000 720,000

Customer list, ReTargeter (2) 5 years 1,931,250 ( 160,938 ) 1,770,312 160,938

Customer list, all other 10 years 1,610,000 ( 1,261,198 ) 348,802 161,004

Brand name, ReTargeter (2) 5 years 643,750 ( 53,646 ) 590,104 53,646

Customer relationships 20 years 570,000 ( 83,125 ) 486,875 28,500

Tradenames, web properties (1) - 390,000 — 390,000 —

Brand 1 year 121,000 ( 121,000 ) — 10,083

Non-competition agreements 1 year 69,000 ( 69,000 ) — 5,750

Intangible assets classified as long-term $ 17,565,000 $ ( 7,113,407 ) $ 10,451,593 $ 1,565,088

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2022 1,071,294

Thereafter 3,035,374

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6.75 percent at December 31, 2019 (prime plus 2 percent) on uninvoiced receivables

3,381,364 1,859,853

Total $ — $ 3,381,364

On March 1, 2012, we entered into a Business Financing Agreement with Bridge Bank, which is now owned by Western Alliance Bank.

The agreement provided us with a revolving credit line of up to $ 10 million which we use to help satisfy our working capital needs.

We have provided Western Alliance with a first priority perfected security interest in all of our accounts and personal property as collateral for the credit facility.

On October 11, 2018, we entered into the Amended and Restated Business Financing Agreement with Western Alliance Bank and superseded the Business Financing Agreement, as amended, entered into on March 1, 2012 with Bridge Bank, N.A.

which is now owned by Western Alliance Bank.

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 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 expires at the end of April 2019.

The Amended and Restated Financing Agreement includes certain fees;

The agreement provided us with a revolving credit line of up to $ 10 million which we used to help satisfy our working capital needs.

On October 11, 2018, we entered into the Amended and Restated Financing Agreement with Western Alliance Bank which superseded the Business Financing Agreement, as amended.

The material terms of the Amended and Restated Financing Agreement included financing eligible invoiced receivables at an advance rate of 85 % and an interest rate of prime plus 1 % and a sub-limit of up to $ 2.5 million of uninvoiced eligible receivables at an advance rate of 75 % and an interest rate of prime plus 2 %.

The sub-limit provision expired at the end of April 2019.

The Amended and Restated Financing Agreement included certain fees;

a facility fee of $ 11,765 due at closing;

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and $ 80,000 due upon termination of the agreement or repayment of our obligations under the agreement.

The Amended and Restated Financing Agreement is secured by all of our assets.

The Amended and Restated Financing Agreement was secured by all of our assets.

On April 30, 2019, under the terms of the Second Amendment, Western Alliance Bank agreed to extend the $ 2.5 million sub-limit provision of uninvoiced eligible receivables until the earlier of May 31, 2019 or three days after the closing of the Mergers, among other terms.

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The Third Amendment provided that with respect to the eligible unbilled receivable sublimit of $ 2,500,000 , which expired May 31, 2019 under the Amended and Restated Financing Agreement, that:

(i) lender has no obligation to finance unbilled receivables but may do so in its discretion;

(i) lender 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 7 - Notes Payable

On November 2, 2018, each of Messrs.

Howe, the Company’s Chief Executive Officer and member of our board of directors, and Charles D.

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 terminated Merger.

The notes were unsecured, bore interest at 10 % per annum and were due and satisfied on November 1, 2019.

The Business Financing Agreement expired and at December 31, 2020 there were no outstanding balances due.

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 all of our obligations under the Western Alliance Bank credit agreement and the balance was used for working capital.

Following the satisfaction of our obligations to Western Alliance Bank, all agreements with that entity have been terminated.

We pay Hitachi a monthly interest at the rate of 2 % in excess of the Wall Street Journal Prime Rate, with a minimum rate of 6.75 % per annum, on outstanding amounts.

The principal and all accrued but unpaid interest are due on demand.

The Agreement contains certain affirmative and negative covenants to which we are subject.

As of December 31, 2020, we were in compliance or obtained a waiver for these covenants.

We agreed to pay Hitachi a commitment fee of $ 50,000 , with one half due upon the execution of the agreement and the balance due six months thereafter.

Thereafter, we are obligated to pay Hitachi a commitment fee of $ 15,000 annually.

We are also obligated to pay Hitachi a quarterly service fee of 0.30 % on the monthly unused amount of the maximum credit line.

In addition to a $ 2,000 document fee we have paid to Hitachi, if we exit our relationship with Hitachi before March 1, 2022, we are obligated to pay Hitachi an exit fee of $ 50,000 .

At December 31, 2020 there were no outstanding balances due under the Loan and Security Agreement.

Note 7 - Convertible Promissory Note

On March 1, 2019, Inuvo entered into a Securities Purchase Agreement with three 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

is $ 1.08 per share which would make them convertible into 1,333,333 unregistered shares of Inuvo’s common stock upon

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.

On March 1, 2019, Inuvo entered into a Securities Purchase Agreement with three accredited investors for the purchase and sale of an aggregate of $ 1,440,000 of principal of Original Issue Discount Unsecured Subordinated Convertible Notes due September 1, 2020 (the “Calvary Notes”) to fund working capital and additional expenses resulting from the delay in closing of the Mergers associated with the government shut down.

The initial conversion price of the Calvary Notes was $ 1.08 per share which would have made the Calvary Notes then convertible into 1,333,333 unregistered shares of Inuvo’s common stock upon conversion.

The Calvary Notes were issued in a private placement and the shares of common stock issuable upon conversion are restricted, subject to resale under Rule 144.

The proceeds to Inuvo from the offering were $ 1,200,000 .

Inuvo did not pay

any commissions or finders fees in connection with the sale of the Calvary Notes and Inuvo utilized the proceeds for working

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.

Effective April 20, 2020, the Company and the holder of the remaining Calvary Notes due September 1, 2020 in the principal amount of $ 315,000 as modified under that certain Note Modification and Release Agreement effective November 11, 2019, agreed to amend the note to extend the maturity date to December 31, 2020 and reduce the conversion price to $ 0.175 per share.

On April 21, 2020, the noteholder converted $ 200,000 principal amount due under the note into 1,142,857 shares of our common stock.

On May 5, 2020, the noteholder converted the final $ 115,000 principal amount due under the note into 657,143 shares of our common stock, thereby satisfying the note in full.

Consideration of Down Round Price Adjustment

The 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.

The Calvary Notes contained certain triggers that created adjustments to the conversion ratio, which provided down round protection to the holders.

Because the conversion feature has been bifurcated as an embedded derivative and is marked to fair value at each reporting period, the actual occurrence of a trigger and the resulting adjustment to the conversion rate did not require any additional accounting treatment at the time of the price adjustment.

Rather, the next fair value computation reflects the new terms of the conversion feature.

On July 15, 2019, we closed on an underwritten public offering of 13,750,000 shares at an offering price of $ 0.30 per share.

As a result, this triggered a corresponding adjustment to the conversion ratio in the Notes to $ 0.30 .

The fair value of the embedded derivative at September 30, 2019, reflected these new terms.

As a result, this triggered a corresponding adjustment to the conversion ratio in the Calvary Notes to $ 0.30 .

The fair value of the embedded derivative reflected these terms at December 31, 2019.

Modifications/Extinguishment

On November 11, 2019 we entered into Note Modification and Release Agreements with the holders of $ 1,080,000 principal amount of the Calvary Notes.

Under the terms of the Note Modification and Release Agreement, the parties agreed that in consideration of such noteholder’s agreement to convert a minimum of 50 % of the outstanding amount of the note (the “First Conversion Amount”) that the conversion price for the First Conversion Amount would be $ 0.265 per share and that the conversion price for any remaining amount due under the note would be $ 0.30 per share, subject to future adjustments under the terms of the note including dilutive issuances at a price below $ 0.30 per share, subject to a floor of $ 0.23 per share.

The agreement contains mutual general releases.

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Both the loss due to the marking to market and the loss on extinguishment totaling approximately $ 193,000 were recorded to other income, net.

See Note 9 for discussion.

On November 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 principal amount 10 % senior unsecured subordinated convertible

promissory note ("the CPTI Note") to CPT Investments which we used for working capital.

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 satisfaction of the termination fee required by the Merger

On July 23, 2019, the Company received notice that the conditions precedent to effectiveness of the termination of

the CPTI Note were met pursuant to the Inuvo Note Termination Agreement, dated June 20, 2019, by and between the

Company and CPT Investments, and the CPTI Note has been canceled and terminated in full and rendered null and void.

past, current, or future obligations under the CPTI Note have been extinguished.

The termination of the note was recorded to

other income, net.

In January 2020, a noteholder of a $ 360,000 principal amount Calvary note converted the note into 1,200,000 shares of our common stock.

The carrying value of the bifurcated derivative was marked-to-market immediately prior to the conversion.

Upon conversion, the issued shares were recorded at their fair value.

Both the loss due to the marked-to-market and loss on extinguishment of approximately $ 69,000 were recorded to other income, net.

Upon the April 2020 conversion, we relieved a proportional amount ($ 200,000 of $ 315,000 or 63.49 %) of the adjusted carrying values of bifurcated conversion option and the debt host, and recorded the issued shares at their fair value of $ 0.22 per share.

This resulted in a gain on extinguishment of $ 9,258 and was recorded to other income, net.

Upon the May 2020 conversion, we relieved the remaining amount ($ 115,000 of $ 115,000 or 100 %) of the adjusted carrying values of bifurcated conversion option and the debt host, and recorded the issued shares at their fair value of $ 0.31 per share.

This resulted in a loss on extinguishment of $ 6,201 other income, net.

Note 8 - Derivative Liability

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Accrued expenses and other 440,578 1,152,267

Operating lease liability 362,130 —

Finance lease liability 80,777 —

Capital leases, current portion — 198,769

Accrued commissions 115,707 200,290

Accrued commissions and payroll 423,373 115,707

Arkansas grant contingency 60,000 85,000

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Other long-term liabilities consist of the following at December 31, 2020 and 2019:

Capital leases, less current portion — 80,969

Operating lease liability 394,889 —

Deferred revenue 420,000 —

SBA loan 149,900 —

Deferred rent 4,057 57,162

Accrued taxes, less current portion — 13,762

Total $ 573,957 $ 57,162

Note 11 - Commitments

In March 2020, we entered into an agreement to allow a third party to license and use ValidClick technology.

The agreement required a nonrefundable fee of $ 500,000 in March with subsequent fees as earned in later quarters.

The $ 500,000 fee was recorded 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.

For the year ended December 31, 2020, approximately $ 79,000 has been recognized as other income and approximately $ 420,000 as deferred revenue.

Note 12 - Income Taxes

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Deferred income taxes are the result of temporary differences between book and tax basis of certain assets and liabilities, timing of income and expense recognition of certain items and net operating loss carry-forwards.

When required, the Company records a liability for unrecognized tax positions, defined as the aggregate tax effect of differences between positions taken on tax returns and the benefits recognized in the financial statements.

Tax positions are measured at the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement.

No tax benefits are recognized for positions that do not meet this threshold.

The Company has no uncertain tax positions that

require the Company to record a liability.

The federal income tax returns of the Company are subject to examination by the IRS, generally for three years after they are filed.

We assess temporary differences resulting from different treatments of items for tax and accounting purposes.

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We evaluate the realizability of our deferred tax assets on a regular basis, an exercise that requires significant judgment.

In the course of this evaluation we

considered our recent history of tax losses, the economic conditions in which we operate, recent organizational changes and our forecasts and projections.

We believe it is more likely than not that essentially none of our deferred tax assets will be realized, and we have recorded a valuation allowance for the net deferred tax assets that may not be realized as of December 31, 2019 and 2018.

In the course of this evaluation we considered our recent history of tax losses, the economic conditions in which we operate, recent organizational changes and our forecasts and projections.

We believe it is more likely than not that essentially none of our deferred tax assets will be realized, and we have recorded a valuation allowance for a significant portion of the net deferred tax assets that may not be realized as of December 31, 2020 and 2019.

The following is a schedule of the deferred tax assets and liabilities as of December 31, 2020 and 2019:

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Less valuation allowance ( 35,848,400 ) ( 32,075,650 )

Total 1,844,700 1,912,200

Deferred tax liabilities:

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We maintain a stock-based compensation program intended to attract, retain and provide incentives for talented employees and directors and align stockholder and employee interests.

Currently, we grant options and restricted stock units ("RSUs") from the 2010 Equity Compensation Plan (“2010 ECP”) and the 2017 Equity Compensation Plan ("2017 ECP").

Option and restricted stock unit vesting periods are generally up to three years .

During the 2020 and 2019 periods, we granted options and restricted stock units ("RSUs") from the 2010 Equity Compensation Plan (“2010 ECP”) and the 2017 Equity Compensation Plan (“2017 ECP”).

The 2010 ECP expired by its terms in April 2020.

Option and RSUs vesting periods are generally up to three years and/ or achieving certain financial targets.

Compensation Expense

We recorded stock-based compensation expense for all equity incentive plans of $ 858,683 and $ 789,914 for the years ended December 31, 2020 and 2019, respectively.

Total compensation cost not yet recognized at December 31, 2019 was $ 619,422 to be recognized over a weighted-average recognition period of 1 year.

Total compensation cost not yet recognized at December 31, 2020 was $ 20,122 to be recognized over a weighted-average recognition period of less than one year .

Award Information and Activity

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The stockholders approved the amendment to our 2017 ECP at the annual stockholders meeting on October 4, 2019.

The following table summarizes the stock grants outstanding under our 2005 Long-Term Incentive Plan ("2005 LTIP"), 2010 ECP and 2017 ECP plans as of December 31, 2019:

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

The following table summarizes the stock grants outstanding under our 2010 ECP and 2017 ECP plans as of December 31, 2020:

Options Outstanding RSUs Outstanding Options and RSUs Exercised Available Shares Total

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2010 ECP (*) 9,500 957,666 4,084,095 — 5,051,261

2005 LTIP (*) 3,750 — 950,085 — 953,835

Total 9,500 1,930,526 5,569,568 6,791,667 14,301,261

(*) Expired June 2015

(*) Expired April 2020

The fair value of restricted stock units is determined using market value of the common stock on the date of the grant.

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The forfeiture rate, which is estimated at a weighted average of 0 % of unvested options outstanding, is adjusted periodically based on the extent to which actual forfeitures differ, or are expected to differ, from the previous estimate.

At December 31, 2019, the 2005 LTIP and 2010 ECP plans had 18,248 outstanding options and all were exercisable with an aggregate intrinsic value of $ 0 , a weighted average exercise price of $ 1.74 and a weighted average remaining contractual term of 1.5 years.

The following table summarizes our stock option activity under the 2005 LTIP and 2010 ECP plans during 2019:

At December 31, 2020, the 2010 ECP plan had 9,500 outstanding options and all were exercisable with an aggregate intrinsic value of $ 0 , a weighted average exercise price of $ 0.56 and a weighted average remaining contractual term of 1.5 years.

The following table summarizes our stock option activity under the 2010 ECP plan during 2020:

Options Weighted Average Exercise Price

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We do not anticipate paying any dividends so the dividend yield in the model is zero .

The following table summarizes our restricted stock activity for 2019:

Restricted Stock Weighted Average Fair Value

The following table summarizes our restricted stock unit activity for 2020:

Restricted Stock Unit Weighted Average Fair Value

Outstanding, beginning of year 2,568,951 $ 0.79

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During the 2020 and 2019, we generated a net loss from continuing operations and as a result, all of our shares are anti-dilutive.

Treasury Stock

On July 14, 2020, our Board of Directors authorized the cancellation of the 376,527 shares of treasury stock.

Note 15 – Retirement Plan Costs

We provide a 401(k) plan to help our employees prepare for retirement where we matched each employee's contributions to the plan up to the first four of the employee's annual salary.

Effective October 31, 2018, the employer match was suspended.

The matching contribution for the year ended 2020 was $ 186,483 .

The employer match was suspended for 2019.

Note 16 - Leases

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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

terms ranging 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 December 31, 2019 consolidated balance sheet and represent the Company’s right to use the underlying asset for the lease term.

Company’s obligations to make lease payments are also listed as a separate line items on the Company's December 31, 2019

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.

These operating and finance leases are listed as separate line items on the Company's December 31, 2020 and 2019 consolidated balance sheets and represent the Company’s right to use the underlying asset for the lease term.

The Company’s obligations to make lease payments are also listed as a separate line items on the Company's December 31, 2020 and 2019 consolidated balance sheets.

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 December 31, 2020, total operating and financed right-of-use assets were $ 606,573 and $ 395,910 , respectively.

The Company has entered into a short-term finance lease for equipment with a remaining term of twelve months or less and is included in the "Accrued expense and other current liabilities" section of the consolidated balance sheet.

As of December 31, 2019, total operating and financed right-of-use assets were $ 756,115 and $ 88,178 , respectively.

As of December 31, 2019 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 expense and other current liabilities" section of the 2019 consolidated balance sheet.

All operating lease expense is recognized on a straight-line basis over the lease term.

In the twelve months ended December 31, 2019, the Company recognized approximately $ 697 thousand in total lease costs, which was comprised of $ 417 thousand in operating lease costs for right-of use assets and $ 280 thousand in lease costs related to lease liabilities.

As of December 31, 2019, the Company recorded $ 177,193 in amortization expense related to finance leases.

For the years-ended December 31, 2020 and 2019, the Company recorded $ 367,981 and $ 177,193 in amortization expense related to finance leases.

Because the rate implicit in each lease is not readily determinable, the Company uses its incremental borrowing rate to

determine the present value of the lease payments.

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

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

December 31, 2020

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Weighted-average discount rate 6.25 %

December 31, 2019

Cash paid for operating lease liabilities

Weighted-average remaining lease term

Weighted-average discount rate

Minimum future lease payments ended December 31, 2020

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Cash paid for finance lease liabilities $ 589,504

Weighted-average remaining lease term Less than one year

Weighted-average remaining lease term 2.3 years

Weighted-average discount rate 6.25 %

December 31, 2019

Cash paid for finance lease liabilities

Weighted-average remaining lease term

Less than one year

Weighted-average discount rate

Minimum future lease payments ended December 31, 2020

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Note 17 - Related Party Transactions

In June 2019, the Company entered into a agreement with First Orion Corp., which is partially owned by two directors and

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

We received proceeds of $ 688,000 in this offering.

The purchase price of the shares of our common stock sold in the offering exceeded the closing market price of our common stock on March 19, 2020, the trading day immediately preceding the day the binding Insider Subscription Agreements were executed by the purchasers.

The purchasers were all accredited investors.

We did not pay any commissions or finder’s fees, and we used the proceeds for general working capital.

In June 2019, the Company entered into an agreement with First Orion Corp., which is partially owned by two directors and

shareholders of Inuvo, to provide office space.

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which was prepaid in June 2019.

Additionally, in 2018, the Company received a total of $ 31,500 from First Orion Corp.

for providing IT services.

On November 2, 2018, each of Messrs.

Howe, the Company’s Chief Executive Officer and member of our board of directors, and Charles D.

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 terminated Merger.

The notes were unsecured, bore interest at 10 % per annum and were due and satisfied on November 1, 2019.

Note 18 - Subsequent Events

In January 2020, a noteholder of the Original Issue Discount Unsecured Subordinated Convertible Notes due September 1, 2020 converted $ 360,000 principal amount due under the note into 1,200,000 shares of our common stock.

After this conversion, $ 315,000 of the original principal amount was outstanding under all of these notes (see Note 8).

On March 12, 2020 Inuvo, Inc.

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.

Under the terms of the Loan and Security Agreement Hitachi has provided us with a $ 5,000,000 line of credit commitment.

We are permitted to borrow (i) 90 % of the aggregate Eligible Accounts Receivable, plus (i) the lesser of 75 % of the aggregate Unbilled Accounts Receivable (as those terms are 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 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 will pay Hitachi 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.

In the event of a default under the terms of the Loan and Security Agreement, the interest rate increases to 6 % greater than the interest rate in effect from time to time prior to a default.

The Loan and Security Agreement contains certain affirmative and negative covenants to which we are also subject.

We agreed to pay Hitachi a commitment fee of $ 50,000 , with one half due upon the execution of the agreement and the balance due six months thereafter.

Thereafter, we are obligated to pay Hitachi a commitment fee of $ 15,000 annually.

We are also obligated to pay Hitachi a quarterly service fee of 0.30 % on the monthly unused amount of the maximum credit line.

In addition to a $ 2,000 document fee we have paid to Hitachi, if we should repay the amounts due under the Loan and Security Agreement before March 1, 2022, we are obligated to pay Hitachi an exit fee of $ 50,000 .

On March 20, 2020 Inuvo, Inc.

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 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.

On March 26, 2020, we entered into Subscription Agreements with certain investors pursuant to which we agreed to issue and sell, in a registered direct offering an aggregate of 3,115,000 shares of our common stock at a price of $ 0.175 per share.

On March 27, 2020 we closed these sales and received $ 545,125 in gross proceeds.

On April 1, 2020, we entered into Subscription Agreements with certain investors pursuant to which we agreed to issue and sell an additional 914,285 shares of our common stock at a price of $ 0.175 per share in this registered direct offering.

On April 2, 2020 we closed these sales and received gross proceeds of $ 245,050 .

No underwriter or placement agent participated in the registered direct offering, and we are using the proceeds for working capital.

On April 10, 2020, we”) obtained an unsecured loan $ 1.1 million loan through Relyance Bank N.A.

under the Paycheck Protection Program (the “PPP Loan”) pursuant to the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) and is administered by the United States Small Business Administration.

In accordance with the requirements of 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 issued and outstanding Original Issue Discount Unsecured Subordinated Convertible Note due September 1, 2020 in the principal amount of $ 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 “Note”), agreed to amend the Note to extend the maturity date to December 31, 2020 and reduce the conversion price to $ 0.175 per share.

On April 21, 2020, the remaining noteholder converted $ 200,000 principal amount due under the remaining note into 1,142,857 shares of our common stock.

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.

On January 7, 2021, we filed the Articles of Amendment to our Articles of Incorporation in the sate of Nevada increasing the number of authorized shares from 100,000,000 to 150,000,000 .

On January 19, 2021, we closed a registered direct offering of an aggregate of 13,333,334 shares of our common stock, at a price of $ 0.60 per share, for gross proceeds of $ 8,000,000 , before deducting placement agent fees and other offering expenses.

On January 22, 2021, we closed a registered direct offering of an aggregate of 5,681,817 shares of our common stock, at a price of $ 1.10 per share, for gross proceeds of $ 6,250,000 , before deducting placement agent fees and commission and other offering expenses.

On January 28, 2021, we paid off the SBA loan and related interest of $ 153,930 .

On February 1, 2021, our Little Rock, Arkansas lease was amended reducing the total office space to 7,831 square feet and adding an additional three years to the lease term.

The lease is considered a lease modification under ASC Topic 842 - Leases and will be recorded in the first quarter of 2021.

Note 19 - Revisions of Previously Issued Consolidated Year-End Financial Statements

As described in Note 1, "Organization and Business," the following table sets forth the impact of an error correction on the Company’s consolidated financial statements as of and for the period ended December 31, 2019 by financial statement line item.

Most of the deferred tax liabilities arose from the acquisition in 2012.

The tax assets with definite lives should have been netted against the tax liabilities with definite lives as required by ASC 740 when evaluating the valuation allowance.

Instead, both the tax assets and liabilities were maintained on a gross basis on the balance sheet and the tax assets were entirely offset with a valuation allowance.

The effect of the error was deemed immaterial.

December 31, 2019

Consolidated Balance Sheet Line Item As Previously Reported Adjustments As Revised

Deferred tax liability $ 2,019,200 $ 1,912,200 $ 107,000

Accumulated deficit $ 130,958,001 $ ( 1,912,200 ) $ 129,045,801

December 31, 2018

Consolidated Balance Sheet Line Item As Previously Reported Adjustments As Revised

Accumulated deficit $ 126,469,894 $ ( 1,912,200 ) $ 124,557,694

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 9A. Controls and Procedures