Item 9A. Controls and Procedures
ITEM 9A. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
We maintain “disclosure controls and procedures” as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934. Disclosure controls and procedures are controls and procedures designed to reasonably assure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, such as this report, is recorded, processed, summarized and reported within the time periods prescribed by SEC rules and regulations, and to reasonably assure that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
Our management does not expect that our disclosure controls will prevent all errors and fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. In addition, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the control. The design of any systems of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of these inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
As required by Rule 13a-15 under the Securities Exchange Act of 1934, as of December 31, 2024, 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.
22
Table of Contents
Management’s Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Securities Exchange Act of 1934 Rule 13a-15(f). Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our internal control over financial reporting includes those policies and procedures that:
·
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets;
·
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and
·
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.
Because of the inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2024. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the 2013 Treadway Commission (“COSO”) in Internal Control-Integrated Framework . Based upon this assessment, our Chief Executive Officer and Chief Financial Officer concluded that as of December 31, 2024 our internal controls over financial reporting were effective.
Changes in Internal Control over Financial Reporting
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.
ITEM 9B. OTHER INFORMATION .
Trading Plans
During the three months ended December 31, 2024, no director or officer (as defined in Rule 16a-1(f) under the Exchange Act) of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS.
N/A
23
Table of Contents
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
The information required by this Item will be contained in our proxy statement for our 2025 Annual Meeting of Shareholders to be filed on or prior to April 30, 2025 (the “Proxy Statement”) and is incorporated herein by this reference.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this item will be contained in our Proxy Statement and is incorporated herein by this reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
The information required by this item will be contained in our Proxy Statement and is incorporated herein by this reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
The information required by this item will be contained in our Proxy Statement and is incorporated herein by this reference.
ITEM 14. 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.
24
Table of Contents
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.
1. 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 F-1 and included on pages F-2 through F-21.
2. Financial Statement Schedules
All schedules for which provision is made in the applicable accounting regulations of the SEC are either not required under the related instructions, are not applicable (and therefore have been omitted), or the required disclosures are contained in the consolidated financial statements herein.
3. Exhibits (including those incorporated by reference).
*** Portions of this exhibit have been omitted pursuant to a request for confidential treatment filed with the Commission under Rule 24b-2. 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 (***).
No.
Exhibit Description
Form
Date Filed
Number
Filed or Furnished Herewith
2.1
Agreement and Plan of Merger dated June 5, 2009 between Inuvo, Inc. and Kowabunga! Inc.
8-K
7/24/09
2.4
2.2
Agreement and Plan of Merger dated October 16, 2011 between Inuvo, Inc., Anhinga Merger Subsidiary, Inc. and Vertro, Inc.
8-K
10/17/11
2.5
3(i).1
Articles of Incorporation, as amended
10-KSB
3/1/04
4
3(i).2
Amended to Articles of Incorporation filed March 14, 2005
10-KSB
3/31/06
3.2
3(i).3
Articles of Merger between Inuvo, Inc. and Kowabunga! Inc.
8-K
7/24/09
3.4
3(i).4
Certificate of Change Filed Pursuant to NRS 78.209
8-K
12/10/10
3(i).4
3(i).5
Certificate of Merger as filed with the Secretary of State of Nevada on February 29, 2012
10-K
3/29/12
3(i).5
3(i).6
Articles of Amendment to Amended Articles of Incorporation as filed on February 29, 2012
10-K
3/29/12
3(i).6
3(i).7
Articles of Amendment to 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
10-K
2/11/21
3(i).9
3(i).10
Articles of Amendment to Articles of Incorporation as filed on August 19, 2021
10-Q
11/12/21
3(i).10
3(ii).1
Amended and Restated By-Laws
10-K
3/31/10
3(ii).4
3(ii).2
Bylaw amendment adopted February 29, 2012
8-K
3/6/12
3(ii).1
4.1
Description of Securities
10-K
2/11/21
4.1
10.1
Google Services Agreement effective January 1, 2024 by and between Vertro, Inc. and Google Inc.
10-K
2/29/24
10.1
10.2
Yahoo! Publisher Network Contract, dated April 4, 2009, as amended with Amendment No. 1, Amendment No. 2, Amendment No. 3, Amendment No. 4, Amendment No. 5 and Amendment No. 6 ***
10-Q
5/15/12
10.1
10.3
Yahoo! Publisher Network Contract, dated April 4, 2009, as amended. ***
10-Q/A
12/28/12
10.1
10.4
Amendment No. 8 to Yahoo! Publisher Network Contract effective as of September 1, 2013, executed and delivered October 10, 2013 ***
10-Q/A
1/6/14
10.28
10.5
Amendment #11 to Yahoo! Publisher Network Contract, effective January 15, 2016, executed and delivered January 26, 2015
10-K
2/12/16
10.24
10.6
Amendment #12 to Yahoo! Publisher Network Contract, effective March 2, 2016 ***
10-Q
4/27/16
10.25
10.7
Amendment #14 to Yahoo! Publisher Contract dated February 28, 2018
8-K
3/6/18
10.1
10.8
Amendment #15 to Yahoo! Publisher Contract dated May 9, 2018
8-K
5/15/18
10.1
25
Table of Contents
10.9
Amendment # 16 dated August 28, 2018 to Yahoo! Publisher Network Contract ***
10-Q
11/7/18
10.1
10.10
Amendment #18 dated January 24, 2019 to Yahoo! Publisher Contract
10-K
3/15/19
10.6
10.11
Amendment #28 to the Yahoo! Publisher Network Contract #1-19868214, dated as of November 11, 2020***
8-K
11/16/20
10.1
10.12
Amendment #32 to the Yahoo! Publisher Network Contract #1-9868214, dated May 10, 2023.***
8-K
5/16/23
10.1
10.13
Form of Indemnification Agreement with Directors of Inuvo, Inc.
10-Q
11/7/18
10.5
10.14
2017 Equity Compensation Plan
DEF14A
4/28/17
A
10.15
Amendment No. 1 to the 2017 Equity Compensation Plan
DEF14
9/3/19
B
10.16
Amendment No. 2 to the 2017 Equity Compensation Plan
DEF14
5/2/22
A
10.17
2017 Equity Compensation Plan Non-Qualified Stock Option Agreement
10-Q
8/15/22
10.2
10.18
Quick Action Closing Fund Grant Agreement, dated January 25, 2013, with the Arkansas Economic Development Commission
10-K
3/13/13
10.23
10.19
Grant Reimbursement Agreement, dated January 25, 2013, with the Arkansas Economic Development Commission.
10-K
3/13/13
10.24
10.20
Amendment to Grant Reimbursement Agreement, dated March 2021, with the Arkansas Economic Development Commission.
10-K
3/17/21
10.21
10.21
Employment Agreement dated March 1, 2012 between Inuvo, Inc. and Richard K. Howe
8-K
3/6/12
10.2
10.22
Employment Agreement dated March 1, 2012 between Inuvo, Inc. and Wallace D. Ruiz
8-K
3/6/12
10.4
10.23
Employment Agreement dated March 1, 2012 between Inuvo, Inc. and John B. Pisaris
8-K
3/6/12
10.5
10.24
Loan and Security Agreement dated February 28, 2020 effective March 12, 2020 by and between Inuvo, Inc. and its subsidiaries and Hitachi Capital America Corp.
8-K
3/17/20
10.1
10.25
Amendment No. 1 to Loan and Security Agreement and Collateral Documents, dated March 1, 2023, by and between Mitsubishi HC Capital, Inc., f/k/a Hitachi Capital America Corp. and Inuvo, Inc. and its subsidiaries.
8-K
3/6/23
10.1
10.26
Form of Insider Offering Subscription Agreement
8-K
3/20/20
10.1
10.27
Form of Subscription Agreement
8-K
4/01/20
10.1
10.28
2017 Equity Compensation Plan Restricted Stock Unit Agreement
10-K
2/11/21
10.29
10.29
Sales Agreement, dated May 28, 2021 by and between A.G.P./Alliance Global Partners and Inuvo, Inc.
8-K
5/28/21
1.1
10.30
Financing and Security, by and among Inuvo, Inc., Vertro, Inc., ValidClick, Inc., Think Relevant Media, LLC, Kowabunga Marketing, Inc., Bonfire Publishing Group, LLC, Southern Muse Media, LLC, NetSeer, Inc., Emerald Brands, LLC, Alot, Inc. and Daily Reads, LLC, and SLR Digital Finance LLC, effective as of July 30, 2024.
8-K
8/01/24
10.1
19
Insider Trading Policy
Filed
21.1
Subsidiaries of the Registrant
Filed
23.1
Consent of EisnerAmper LLP, PCAOB FIRM ID 274
Filed
31.1
Rule 13a-14(a)/15d-14(a) certification of Chief Executive Officer
Filed
31.2
Rule 13a-14(Rule 13a-14(a)/15d-14(a) certification of Chief Financial Officer)/15d-14(a) certification of Chief Financial Officer
Filed
32.1
Section 1350 certification of Chief Executive Officer
Filed
32.2
Section 1350 certification of Chief Financial Officer
Filed
97.1
Clawback Policy
10-K
2/29/2024
10.1
101.INS
XBRL Instance Document
Filed
101.SCH
XBRL Taxonomy Extension Schema Document
Filed
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document
Filed
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document
Filed
101.LAB
XBRL Taxonomy Extension Label Linkbase Document
Filed
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document
Filed
104
The cover page for Inuvo, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2024, formatted in Inline XBRL (included within Exhibit 101 attachments).
Filed
*
The Company has omitted schedules and similar attachments to the subject agreement pursuant to Item 601(b) of Regulation S-K. The Company will furnish a copy of any omitted schedule or similar attachment to the SEC upon request.
Item 16. Form 10-K Summary
The Company has elected not to provide this optional information.
26
Table of Contents
SIGNATURES
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.
Inuvo, Inc.
February 27, 2025
By:
/s/ Wallace D. Ruiz
Wallace D. Ruiz, Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/s/ Richard K. Howe
Chairman of the Board of Directors and Chief Executive Officer (principal executive officer)
February 27, 2025
Richard K. Howe
/s/ Wallace D. Ruiz
Chief Financial Officer (principal financial and accounting officer)
February 27, 2025
Wallace D. Ruiz
/s/ Jonathon Bond
Director
February 27, 2025
Jonathon Bond
/s/ Gordon J. Cameron
Director
February 27, 2025
Gordon J. Cameron
/s/ Kenneth Lee
Director
February 27, 2025
Kenneth Lee
/s/ Charles D. Morgan
Director
February 27, 2025
Charles D. Morgan
27
Table of Contents
INUVO, INC.
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2024 AND 2023
INDEX TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
CONTENTS
Report of Independent Registered Public Accounting Firm
F-2
Consolidated Financial Statements:
Consolidated Balance Sheets
F-4
Consolidated Statements of Operations and Comprehensive Loss
F-5
Consolidated Statements of Stockholders’ Equity
F-6
Consolidated Statements of Cash Flows
F-7
Notes to Consolidated Financial Statements
F-8
F-1
Table of Contents
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of Inuvo, Inc.:
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Inuvo, Inc. (the “Company”) as of December 31, 2024 and 2023, and the related consolidated statements of operations and comprehensive loss, stockholders’ equity, and cash flows for each of the years then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the years then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgements. The communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
F-2
Table of Contents
Capitalized software development costs
As reflected in Note 2 and Note 4 to the financial statements, the Company capitalizes certain labor costs related to internally developed software. Management determines the amount of internal software costs to be capitalized based on the estimated amount of time spent by software developers and engineers during the application development stage of software development projects identified by the Company. The amount of capitalized software development costs was approximately $1.8 million for the year ended December 31, 2024.
We identified the estimate of time and related costs eligible for capitalization as capitalized software development costs as a critical audit matter due to the subjective judgements required of management when determining the amount of time that qualifies to be capitalized for development projects. This, in turn, led to a high degree of auditor judgement, subjectivity, and effort in performing procedures for evaluating management’s significant assumptions related to these judgements.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with our overall opinion on the financial statements. The procedures we performed included gaining an understanding of the controls relating to capitalized software development costs, testing management’s process for developing the estimate including the amount of time and related costs eligible for capitalization in the current year, evaluating whether the time and related costs were eligible for capitalization, testing the completeness and accuracy of underlying data and inputs used in management’s estimate of eligible time and related costs, and evaluating the reasonableness of significant assumptions used by management in estimating eligible time and related costs. Evaluating management’s assumptions related to eligible software development time for capitalization involved performing inquiries with management and with a sample of individual software developers and engineers regarding the nature, timing, and extent of time worked on development activities.
/s/ EisnerAmper LLP
We have served as the Company’s auditor since 2021.
EISNERAMPER LLP
Iselin, New Jersey
February 27, 2025
F-3
Table of Contents
Inuvo, Inc.
Consolidated Balance Sheets
For the Years Ended December 31,
2024
2023
Assets
Current assets
Cash and cash equivalents
$ 2,459,245
$ 4,440,454
Accounts receivable, net of allowance for credit losses of $ 144,625 and $ 1,645,045 , respectively
12,545,771
9,226,956
Prepaid expenses and other current assets
639,805
1,076,121
Total current assets
15,644,821
14,743,531
Property and equipment, net
1,792,903
1,680,788
Other assets
Right of use assets - operating lease
913,439
805,786
Right of use assets - finance lease
18,209
72,560
Referral and support services agreement advance
—
500,000
Intangible assets, net of accumulated amortization
3,894,875
4,664,791
Goodwill
9,853,342
9,853,342
Other assets
78,342
53,346
Total other assets
14,758,207
15,949,825
Total assets
$ 32,195,931
$ 32,374,144
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable
$ 8,422,351
$ 6,432,120
Accrued expenses and other current liabilities
9,185,461
7,926,479
Lease liability - operating lease
259,867
123,074
Lease liability - finance lease
18,209
50,801
Total current liabilities
17,885,888
14,532,474
Long-term liabilities
Deferred tax liability
97,266
89,238
Lease liability - operating lease
738,005
751,821
Lease liability - finance lease
—
18,209
Other long-term liabilities
—
216
Total long-term liabilities
835,271
859,484
Stockholders’ equity
Preferred stock, $ 0.001 par value:
Authorized shares - 500,000 - none issued and outstanding
—
—
Common stock, $ 0.001 par value:
Authorized shares 200,000,000 ; issued and outstanding shares 140,502,039 and 137,983,918 respectively;
140,501
137,983
Additional paid-in capital
186,543,283
184,291,414
Accumulated other comprehensive income
—
—
Accumulated deficit
( 173,209,012 )
( 167,447,211 )
Total stockholders' equity
13,474,772
16,982,186
Total liabilities and stockholders' equity
$ 32,195,931
$ 32,374,144
See accompanying notes to the consolidated financial statements.
F-4
Table of Contents
Inuvo, Inc.
Consolidated Statements of Operations and Comprehensive Loss
For the Years Ended December 31,
2024
2023
Net revenue
$ 83,793,859
$ 73,911,528
Cost of revenue
12,033,777
10,477,272
Gross profit
71,760,082
63,434,256
Operating expenses:
Marketing costs
59,663,061
51,982,572
Compensation
12,065,783
13,793,309
General and administrative
5,545,049
8,050,890
Total operating expenses
77,273,893
73,826,771
Operating loss
( 5,513,811 )
( 10,392,515 )
Other income/(expense):
Financing expense, net of interest income
( 266,772 )
( 29,570 )
Other income
26,812
14,668
Loss before taxes
( 5,753,771
)
( 10,407,417
)
Income tax (expense)/benefit
( 8,030 )
17,764
Loss from continuing operations
$ ( 5,761,801 )
$ ( 10,389,653 )
Other comprehensive income:
Unrealized loss on marketable securities
—
84,868
Comprehensive loss
$ ( 5,761,801 )
$ ( 10,304,785 )
Per common share data:
Basic and diluted
Net loss from continuing operations
$
( 0.04
)
$
( 0.08
)
Net income from discontinued operations
—
—
Net loss
$ ( 0.04 )
$ ( 0.08 )
Weighted average shares:
Basic
139,968,374
131,116,370
Diluted
139,968,374
131,116,370
See accompanying notes to the consolidated financial statements.
F-5
Table of Contents
Inuvo, Inc.
Consolidated Statements of Stockholders' Equity
For the Years Ended December 31, 2024 and 2023
Common Stock
Additional Paid in
Accumulated
Accumulated Other Comprehensive
Shares
Stock
Capital
Deficit
Income
Total
Balances as of December 31, 2022
120,137,124
$ 120,138
$ 178,771,604
$ ( 157,057,558 )
( 84,868 )
$ 21,749,316
Net loss
—
—
—
( 10,389,653 )
—
( 10,389,653 )
Unrealized gain on debt securities
—
—
—
—
84,868
84,868
Stock-based compensation
—
—
1,986,296
—
—
1,986,296
AGP Closing of at-the-market sale of common stock
173,558
174
60,962
—
—
61,136
Stock issued for vested restricted stock unit
1,673,236
1,671
( 1,671 )
—
—
—
Proceeds from sale of common stock, net of expenses
16,000,000
16,000
3,649,000
—
—
3,665,000
Shares withheld for taxes on vested restricted stock units
—
—
( 166,872 )
—
—
( 166,872 )
Change in fair value of warrants related to vesting
—
—
( 7,905 )
—
—
( 7,905 )
Balances as of December 31, 2023
137,983,918
137,983
184,291,414
( 167,447,211 )
—
16,982,186
Net loss
—
—
—
( 5,761,801 )
—
( 5,761,801 )
Issuance of restricted stock units
—
—
1,055,530
—
—
1,055,530
Stock-based compensation
—
—
1,501,444
—
—
1,501,444
Stock issued for vested restricted stock unit
2,518,121
2,518
( 2,518 )
—
—
—
Shares withheld for taxes on vested restricted stock units
—
—
( 302,587 )
—
—
( 302,587 )
Balances as of December 31, 2024
140,502,039
$ 140,501
$ 186,543,283
$ ( 173,209,012 )
$ —
$ 13,474,772
See accompanying notes to the consolidated financial statements.
F-6
Table of Contents
Inuvo, Inc.
Consolidated Statements of Cash Flows
For the Years Ended December 31, 2024 and 2023
2024
2023
Operating activities:
Net loss
$ ( 5,761,801 )
$ ( 10,389,653 )
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization
2,515,177
2,655,368
Amortization of right of use assets - financing
54,356
96,190
Amortization of right of use assets - operating lease
227,628
609,524
Stock based compensation
1,501,444
1,986,296
Gain on marketable securities
—
( 14,668 )
Amortization of financing fees
20,000
8,333
Impairment and amortization of referral and support services agreement advance
800,000
300,000
Adjustment to expected losses on accounts receivable
( 1,442,533 )
786,549
Stock warrant income
—
( 7,905 )
Deferred income tax expense (benefit)
8,028
( 17,764 )
Derecognition of contingency and grant
( 35,000 )
—
Change in operating assets and liabilities:
Accounts receivable
( 1,876,282 )
1,106,387
Prepaid expenses, other current assets and other assets
111,320
( 263,569 )
Accounts payable
1,990,231
( 1,612,682 )
Accrued expenses and other liabilities
2,329,295
2,745,173
Lease liability - operating lease
( 212,309 )
( 541,654 )
Net cash provided by/(used in) operating activities
229,554
( 2,554,075 )
Investing activities:
Capitalized software development costs and purchases of equipment
( 1,857,375 )
( 1,682,683 )
Proceeds from the sale of marketable securities
—
2,288,873
Net cash provided by/(used in) investing activities
( 1,857,375 )
606,190
Financing activities:
Gross proceeds from line of credit
—
592,868
Repayments on line of credit
—
( 592,868 )
Proceeds from sale of common stock, net of expenses
—
3,665,000
Payments on finance/capital leases
( 50,801 )
( 102,340 )
Net taxes paid on RSU grants exercised
( 302,587 )
( 166,872 )
Proceeds from at-the-market sales
—
61,136
Net cash provided by/(used in) financing activities
( 353,388 )
3,456,924
Net change – cash
( 1,981,209 )
1,509,039
Cash and cash equivalent, beginning of year
4,440,454
2,931,415
Cash and cash equivalent, end of year
$ 2,459,245
$ 4,440,454
Supplemental information:
Interest paid
$ 337,961
$ 105,148
Noncash investing and financing activities:
Acquisition of right of use asset for operating lease liability
$ 335,286
$ 1,105,148
Issuance of 3,287,537 restricted stock units to settle accrued incentive liability
$ 1,055,530
$ —
See accompanying notes to the consolidated financial statements.
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Inuvo, Inc.
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2024 and 2023
Note 1 – Organization and Business
Company Overview
Inuvo is an advertising technology and services company that has developed and commercialized large language generative artificial intelligence (AI) capable of discovering and targeting digital audiences. Inuvo’s innovative technology positions it as a leader within the advertising industry, offering a valuable solution to marketers seeking to navigate the evolving landscape of consumer privacy. The AI targets the reasons behind why people are interested in products, services and brands.
Inuvo sells its information technology solutions to agencies and brands (collectively, “Agencies & Brands”) along with large consolidators of advertising demand (“Platforms”). Inuvo’s revenue is derived from the placement of digital advertising across devices, websites, applications and browsers within social, search and programmatic advertising channels. Inuvo facilitates and gets paid to deliver advertising messages and counts among its client's numerous world-renowned companies across industries.
The AI, marketed as IntentKey was designed to replace the consumer data, analytics, segmentation and lookalike modeling technologies that have traditionally served the advertising industry as it transitions to a new paradigm where targeting based on a consumer’s identity and data are no longer possible due to the legislative and technological changes occurring.
Inuvo’s AI technology solves the identity challenge by leveraging artificial intelligence, data analytics, and automation that can optimize the purchase and placement of advertising in real time without consumer data. The technology can be consumed by clients as a managed service or self-service (SaaS). Additionally, Inuvo has developed proprietary technology and assets tailored to certain clients that include digital content, websites, automated campaigns, ad fraud detection, performance reporting, and predictive media mix modeling.
Both Agencies & Brands and Platforms benefit from Inuvo’s ability to intelligently process vast amounts of data, detect patterns in behavior, and enhance advertising efficiency whether through direct media execution or integration into existing campaign management systems. These capabilities are typically sold with services both individually and in combination with each other based on client needs. Agencies & Brands utilize our artificial intelligence-based consumer intent recognition system to reach highly targeted mobile and desktop In-Market audiences with precision. The solution can serve multiple creative formats including display, video, audio and native across multiple device types including desktop, mobile, tablet, connected/smart TV and game consoles. The technology can be consumed by clients as a managed service or self-service (SaaS). For our Platform clients we utilize a collection of data, analytics, software, content management and website creation technologies to align merchant advertising messages with online content.
Inuvo’s intellectual property is protected by 19 issued and eight pending patents.
Liquidity
Our principal sources of liquidity are the sale of our common stock and our credit facility discussed in Note 6 – Bank Debt.
On May 30, 2023, we raised $ 4.0 million in gross proceeds in a registered direct offering, before expenses, through the sale of an aggregate of 16,000,000 shares of our common stock. The shares were offered pursuant to an effective shelf registration statement on Form S-3 (the “Shelf Registration Statement”) and a prospectus supplement relating to the offering was filed with the SEC on May 26, 2023.
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On May 7, 2024, we entered into an At The Market Offering Agreement (the “ATM Agreement”) with H.C. Wainwright & Co. LLC (“Wainwright”), to sell shares of our common stock, par value $ 0.001 per share (the “Shares”), having an aggregate sales price of up to $ 15,000,000 , from time to time, through an “at the market offering” program under which Wainwright will act as sales agent. The sales, if any, of the Shares made under the ATM Agreement will be made by any method permitted by law deemed to be an “at the market offering” as defined in Rule 415 promulgated under the Securities Act of 1933, as amended. The Company will pay Wainwright a commission rate of up to 3.0 % of the aggregate gross proceeds from each sale of Shares. For the year ended December 31, 2024, the Company has not sold any shares of common stock under the ATM Agreement. In January 2025, the Company utilized the ATM Agreement and sold 1,594,313 shares of common stock for gross proceeds of $ 1,163,491 . See Note 16 – Subsequent Events.
On July 31, 2024, we entered into a Financing and Security Agreement (the "Financing Agreement”) with SLR Digital Finance LLC ("SLR”), effective July 30, 2024. Pursuant to the terms of the Financing Agreement, SLR will finance up to $ 10 million dependent upon eligible receivables. See Note 6– Bank Debt.
As of December 31, 2024, we have approximately $ 2.5 million in cash, and cash equivalents. Our net working capital deficit was $ 2.2 million. We have encountered recurring losses and cash outflows from operations, which historically we have funded through equity offerings and debt facilities. For the year ended December 31, 2024 we had a net loss of $ 5.8 million and net cash flow provided by operations of $ 0.2 million. Additionally, our investment in investing activities totaled approximately $ 1.9 million for the year ended December 31, 2024. This amount primarily consists of internally developed software costs, which are largely comprised of fixed labor costs, along with other capitalized expenditures. Through December 31, 2024, our accumulated deficit was $ 173.2 million.
Management plans to support the Company’s future operations and capital expenditures primarily through cash generated from its credit facility until such time as we reach profitability. Any repayments of the financing agreement will be made through collections from eligible accounts receivable. We believe that our current cash position, credit facility, and the equity raised through our ATM program in January 2025 will be sufficient liquidity to sustain operations for at least the next twelve months from the date of this filing. If our plan to grow the IntentKey product is unsuccessful, we may need to fund operations through private or public sales of securities, debt financings or partnering/licensing transactions over the long term.
Note 2 – Summary of Significant Accounting Policies
Basis of presentation - The consolidated financial statements include our accounts and those of our wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.
Reclassifications - Certain amounts in the 2023 statement of cash flows have been reclassified to conform with the 2024 presentation. The impact to the 2023 change in accrued expenses and other liabilities was a decrease of $ 67,870 , and there was no impact to net cash used in operating activities for the year ended December 31, 2023.
Cash and cash equivalents - Cash and cash equivalents consist of highly liquid investments with original maturities of three months or less.
Revenue recognition - We generate revenue by identifying audiences and presenting advertisements on behalf of our customers. We provide our products, technologies and services to Agencies & Brands and Platforms. Currently, revenue from Agencies & Brands is primarily through our IntentKey products and services and revenue from Platforms is primarily through our Bonfire products and services. Our revenue is derived from the placements of advertisements across advertising channels, browsers, applications and devices. Pricing for those advertisement placements is typically either on a cost-per-click or cost per thousand impressions basis.
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Our revenue is a function of the number of advertisements placed combined with the price we obtain (using our technologies) for the placements made on behalf of our clients. We assume the risk associated of finding placements at a cost below that for which it had been sold.
We recognize revenue when control of the contracted services or product is transferred to our customer, in an amount that reflects the consideration we expect to be entitled to in exchange for those services or products. We determine revenue recognition through (i) identification of a contract with a customer, (ii) identification of the performance obligations in the contract, (iii) determination of the transaction price, (iv) allocation of the transaction price to the performance obligations in the contract, and (v) recognition of revenue when or as the performance obligations are satisfied.
For Agencies & Brands, the terms of an agreement are captured in an Insertion Order ("IO") where revenue is recognized upon delivery of services during the period covered by the IO. For Platforms, terms are generally captured in multi-year master service agreements and revenue is recognized based on the number of advertisements placed or clicked on in the period they occur. We settle advertisement placement prices with our customers net of any adjustments for quality.
In the year ended December 31, 2024, we generated $ 83,793,859 in revenue of which 82.8 % was from Platforms, 17.2 % from Agencies & Brands. In the year ended December 31, 2023, we generated $ 73,911,528 in revenue of which 79.1 % was from Platforms, 20.9% from Agencies & Brands.
Accounts receivable - Accounts receivable consist of trade receivables from customers. We record accounts receivable at its net realizable value, recognizing an allowance for doubtful accounts based on our best estimate of expected credit losses on our existing accounts receivable. Balances are written off against the allowance after all means of collection have been exhausted and the possibility of recovery is considered remote. The current expected credit loss (CECL) model under Accounting Standards Update (ASU) 2016-13 requires an estimation of expected credit losses over the life of a financial instrument, taking into consideration historical experience, current conditions, and reasonable and supportable forecasts. Management has reviewed comprehensive historical data, any relevant economic indicator, and estimated our estimated credit loss based off these probabilities. The following table presents accounts receivable, net of allowance for credit losses:
At December 31,
2024
2023
2022
Balance at the end of the year
$ 12,545,771
$ 9,226,956
$ 11,119,892
Cost of revenue - Cost of revenue is primarily composed of payments to advertising exchanges that provide access to digital inventory where we serve advertisements primarily for Agencies and Brands. To a lesser extent, cost of revenue includes payments to website publishers and app developers that host advertisements.
Marketing costs - Marketing costs are predominately traffic acquisition costs and include those expenses required to attract an audience to our owned and operated applications and websites. We expense these costs as incurred and present them as a separate line item in operating expenses in the consolidated statements of operations.
Property and equipment - Property and equipment are stated at cost, net of accumulated depreciation and amortization. Major renewals and improvements are capitalized while maintenance and repairs which do not improve or extend the life of the respective assets are expensed as incurred. Costs of assets sold or retired and the related accumulated depreciation are eliminated from accounts and the net gain or loss is reflected as an operating expense in the consolidated statements of operations.
Property and equipment are depreciated on a straight-line basis over three years for equipment, five to seven years for furniture and fixtures and two to three years for software. Leasehold improvements are amortized over the lesser of the estimated useful life of the asset or the remaining term of the lease . Depreciation and amortization expense was $ 1,745,261 and $ 1,670,868 , respectively, for the years ended December 31, 2024 and 2023.
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Capitalized Software Costs - We capitalize certain labor costs related to internally developed software and amortize these costs using the straight-line method over the estimated useful life of the software, generally two years. We do not sell internally developed software. Certain development costs not meeting the criteria for capitalization, in accordance with ASC 350-40 Internal-Use Software , are expensed as incurred. Capitalized software development costs were $ 1.8 million and $ 1.7 million, respectively, for the years ended December 31, 2024 and 2023.
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. We periodically conduct a review of long-lived assets to assess potential triggering events for impairment within the Inuvo reporting unit. We perform an impairment test annually as of December 31, 2024. As a result, we perform our annual goodwill impairment test by comparing the fair value of our reporting unit with its carrying amount.
We have only one reporting unit and generally determine the fair value of this 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.
We determined there was no impairment of goodwill during 2024 and 2023.
See Note 5 – Intangible Assets and Goodwill, for more information.
Intangible Assets - We allocate a portion of the purchase price of acquisitions to identifiable intangible assets and we amortize definite-lived assets over their estimated useful lives. We consider our indefinite-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Trade names are not amortized as they are believed to have an indefinite life. Trade names are reviewed annually for impairment under ASC 350. We also acquire intangible assets outside of acquisitions and record them at their fair value and amortize them over their estimated useful lives.
We recorded no impairment of intangible assets during 2024 or 2023.
See Note 5 – Intangible Assets and Goodwill, for more information.
Income taxes - We utilize the liability method of accounting for income taxes as set forth in ASC 740 , Income Taxes (“ASC 740”). Under the liability method, deferred taxes are determined based on the temporary differences between the financial statement and tax bases of assets and liabilities. 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. 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 valuation for a significant portion of the net deferred tax assets as of December 31, 2024 and 2023.
We have adopted certain provisions of ASC 740. This statement clarifies the criteria that an individual tax position must satisfy for some or all of the benefits of that position to be recognized in a company’s financial statements. ASC 740 prescribes a recognition threshold of more likely than not, and a measurement attribute for all tax positions taken or expected to be taken on a tax return, in order to be recognized in the financial statements. We recognize interest and penalties related to income taxes in income tax expense. We have incurred no penalties or interest for the years ended December 31, 2024 and 2023.
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Impairment of long-lived assets - In accordance with ASC 360 , Property, Plant and Equipment , long-lived assets, such as property and equipment, and purchased intangibles subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of the asset is measured by comparison of the carrying amount to future undiscounted cash flows the asset is expected to generate. If such assets are considered to be impaired, the impairment to be recognized is measured as the amount by which the carrying amount of the asset exceeds the fair value.
Stock-based compensation - We recognize stock compensation based on the recognition provisions ASC 718 , Compensation – Stock Compensation, which establishes accounting for stock-based awards exchanged for employee and non-employee services and requires companies to expense the estimated grant date fair value of stock awards over the requisite employee service period.
The fair value of restricted stock unit awards is based on the market price of our common stock on the date of the grant. To value stock option awards, we use the Black-Scholes-Merton option pricing model. This model involves assumptions including the expected life of the option, stock price volatility, risk-free interest rate, dividend yield and exercise price. We recognize compensation expense in earnings over the requisite service period, applying a forfeiture rate to account for expected forfeitures of awards.
See Note 10, Stock-Based Compensation, for further details on our stock awards.
Government Grant - During the first quarter of 2013, we received a grant from the state of Arkansas to relocate our corporate headquarters to Conway, AR. We recognized the grant funds into income as a reduction of the related expense in the period in which those expenses were recognized. 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. The agreement concluded on March 31, 2024, and as of December 31, 2024, all obligations were satisfied, and no liability remains outstanding. As of December 31, 2023, we recorded a $ 35,000 liability which was satisfied in 2024.
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. We reported a net loss for 2024 and 2023 and therefore, shares associated with stock options, restricted stock units and convertible debt are not included because they are anti-dilutive. Basic and diluted net loss per share is the same for all periods presented.
Operating segments - In accordance with ASC 280 - Segment reporting , segment information reported is built on the basis of internal management data used for performance analysis of businesses and for the allocation of resources. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance. Our chief operating decision maker, our chief executive officer, reviews financial information presented on a consolidated basis and no expense or operating income is evaluated at a segment level. Given the consolidated level of review by our chief executive officer, we operate as one reportable segment.
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. 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. We maintain allowances for potential credit losses.
Customer concentrations - In 2024, we had one individual customer with revenue concentration greater than 10% of our total revenues accounting for 75.0 %, respectively. At December 31, 2024, we had two individual customers greater than 10% of our total accounts receivable balance accounting for 58.5 % and 12.6 %, respectively.
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Table of Contents
In 2023, we had two individual customers with revenue concentration greater than 10% of our total revenue accounting for 60.4 % and 12.8 %, respectively. At December 31, 2023, we had one customer greater than 10% of our total accounts receivable balance accounting for 50.5 %.
Vendor concentrations - In 2024, we had three individual vendors with cost of revenue concentration greater than 10% of our total cost of revenue accounting for 59.6 %, 25.6 %, and 10.3 % of the total cost of revenue, respectively.
In 2023, we had two individual vendors with cost of revenue concentration greater than 10% of our total cost of revenue accounting for 67.6 % and 15.3 % of the total cost of revenue, respectively.
Use of estimates - The preparation of financial statements, in accordance with accounting principles generally accepted in the United States, 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. The most significant estimates and assumptions affecting the financial statements relate to capitalized software, allowance for credit losses, and income tax valuation allowance. Actual results may differ from the estimates and assumptions used in preparing the accompanying consolidated financial statements, and such differences could be material.
Litigation and settlement costs - From time to time, we are involved in disputes, litigation and other legal actions. In accordance with ASC 450 , Contingencies , we record a charge equal to at least the minimum estimated liability for a loss contingency when both of the following conditions are met: (i) information available prior to issuance of the consolidated financial statements indicates that it is probable that an asset had been impaired or a liability had been incurred as of the date of the consolidated financial statements and (ii) the range of loss can be reasonably estimated.
Recently Adopted Accounting Pronouncements
In November 2023, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which requires retrospective disclosure of significant segment expenses and other segment items on an annual and interim basis. Additionally, it requires disclosure of the title and position of the Chief Operating Decision Maker (“CODM”). This ASU is effective for fiscal years beginning after December 15, 2023, and for interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. See Note 12 for the impact of adoption of this accounting pronouncement.
In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which requires an annual tabular effective tax rate reconciliation disclosure including information for specified categories and jurisdiction levels, as well as, disclosure of income taxes paid, net of refunds received, disaggregated by federal, state/local, and significant foreign jurisdiction. This ASU is effective for fiscal years beginning after December 15, 2024, with early adoption permitted. The adoption will have an impact on disclosures and not impact the Company’s consolidated results of operations, cash flows, nor financial position.
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Table of Contents
N ote 3 – Allowance for Credit Losses
The activity in the allowance for credit losses was as follows during the years ended December 31, 2024 and 2023:
2024
2023
Balance at the beginning of the year
$ 1,645,045
$ 1,440,678
Provision/(reversal of provision) for bad debts
( 1,442,533 )
786,549
Charge-offs
( 62,587 )
( 582,189 )
Recoveries
4,700
7
Balance at the end of the year
$ 144,625
$ 1,645,045
The allowance for credit losses at December 31, 2024 was $ 144,625 , a decrease of $ 1,500,420 from December 31, 2023. During 2024, we made an adjustment to the allowance for expected credit losses for a balance due from a former client in 2022.
The client has since paid off their full outstanding balance and no longer has any obligation to us as of December 31, 2024.
Note 4– Property and Equipment
The net carrying value of property and equipment at December 31, 2024 and 2023 was as follows:
2024
2023
Furniture and fixtures
$ 293,152
$ 293,152
Equipment
1,192,071
1,292,528
Capitalized software development costs
17,940,976
16,159,517
Leasehold improvements
465,885
458,885
Subtotal
19,892,084
18,204,082
Less: accumulated depreciation and amortization
( 18,099,181 )
( 16,523,294 )
Total
$ 1,792,903
$ 1,680,788
Depreciation and amortization expense was $ 1,745,261 and $ 1,670,868 , respectively, for the years ended December 31, 2024 and 2023. During the year ended December 31, 2024, we disposed of approximately $ 169,000 of fully depreciated equipment that was no longer in use. There was no cash inflow or outflow associated with this transaction, and no gain or loss was recorded.
Note 5 – Intangible Assets and Goodwill
The following is a schedule of intangible assets and goodwill as of December 31, 2024:
Term
Carrying
Value
Accumulated Amortization and Impairment
Net Carrying
Value
2024
Amortization
Customer list, Google
20 years
$ 8,820,000
$ ( 5,659,500 )
$ 3,160,500
$ 441,000
Customer list
5 years
1,931,250
( 1,931,250 )
—
225,312
Brand name
5 years
643,750
( 643,750 )
—
75,104
Customer relationships
20 years
570,000
( 225,625 )
344,375
28,500
Trade names, web properties
-
390,000
—
390,000
—
Intangible assets classified as long-term
$ 12,355,000
$ ( 8,460,125 )
$ 3,894,875
$ 769,916
Goodwill, total
$ 9,853,342
$ —
$ 9,853,342
$ —
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Table of Contents
The following is a schedule of intangible assets and goodwill as of December 31, 2023:
Term
Carrying
Value
Accumulated Amortization
Net Carrying
Value
2023
Amortization
Customer list, Google
20 years
$ 8,820,000
$ ( 5,218,500 )
$ 3,601,500
$ 441,000
Technology
5 years
3,600,000
( 3,600,000 )
—
—
Customer list
5 years
1,931,250
( 1,705,938 )
225,312
386,250
Customer list, all other
10 years
1,610,000
( 1,610,000 )
—
—
Brand name
5 years
643,750
( 568,646 )
75,104
128,750
Customer relationships
20 years
570,000
( 197,125 )
372,875
28,500
Trade names, web properties (1)
-
390,000
—
390,000
—
Intangible assets classified as long-term
$ 17,565,000
$ ( 12,900,209 )
$ 4,664,791
$ 984,500
Goodwill, total
$ 9,853,342
$ —
$ 9,853,342
$ —
___________
(1)
The trade names related to our web properties have an indefinite life, and as such are not amortized.
Our amortization expense over the next five years and thereafter is as follows:
2025
$
469,500
2026
469,500
2027
469,500
2028
469,500
2029
469,500
Thereafter
1,157,375
Total
$ 3,504,875
Note 6 - Bank Debt
On March 1, 2023, we entered into Amendment No. 1 to Loan and Security Agreement and Collateral Documents (“Agreement”) with Mitsubishi HC Capital America, Inc., f/k/a/ Hitachi Capital America Corp. (“MHCA”). Under the terms of the Agreement, MHCA provided us with a $ 5,000,000 line of credit commitment. We were permitted to borrow up to 85 % of the aggregate Eligible Accounts Receivable, up to the maximum credit commitment of $ 5,000,000 . We paid MHCA monthly interest at the rate of 1.75 % in excess of the Wall Street Journal Prime Rate. We paid MHCA an amendment fee of $ 10,000 on issuance of the Agreement, and thereafter an annual commitment fee of $ 10,000 . We also paid MHCA a quarterly service fee of 0.20 % on the monthly unused amount of the maximum credit line. All obligations to MHCA have been satisfied and the Agreement was terminated on July 31, 2024. At December 31, 2024 and 2023, there were no outstanding balances due under the Agreement.
On July 30, 2024, we entered into a Financing and Security Agreement and Collateral Documents (“Financing Agreement”) with SLR Digital Finance LLC (“SLR”). Under the terms of the Financing Agreement, SLR has provided us with a $ 10,000,000 line of credit commitment. We are permitted to borrow up to 90 % of eligible accounts receivable as defined in the Financing Agreement, up to the maximum credit commitment of $ 10,000,000 . Availability as of December 31, 2024 equaled the maximum credit commitment of $10,000,000. We will pay SLR monthly interest at the rate of 1.0% in excess of the Prime Rate but not less than 7% . The Prime Rate was 7.5% as of December 31, 2024. The Financing Agreement has a three year term. The Financing Agreement contains certain affirmative and negative covenants to which we are also subject. We agreed to pay SLR an annual facility fee of 0.80 % of the maximum credit commitment. We also agreed to pay a minimum utilization amount of the interest rate multiplied by difference between $ 500,000 and the average daily outstanding loan during a month. We are obligated to pay SLR a monthly service fee of 0.15 % of the average net amount of outstanding loans during each month. If we terminate the Financing Agreement prior to the second anniversary of the effective date, an amount equal to 1.0% of the maximum credit commitment will be due as an early termination payment and if we terminate after the second anniversary of the effective date but prior to the end of the term, an amount equal to 0.25% of the maximum credit commitment will be due. Repayment of the financing agreement will be made through collections from eligible accounts receivable.
At December 31, 2024, the outstanding balances due under the Financing Agreement was $0.
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Note 7 – Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consist of the following at December 31, 2024 and 2023:
2024
2023
Accrued marketing costs
$ 7,872,564
$ 5,717,983
Accrued expenses and other
917,588
622,960
Accrued commissions and payroll
386,340
1,544,460
Arkansas grant contingency
—
35,000
Accrued taxes, current portion
8,969
6,076
Total
$ 9,185,461
$ 7,926,479
Note 8 - Commitments
On September 17, 2021, we signed a multi-year agreement with a business development partner to provide referral and support services to us. The agreement required an advance fee of $ 1.5 million. The advance was being amortized as marketing expenses over five years. During the year ended December 31, 2024, we recorded an impairment to the asset bringing the balance to $ 0 , as no significant revenue has been realized within 2024 and therefore management determined future revenue under this arrangement is uncertain. As of December 31, 2023, $ 700,000 had been amortized and the balance was $ 800,000 .
Note 9 - Income Taxes
The provision for income taxes consists of the following at December 31, 2024 and 2023:
2024
2023
Current tax provision
$ —
$ —
Deferred tax (expense)/benefit
( 8,030 )
17,764
Total tax benefit
$ ( 8,030 )
$ 17,764
A reconciliation of the expected federal statutory rate to our actual rate as reported for each of the periods presented is as follows:
2024
2023
Federal statutory rate
21 %
21 %
State income tax rate, net of federal benefit
3 %
1 %
Permanent differences
6 %
4 %
Change in valuation allowance
( 30
%)
( 26
%)
—
%
—
%
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Table of Contents
Deferred Income Taxes
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. For the year ended December 31, 2024, we recognized a deferred tax expense of $ 8,030 . For the year ended December 31, 2023, we recognized a deferred tax benefit of $ 17,764 .
When required, we record 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. We have no uncertain tax positions that require us to record a liability.
We assess temporary differences resulting from different treatments of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are recorded in the consolidated balance sheets. 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 a significant portion of the net deferred tax assets that may not be realized as of December 31, 2024 and 2023.
The following is a schedule of the deferred tax assets and liabilities as of December 31, 2024 and 2023:
2024
2023
Deferred tax assets:
Net operating loss carry forward
$ 40,482,038
$ 38,860,119
Intangible assets
972,200
1,011,900
Accrued liabilities
247,800
541,200
Deferred rent
—
19,200
Allowance for credit losses
40,500
461,000
Stock compensation expense
237,200
587,900
Interest expense
437,400
362,600
Other
40,300
40,900
Subtotal
42,457,438
41,884,819
Less valuation allowance
( 41,477,681 )
( 40,619,657 )
Total
979,757
1,265,162
Deferred tax liabilities:
Intangible assets and property and equipment
472,423
826,300
Amortization of Goodwill
604,600
528,100
Total
1,077,023
1,354,400
Net deferred tax liabilities
$ ( 97,266 )
$ ( 89,238 )
The net operating losses amounted to approximately $ 112.8 million and expire beginning 2026 through 2038 . Included in the federal net operating loss carryforwards are $ 44.3 million generated from 2018 to 2024 that will not expire and are limited to offset 80 % of our taxable income for years beginning after December 31, 2020.
As of December 31, 2024, the Company has a net deferred tax liability of $ 97,266 . The net deferred tax liability is due to goodwill that is amortized for tax purposes and a trade name that has an indefinite life, of which both are not being amortized for book purposes.
The deferred tax liability relating to goodwill and trade name can only be offset by 30% of interest limited by 163(j), the remainder, can be offset by up to 80 % by NOLs generated in tax years ending December 31, 2018 and beyond, subject to IRC Section 382 limitations. The remaining portion that cannot be used remains as a liability. In future years, if the deferred tax assets are determined by management to be “more likely than not” to be realized, the recognized tax benefits relating to the reversal of the valuation allowance as of December 31, 2024 will be recorded.
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Under the provisions of the Internal Revenue Code, the net operating loss carryforwards are subject to review and possible adjustment by the Internal Revenue Service and state tax authorities. Net operating loss carryforwards may become subject to an annual limitation in the event of certain cumulative changes in the ownership interest of significant shareholders over a three-year period in excess of 50%, as defined under Sections 382 and 383 of the Internal Revenue Code, respectively, as well as similar state provisions. This could limit the amount of tax attributes that can be utilized annually to offset future taxable income or tax liabilities. The amount of the annual limitation is determined based on the value of the Company immediately prior to the ownership change. Subsequent ownership changes may further affect the limitation in future years. The Company has not conducted a study to assess whether a change of control has occurred or whether there have been multiple changes of control since inception due to the significant complexity and cost associated with such a study. If the Company has experienced a change of control, as defined by Section 382, at any time since inception, utilization of the net operating loss carryforwards would be subject to an annual limitation under Section 382, which is determined by first multiplying the value of the Company’s stock at the time of the ownership change by the applicable long-term tax-exempt rate, and then could be subject to additional adjustments, as required. Any limitation may result in expiration of a portion of the net operating loss carryforwards before utilization. Further, until a study is completed by the Company and any limitation is known, no amounts are being presented as an uncertain tax position.
The Company’s tax returns are subject to tax examinations by U.S. federal and state tax authorities until the respective statutes of limitation expire. The Company is subject to tax examinations by tax authorities for all taxation years commencing on or after 2006. Carryforward attributes generated in all years since inception remain subject to adjustment. Our state income tax returns are open to audit under the statute of limitations for the same periods.
Note 10 - Stock-Based Compensation
We maintain a stock-based compensation program intended to attract, retain and provide incentives for talented employees and directors and align stockholder and employee interests. During the 2024 and 2023 periods, we granted restricted stock units ("RSUs") from the 2017 Equity Compensation Plan, as amended (“2017 ECP”). RSU vesting periods are generally up to three years and/or achieving certain financial targets.
On January 1, 2022, in accordance with the plan provisions, the number of shares available for issuance under the 2017 ECP was increased by 150,000 shares. On June 16, 2022, our stockholders approved an amendment to the 2017 ECP to cease the annual increase of 150,000 shares and a one time increase of the number of shares of our common stock reserved for issuance by 15,000,000 shares . As of December 31, 2024, the total number of shares of our common stock reserved for issuance under the 2017 ECP was 24,550,000 .
Compensation Expense
We recorded stock-based compensation expense for all equity incentive plans of $ 1,501,444 and $ 1,986,296 for the years ended December 31, 2024 and 2023, respectively. Total compensation cost not yet recognized at December 31, 2024 was $ 2,192,992 which will be recognized over the next three years.
The following table summarizes the stock grants outstanding under our 2017 ECP plan as of December 31, 2024:
Options Outstanding
RSUs
Outstanding
Options and
RSUs Exercised/Vested
Available
Shares
Total
Total
—
13,216,020
10,014,116
1,319,864
24,550,000
The fair value of restricted stock units is determined using market value of the common stock on the date of the grant. The fair value of stock options is determined using the Black-Scholes-Merton valuation model. The use of this valuation model involves assumptions that are judgmental and highly sensitive in the determination of compensation expense and include the expected life of the option, stock price volatility, risk-free interest rate, dividend yield, exercise price, and forfeiture rate. Forfeitures are estimated at the time of valuation and reduce expense ratably over the vesting period. 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.
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The following table summarizes the weighted average assumptions for our granted options and RSUs. There were no options granted in the period ended December 31, 2024.
The following table summarizes our restricted stock unit activity for 2024:
Restricted
Stock Unit
Weighted
Average
Fair Value
Outstanding, beginning of year
7,010,016
$ 0.48
Granted
9,737,537
$ 0.33
Vested
( 3,379,995 )
$ 0.63
Forfeited
( 151,538 )
$ 0.44
Outstanding, end of year
13,216,020
$ 0.33
Note 11 – Stockholders' Equity
Common Stock
On May 30, 2023, we raised $ 4.0 million in gross proceeds in a registered direct offering, before expenses, through the sale of an aggregate of 16,000,000 shares of our common stock.
Warrants
On September 17, 2021, we signed an agreement with a marketing platform and consulting company to provide referral and support services to us for a period of five years (see Note 8 – Commitments). As part of that agreement, we granted a seven year warrant exercisable into 300,000 shares of our common stock, at $ 0.72 per share, which vests in two tranches when certain performance metrics are achieved. The warrant was valued using the Black Scholes option pricing model at a total of $ 149,551 based on a seven-year term, an implied volatility of 100 %, a risk-free equivalent yield of 1.17 %, and a stock price of $ 0.71 . The warrant is classified as equity and will be expensed over the vesting period of each tranche if the performance criteria are achieved. On August 31, 2022, 85,862 shares vested in accordance with the contracted performance criteria. On August 31, 2023, 21,136 shares vested. For the second tranche, we reversed approximately $ 7,900 for the year ended December 31, 2023 due to a change in the probability of performance criteria being achieved. In accordance with our agreement, after the second anniversary of the original issue date of the warrants, any interests in warrant shares that have not vested pursuant to the terms and conditions of the agreement were deemed forfeited and shall never become exercisable. At the period ended December 31, 2024, approximately 193,000 shares have been forfeited and approximately 107,000 shares underlying the warrant have vested.
Earnings per Share
During the 2024 and 2023, we generated a net loss from continuing operations and as a result, all of our shares are anti-dilutive.
Note 12 – Segment Reporting
Inuvo, Inc. (the "Company") operates as a single reportable segment that places digital advertising throughout devices, websites, applications and browsers across social, search and programmatic advertising channels, facilitating the delivery of millions of advertising messages monthly. The Chief Operating Decision Maker ("CODM"), identified as the Chief Executive Officer, evaluates the Company's financial performance and makes resource allocation decisions based on consolidated financial information
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Measure of Segment Profit or Loss
The CODM evaluates performance and allocates resources based on contribution margin, which is calculated as revenue after deducting marketing expenses, exchange fees, and publisher payments. Exchange fees and publisher payments are classified as cost of revenue. The resulting contribution margin covers Inuvo's fixed costs and profit.
Significant Segment Expenses
The Company reports total revenue and significant expenses provided to the CODM, which include cost of revenue, marketing, and compensation expenses. These expenses are regularly reviewed to assess operating performance. The following table presents these expenses:
For the year ended December 31,
2024
2023
Revenue
$ 83,793,859
$ 73,911,528
Cost of Revenue
12,033,777
10,477,272
Marketing
59,663,061
51,982,572
Professional Fees
1,821,837
2,060,932
IT Costs
1,270,536
993,105
Provision/(reversal of provision) for bad debts
( 1,442,533
)
786,549
Depreciation and Amortization
2,515,177
2,751,558
Other
1,380,032
1,458,746
Compensation
12,065,783
13,793,309
Segment Operating Profit (Loss)
$ ( 5,513,811 )
$ ( 10,392,515 )
Other segment expenses include facilities costs, travel and entertainment expenses and various other corporate expenses.
Geographic Information
The Company's operations are based in the United States, and substantially all revenue is derived from U.S. clients.
Note 13 – 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. The matching contribution for the years ended 2024 and 2023 was $ 383,649 and $ 370,782 , respectively.
Note 14 – Leases
We have entered into operating and finance leases primarily for real estate and equipment rental. These leases have terms which range from three years to six years, and often include one or more options to renew or in the case of equipment rental, to purchase the equipment. These operating and finance leases are listed as separate line items on our consolidated balance sheets and represent our right to use the underlying asset for the lease term. Our obligations to make lease payments are also listed as separate line items on our consolidated balance sheets. As of December 31, 2024 and December 31, 2023, total operating and financed right-of use assets were $ 913,439 and $ 18,209 , and $ 805,786 and $ 72,560 , respectively.
For the years-ended December 31, 2024 and 2023, we recorded $ 54,356 and $ 96,190 in amortization expense related to finance leases.
For the years-ended December 31, 2024 and 2023, we recorded $ 334,243 and $ 358,667 respectively, in rent expense related to operating leases.
In May 2023, we entered into an agreement to lease 4,128 square feet of office space in San Jose, CA commencing on September 1, 2023. The lease has a term of sixty-five months with an abatement period of five months and will cost approximately $ 208,000 during its first year. Thereafter, the lease payments increase by 3 %.
In January 2024, we amended and renewed our lease at our corporate headquarters in Little Rock, Arkansas. The lease was extended for thirty-six months commencing on February 1, 2024 and expiring on January 31, 2027 and will cost approximately $ 127,000 during its first year. Thereafter, the lease payments increase by 2 % annually.
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Because the rate implicit in each lease is not readily determinable, we use our incremental borrowing rate to determine the present value of the lease payments.
Information related to our operating lease liabilities for are as follows:
December 31, 2024
Cash paid for operating lease liabilities
$ 350,401
Weighted-average remaining lease term
2.78 years
Weighted-average discount rate
10.5 %
Minimum future lease payments ended December 31, 2024
2025
$ 349,194
2026
354,565
2027
237,867
2028
233,727
2029
19,526
1,194,879
Less imputed interest
( 197,007 )
Total lease liabilities
$ 997,872
Information related to our financed lease liabilities are as follows:
December 31, 2024
Cash paid for finance lease liabilities
$ 50,801
Weighted-average remaining lease term
. 76 years
Weighted-average discount rate
6.25 %
Minimum future lease payments ended December 31, 2024
2025
18,491
18,491
Less imputed interest
( 282 )
Total lease liabilities
$ 18,209
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Note 15 - Related Parties
During August 2023, we entered into a referral agreement with a board member of the Company. An initial fee of $ 15,000 was agreed upon, payable upon the execution of the agreement. Subsequently, a monthly retainer of $ 5,000 , paid in advance, was established, starting from September 1, 2023. Either party has the right to terminate this agreement at any time and for any reason. Termination requires fourteen (14) days written notice to be provided to the other party. For the twelve months ended December 31, 2024, we recognized approximately $ 15,000 in expense. For the twelve months ended December 31, 2023, we recognized approximately $ 35,000 in expense.
During the year ended December 31, 2024, the Company engaged in a transaction with First Orion Corp., a company in which one of our directors holds a significant interest. The transaction involved the sale of services amounting to approximately $ 95,000 . These transactions were conducted in the ordinary course of business.
During the year ended December 31, 2024, the Company engaged in a transaction with James & James, a company in which one of our directors holds a significant interest. The transaction involved the sale of services amounting to approximately $ 170,000 . These transactions were conducted in the ordinary course of business.
Note 16 - Subsequent Event
In January 2025, Inuvo, Inc. utilized the ATM Agreement (see Note 1 – Organization and Business) and we sold 1,594,313 shares of common stock for gross proceeds of $ 1,163,491 . The ATM program allows the Company to raise capital from time to time through sales of common stock at prevailing market prices, subject to volume limitations and market conditions. The proceeds from the ATM offering are intended to be used for general corporate purposes, including working capital, strategic investments, and operational expansion.
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