inuv-20210630

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2021

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

For the transition period from ______________________ to ______________________

Commission file number: 001-32442


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


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

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

(501) 205-8508

Registrant's telephone number, including area code

not applicable

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

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


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

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

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

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


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

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

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

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


Title of Class						August 6, 2021
Common Stock						118,745,206

TABLE OF CONTENTS


		Page No.
Part I

Item 1.	Financial Statements.	5
	Consolidated Balance Sheets	5
	Consolidated Statements of Operations	6
	Consolidated Statements of Cash Flows	7
	Consolidated Statements of Stockholders' Equity	8
	Notes to Consolidated Financial Statements	9
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations.	18
Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	23
Item 4.	Controls and Procedures.	23

Part II

Item 1.	Legal Proceedings.	24
Item 1A.	Risk Factors.	24
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	24
Item 3.	Defaults upon Senior Securities.	24
Item 4.	Mine Safety and Disclosures.	24
Item 5.	Other Information.	24
Item 6.	Exhibits.	25
Signatures		26

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

This report contains forward-looking statements within the meaning of the Section 27A of the Securities Act of 1933, as amended (the "Securities Act'), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). These forward-looking statements are subject to known and unknown risks, uncertainties and other factors which may cause actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as "will," "should," "intend," "expect," "plan," "anticipate," "believe," "estimate," "predict," "potential," or "continue," or the negative of such terms or other comparable terminology. This report includes, among others, statements regarding our risks associated with:

•our history of losses and declining revenues;

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

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

•dependence on our advertising suppliers;;

•our ability to acquire traffic in a profitable manner;

•failure to keep pace with technology changes;

•impact of possible interruption in our network infrastructure;

•dependence on our key personnel;

•regulatory and legal uncertainties;

•failure to comply with privacy and data security laws and regulations;

•third party infringement claims;

•publishers who could fabricate fraudulent clicks;

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

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

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

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

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

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

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

OTHER PERTINENT INFORMATION

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

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

INUVO, INC.

CONSOLIDATED BALANCE SHEETS

June 30, 2021 (Unaudited) and December 31, 2020


	June 30, 2021		December 31, 2020
Assets
Current assets
Cash and cash equivalent	$	17,347,012	$	7,890,665
Accounts receivable, net of allowance for doubtful accounts of $140,000 and $209,667, respectively	5,678,542		6,227,610
Marketable securities	888,585		—
Prepaid expenses and other current assets	493,527		413,435
Total current assets	24,407,666		14,531,710

Property and equipment, net	1,356,097		1,187,061
Other assets
Goodwill	9,853,342		9,853,342
Intangible assets, net of accumulated amortization	7,653,337		8,586,089
Right of use assets - operating lease	803,261		606,573
Right of use assets - finance lease	252,864		395,910
Other assets	38,769		20,886
Total other assets	18,601,573		19,462,800

Total assets	$	44,365,336	$	35,181,571

Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable	$	6,469,960	$	4,048,260
Accrued expenses and other current liabilities	2,051,508		4,216,448
Lease liability - operating lease	328,886		217,671
Lease liability - finance lease	156,439		246,793





Total current liabilities	9,006,793		8,729,172

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

Lease liability - operating lease	474,374		388,902
Lease liability - finance lease	77,142		93,426
Other long-term liabilities	10,011		573,957
Total long-term liabilities	668,527		1,163,285

Stockholders’ equity
Preferred stock, $0.001 par value:
Authorized shares 500,000, none issued and outstanding	—		—
Common stock, $0.001 par value:
Authorized shares 150,000,000 and 100,000,000, respectively; issued and outstanding shares 118,518,445 and 98,035,829, respectively.	118,519		98,036
Additional paid-in capital	175,451,262		161,541,448
Accumulated deficit	(140,879,765)		(136,350,370)

Total stockholders' equity	34,690,016		25,289,114
Total liabilities and stockholders' equity	$	44,365,336	$	35,181,571

See accompanying notes to the consolidated financial statements.

INUVO, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)


	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2021		2020		2021		2020
Net revenue	$	12,635,583	$	7,590,187	$	23,253,392	$	22,523,170
Cost of revenue	2,264,020		1,070,028		3,708,079		4,509,529
Gross profit	10,371,563		6,520,159		19,545,313		18,013,641
Operating expenses
Marketing costs (traffic acquisition costs or TAC)	8,213,140		3,857,395		15,518,924		13,480,218
Compensation	2,880,217		2,118,311		5,618,084		4,462,546
Selling, general and administrative	1,676,890		1,781,121		3,401,868		3,839,963
Total operating expenses	12,770,247		7,756,827		24,538,876		21,782,727
Operating loss	(2,398,684)		(1,236,668)		(4,993,563)		(3,769,086)


Interest expense, net	(7,991)		(72,681)		(30,380)		(225,192)
Other income (expense), net	24,548		(49,939)		494,548		(190,246)



Net loss	$	(2,382,127)	$	(1,359,288)	$	(4,529,395)	$	(4,184,524)

Per common share data
Basic and diluted:


Net loss	$	(0.02)	$	(0.02)	$	(0.04)	$	(0.07)

Weighted average shares
Basic	116,497,035		66,023,317		116,497,035		59,835,925
Diluted	116,497,035		66,023,317		116,497,035		59,835,925

See accompanying notes to the consolidated financial statements.

INUVO, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	For the Six Months Ended June 30,
	2021			2020
Operating activities:
Net loss	$	(4,529,395)		$	(4,184,524)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	1,552,386			1,650,785
Depreciation-Right of Use Assets	153,978			215,847
Stock based compensation	952,472			402,185
Unrealized gain on purchase of marketable securities	24,525			—
Amortization of financing fees	5,000			11,092
(Recovery)/provision for doubtful accounts	(69,667)			44,000
Third party rights agreement termination	(420,000)			—
Derecognition of contingencies	(110,000)			—
Contract Cancellation	—			(1,260,978)
Amortization of debt discount	—			18,286
Amortization of OID interest expense	—			13,167
Mark to market fair value of derivative	—			102,664
Loss on extinguishment of convertible debt	—			65,700
Change in operating assets and liabilities:

Accounts receivable	618,735			4,229,088
Marketable securities	(913,110)			—
Prepaid expenses, unbilled revenue and other current assets	(100,888)			(5,402)
Accrued expenses and other liabilities	(2,051,281)			(1,053,047)
Accounts payable	2,421,700			(2,584,892)

Net cash used in operating activities	(2,465,545)			(2,336,029)
Investing activities:
Purchases of equipment and capitalized development costs	(788,670)			(557,818)
Net cash used in investing activities	(788,670)		-788670	(557,818)
Financing activities:
Proceeds from sale of common stock, net	13,137,500			6,500,695

Proceeds from ValidClick licensing agreement	—			500,000
Proceeds from PPP and SBA loans	—			1,258,900
Net payments on line of credit	—			(1,222,921)

Payments on finance lease obligations	(117,363)			(313,418)

Proceeds from exercise of options	1,569			—
SBA loan repayment	(149,900)			—
Net taxes paid on restricted stock unit grants exercised	(161,244)			(21,184)
Net cash provided by financing activities	12,710,562			6,702,072

Net change – cash	9,456,347			3,808,225
Cash and cash equivalent, beginning of year	7,890,665			372,989
Cash and cash equivalent, end of period	$	17,347,012		$	4,181,214
Supplemental information:
Interest paid	$	32,972		$	178,938

Non cash investing and financing activities:
Assets purchased under finance lease	$	10,724		$	495,071
Assets purchased under operating lease	$	344,311		$	—
Conversion of Debt and derecognition of derivative and discounts to common stock	$	—		$	923,810

See accompanying notes to the consolidated financial statements.

INUVO, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(unaudited)

For the Six Months Ended June 30,


2021
	Common Stock			Additional Paid in Capital		Accumulated Deficit		Total
	Shares	Stock
Balance as of December 31, 2020	98,035,829	$98,036		$	161,541,448	$	(136,350,370)	$	25,289,114
Net loss						(2,147,268)		(2,147,268)
Stock-based compensation				394,870				394,870
Stock issued for vested restricted stock awards	1,467,465	1,467		(1,467)				—
Shares withheld for taxes on vested restricted stock				(161,244)				(161,244)
Proceeds from exercise of options				1,569				1,569
Sale of common stock, net	19,015,151	19,016		13,118,484				13,137,500
Balance as of March 31, 2021	118,518,445	$118,519		$	174,893,660	$	(138,497,638)	$	36,514,541
Net loss						(2,382,127)		(2,382,127)
Stock-based compensation				557,602				557,602





Balance as of June 30, 2021	118,518,445	$	118,519	$	175,451,262	$	(140,879,765)	$	34,690,016


2020
	Common Stock			Additional Paid in Capital		Accumulated Deficit		Treasury Stock		Total
	Shares	Stock
Balance as of December 31, 2019	51,846,011	$52,223		$	144,843,687	$	(129,045,801)	$	(1,396,559)	$	14,453,550
Net loss						(2,825,236)				(2,825,236)
Stock-based compensation				208,897						208,897
Stock issued for vested restricted stock awards	260,719	261		(261)						—
Shares withheld for taxes on vested restricted stock				(21,184)						(21,184)
Convertible Note Conversion	1,200,000	1,200		467,467						468,667
Sale of common stock, net	7,046,429	7,046		1,199,742						1,206,788
Balance as of March 31, 2020	60,353,159	$60,730		$	146,698,348	$	(131,871,037)	$	(1,396,559)	13,491,482
Net loss						(1,359,288)				(1,359,288)
Stock-based compensation				193,288						193,288



Convertible Note Conversion	1,800,000	1,800		453,343						455,143
Sale of common stock, net	13,622,507	13,623		5,280,284						5,293,907
Balance as of June 30, 2020	75,775,666	$	76,153	$	152,625,263	$	(133,230,325)	$	(1,396,559)	$	18,074,532

Inuvo, Inc.

Notes to Consolidated Financial Statements

(Unaudited)

Note 1 – Organization and Business

Company Overview

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

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

Inuvo technology can be consumed both as a managed service and software-as-a-service. For several of its larger services clients, the company has also developed 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 various Inuvo technologies, while also delivering high quality consumers to these services clients through consumer interaction with the proprietary content within these sites.

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.

Liquidity

Throughout 2020 and the first quarter of 2021, we raised capital, reversing a historical net working capital deficit. Our principal sources of liquidity come as a result of the sale of common stock and use of a credit facility through Hitachi Capital America Corp. ("Hitachi") described in Note 6.

On March 20, 2020, we sold an aggregate of 3,931,428 shares of our common stock to the five members of our Board of Directors in a private placement exempt from registration under Section 4(a)(2) and Rule 506(b) of Regulation D under the Securities Act of 1933, as amended. We received proceeds of $688,000 in this offering. On March 27, 2020, we closed on the first tranche of a registered direct offering in which we sold 3,115,001 shares of our common stock for gross proceeds of $545,125. On April 2, 2020, we closed on a second tranche of the registered direct offering in which we sold 1,400,285 shares of our common stock for gross proceeds of $245,050.

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

On June 8, 2020, we closed an additional registered direct offering of an aggregate of 12,222,222 shares of our common stock for gross proceeds of $5.5 million. On July 27, 2020, we closed a firm commitment underwritten follow-on public offering of an aggregate of 21,500,000 shares of our common stock for gross proceeds of $10.75 million. On January 19, 2021, we raised $8.0 million in gross proceeds in a registered direct offering, before expenses, through the sale of an aggregate of 13,333,334 shares of our common stock, and on January 22, 2021, we raised an additional $6.25 million in gross proceeds in a registered direct offering, before expenses, through the sale of an aggregate of 5,681,817 shares of our common stock.

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

In March 2021, we contracted with an investment management company to manage our cash in excess of current operating needs. We placed $2 million in a money market fund and $10 million in an interest-bearing account. In the second quarter, a portion of the $2 million was invested in marketable debt and equity securities. A detail of the activity is described in Note 3 - Fair Value Measurements.

On May 28, 2021, we entered into a Sales Agreement (the "Sales Agreement") with A.G.P./Alliance Global Partners, as sales agent (the "Sales Agent"), pursuant to which we may offer and sell through or to the Sales Agent shares of our Common Stock (the "ATM Program") up to an aggregate amount of gross proceeds of $35,000,000. During the three months ended June 30, 2021, we did not issue any shares of Common Stock, we did not receive any aggregate proceeds, and we did not pay any commissions to the Sales Agent. Any shares of Common Stock offered and sold in the ATM Program will be issued pursuant to our universal shelf registration statement on Form S-3 (the "Shelf Registration Statement"). The ATM Program will terminate upon (a) the election of the Agent upon the occurrence of certain adverse events, (b) 10 days’ advance notice from one party to the other, or (c) the sale of the balance available under our Shelf Registration Statement. Under the terms of the Sales Agreement, the Sales Agent is entitled to a commission at a fixed rate of 3.0% of the gross proceeds from each sale of shares under the Sales Agreement.

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

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

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

Customer concentration

Our three largest customers are Google, Yahoo! and Proper Media and all are clients of the ValidClick platform. The percentages of overall Inuvo revenue associated with these clients is noted below:


	For the Three Months Ended June 30,			For the Six Months Ended June 30,
	2021	2020		2021		2020
Google	39.3%	25.0	%	39.6	%	20.6	%
Yahoo!	20.3%	36.7	%	18.5	%	46.5	%
Proper Media	14.9%	—	%	16.8	%	—	%
Total	74.5%	61.7	%	74.9	%	67.1	%

As of June 30, 2021, Google, Yahoo! and Proper Media accounted for 61.8% of our gross accounts receivable balance. As of December 31, 2020, the same three customers accounted for 38.4% of our gross accounts receivable balance.

We still source the majority of our ValidClick revenue through these services relationships where we have access to advertiser media spend indirectly. While this strategy creates a concentration risk, we believe that it also provides upside opportunities including; access to hundreds of thousands of advertisers across geographies; the ability to scale our business across verticals; an avoidance of the sales costs associated with a large direct to advertisers’ sales force; access to innovation; overall media budget market insights; attractive payment terms; and low risk on receivables.

Impact of COVID-19 Pandemic

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

In response to COVID-19, we curtailed expenses, including compensation and travel throughout 2020, in addition to other actions. Additionally, in April 2020, we obtained an unsecured PPP Loan under the CARES Act of $1.1 million which we used primarily for payroll costs. The loan was fully forgiven by the SBA on November 2, 2020.

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

Our net working capital was a positive $15.4 million as of June 30, 2021. During January 2021, we raised approximately $14.3 million, before expenses, through the sale of our securities in two offerings. During the second and third quarters of 2020, we raised approximately $16.5 million, before expenses, through the sale of our securities and in April 2020, we obtained a $1.1 million PPP Loan. With the reduction in our revenue run rate, there is an increased need for working capital to fund our operations. There is no assurance that we will be successful in obtaining additional funding to continue operations, particularly in light of the current impact of COVID-19 on the U.S. capital markets, but believe we have sufficient capital to operate during the next twelve months.

Note 2 – Summary of Significant Accounting Policies

Basis of presentation

The consolidated financial statements presented are for Inuvo and its consolidated subsidiaries. The accompanying unaudited consolidated financial statements have been prepared based upon SEC rules that permit reduced disclosure for interim periods. Certain information and footnote disclosures have been condensed or omitted in accordance with those rules and regulations. The accompanying conso

SEC Form 10-Q filed by Inuvo, Inc