SEC Form 10-Q filed by Inuvo Inc.

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 Agency & Brands 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. 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. 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 17 issued and two pending patents.

Liquidity

Our principal sources of liquidity are the sale of our common stock and our credit facility discussed in Note 5– Bank Debt.

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. We will pay Wainwright a commission rate of up to 3.0% of the aggregate gross proceeds from each sale of Shares. We utilized the ATM Agreement and sold 159,432 shares of common stock for gross proceeds of $1,163,491 in January 2025.

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 5– Bank Debt.

Note 2 – Summary of Significant Accounting Policies

Basis of presentation

Use of estimates

Revenue Recognition

Note 3 – Property and Equipment

The net carrying value of property and equipment was as follows as of:

During the three months ended June 30, 2025 and June 30, 2024, depreciation and amortization expense was $445,183 and $430,676, respectively. During the six months ended June 30, 2025 and June 30, 2024, depreciation and amortization expense was $895,849 and $857,754, respectively. During the three months ended June 30, 2025, we disposed of approximately $283 thousand of fully depreciated equipment that was no longer in use. As the equipment was fully depreciated, there was no cash inflow or outflow associated with this transaction, and no gain or loss was recorded.

 Note 4 – Other Intangible Assets and Goodwill

The following is a schedule of intangible assets and goodwill as of June 30, 2025:

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

Note 5 – Bank Debt

Through June 30, 2024, the Company had a 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 and there are no outstanding balances due.

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 June 30, 2025 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 June 30, 2025. 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 June 30, 2025 and December 31, 2024 the outstanding balances due under the Financing Agreement was $0.

Note 6 – Accrued Expenses and Other Current Liabilities

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

Note 7 – 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 in the amount of $800,000 bringing the balance to $0. For the six months ended June 30, 2025 and 2024 amortization of the advance amounted to $0 and $150,000 respectively.

Note 8 – Income Taxes

As of June 30, 2025, we have $2,676 thousand deferred income tax expense and incurred only the minimum state taxes which are included in operating expenses. We have deferred tax assets of $42,270,208. We believe it is more likely than not that essentially none of our deferred tax assets will be realized, and we have recorded a valuation allowance of $41,367,150 for the deferred tax assets that may not be realized as of June 30, 2025. We also have deferred tax liabilities totaling $1,003,000 as of June 30, 2025, related to intangible assets acquired in March 2012 and February 2017. These balances are presented as a net deferred tax liability of $99,942 composed of indefinite lived intangible assets. As of December 31, 2024, the Company had a net deferred tax liability of $97,266. The net deferred tax liability is due to goodwill and trade name that are amortized for tax purposes both of which are not being amortized for book purposes. 

On July 4, 2025, the One Big Beautiful Bill Act, a budget reconciliation package that changes the U.S. federal income tax laws, including extensions of various expiring provisions from the Tax Cuts and Jobs Acts of 2017, was signed into law. The Company is evaluating the impact of the legislation and forthcoming administrative guidance and regulations to our financial statements and results of operations.

Note 9 – 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 six months ended June 30, 2025 and 2024, 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 based upon achieving certain financial targets.

On March 21, 2025, the Board of Directors resolved to adopt the 2025 Omnibus Incentive Compensation Plan (the “2025 Plan”), subject to the approval of our stockholders at the annual meeting held on May 22, 2025. The stockholders approved the adoption of the 2025 Plan as the successor to the 2017 ECP, but all awards granted under the 2017 ECP at the time of the shareholder approval of the 2025 plan continue in full force and effect in accordance with their terms under the 2017 ECP. At June 30, 2025, the 2025 Plan had 1,098,320 shares authorized and available for grant. At June 30, 2025, outstanding awards covered by the 2017 ECP totaled 979,162 shares.

As of June 30, 2025, the total number of authorized shares of our common stock under the 2017 ECP was 979,162. As of June 30, 2025, the total number of authorized shares of our common stock under the 2025 Plan was 1,098,320.

Compensation Expense

For the six months ended June 30, 2025 and June 30, 2024, we recorded stock-based compensation expense for all equity incentive plans of $596,073 and $714,993, respectively. Total compensation cost not yet recognized at June 30, 2025 was $1,703,625, which will be recognized over the next three years. 

Note 10 – Stockholders' Equity

Reverse Stock Split

On June 10, 2025, the Company effected a 1-for-10 reverse stock split of its issued and outstanding common stock. As a result of the reverse stock split, every ten shares of the Company’s issued and outstanding common stock were automatically converted into one share of common stock, without any change in the par value per share. No fractional shares were issued as a result of the reverse stock split. Instead, stockholders entitled to receive a fractional share received a whole share rounded up. The reverse stock split did not affect the total number of authorized shares of common stock or the par value of common stock.

All share and per share amounts for all periods presented in the accompanying financial statements and notes have been retroactively adjusted to reflect the reverse stock split.

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 7 - Commitments). As part of that agreement, we granted a seven year warrant exercisable into 30,000 shares of our common stock, at $7.20 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 $7.10. 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, 8,587 shares vested in accordance with the contracted performance criteria. On August 31, 2023, 2,114 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 June 30, 2025, approximately 19,300 shares have been forfeited and approximately 10,700 shares underlying the warrant have vested.

Earnings per Share

For the three and six months ended June 30, 2025 and 2024, we generated a net loss from continuing operations and as a result, any potential common shares are anti-dilutive. 

Note 11 – Segment Reporting

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.

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:

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 12 – 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 five years, and often include one or more options to renew or in the case of equipment rental, to purchase the equipment. These operating and finance leases are listed as separate line items on our consolidated balance sheets and represent our right to use the underlying asset for the lease term. Our obligation to make lease payments is also listed as separate line items on our consolidated balance sheets.  As of June 30, 2025 and December 31, 2024, total operating and financed right-of-use assets were $791,910 and $5,972, and $913,439 and $18,209, respectively.

Note 13 – Allowance for Credit Losses

The activity in the allowance for doubtful accounts was as follows during the six-month period ended June 30, 2025 and the year ended December 31, 2024:

The allowance for doubtful accounts at June 30, 2025 was $127,309, a decrease of $17,316 from December 31, 2024. 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 14 – Related Party Transactions

During the six-month period ended June 30, 2025, the Company provided services to Gabriel Court Consortium, LLC, a company in which one of our directors holds a significant interest. Revenue from the transaction amounted to approximately $25,000.

During the six-month period ended June 30, 2025, the Company provided services to First Orion Corp., a company in which one of our former directors holds a significant interest. Revenue from the transaction amounted to approximately $126,000.

During the six-month period ended June 30, 2025, the Company provided services to James & James, a company in which one of our former directors holds a significant interest. Revenue from the transaction amounted to approximately $389,000.