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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 September 30, 2023
OR
☐ 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 |  | November 6, 2023
Common Stock |  | 137,981,678

TABLE OF CONTENTS

|  |  | Page No.
Part I
Item 1. | Financial Statements. |  | 5
| Consolidated Balance Sheets |  | 5
| Consolidated Statements of Operations and Comprehensive Loss |  | 6
| Consolidated Statements of Cash Flows |  | 7
| Consolidated Statements of Stockholders' Equity |  | 8
| Notes to Consolidated Financial Statements |  | 10
Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations. |  | 20
Item 3. | Quantitative and Qualitative Disclosures About Market Risk. |  | 24
Item 4. | Controls and Procedures. |  | 24
Part II
Item 1. | Legal Proceedings. |  | 24
Item 1A. | Risk Factors. |  | 25
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds. |  | 25
Item 3. | Defaults upon Senior Securities. |  | 25
Item 4. | Mine Safety and Disclosures. |  | 25
Item 5. | Other Information. |  | 25
Item 6. | Exhibits. |  | 26
Signatures |  | 27

3

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
This report contains forward-looking statements within the meaning of 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:
•a decline in general economic conditions;
•decreased market demand for our products and services;
•customer revenue concentration;
•risks associated with customer collections;
•seasonality impacts on financial results and cash availability;
•dependence on advertising suppliers;
•the ability to acquire traffic in a profitable manner;
•failure to keep pace with technological changes;
•interruptions within our information technology infrastructure;
•dependence on 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;
•the 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 and warrants;
•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, 2022 as filed with the Securities and Exchange Commission ("SEC") on March 9, 2023 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, “third quarter 2023” means for the three months ended September 30, 2023, “third quarter 2022” means for the three months ended September 30, 2022, “2022” means the fiscal year ended December 31, 2022 and “2023” means the fiscal year ending December 31, 2023. 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.
4

PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INUVO, INC.
CONSOLIDATED BALANCE SHEETS
September 30, 2023 (Unaudited) and December 31, 2022

| September 30, 2023 |  | December 31, 2022
Assets |  |  |
Current assets |  |  |
Cash and cash equivalents | $ | 6,978,481 |  |  | $ | 2,931,415 |
Marketable securities - short term | — |  |  | 1,529,464 |
Accounts receivable, net of allowance for doubtful accounts of $2,188,450 and $1,440,678, respectively. | 10,159,727 |  |  | 11,119,892 |
Prepaid expenses and other current assets | 959,037 |  |  | 798,977 |
Total current assets | 18,097,245 |  |  | 16,379,748 |
Property and equipment, net | 1,682,427 |  |  | 1,668,972 |
Other assets |  |  |
Goodwill | 9,853,342 |  |  | 9,853,342 |
Intangible assets, net of accumulated amortization | 4,910,916 |  |  | 5,649,291 |
Referral and support services agreement advance | 575,000 |  |  | 800,000 |
Marketable securities - long term | — |  |  | 660,126 |
Right of use assets - operating lease | 882,919 |  |  | 310,162 |
Right of use assets - finance lease | 94,266 |  |  | 168,750 |
Other assets | 79,539 |  |  | 66,919 |
Total other assets | 16,395,982 |  |  | 17,508,590 |
Total assets | $ | 36,175,654 |  |  | $ | 35,557,310 |
Liabilities and Stockholders’ Equity |  |  |
Current liabilities |  |  |
Accounts payable | $ | 7,766,466 |  |  | $ | 8,044,802 |
Accrued expenses and other current liabilities | 8,440,764 |  |  | 5,162,458 |
Lease liability - operating lease | 170,001 |  |  | 287,523 |
Lease liability - finance lease | 63,219 |  |  | 101,003 |
Total current liabilities | 16,440,450 |  |  | 13,595,786 |
Long-term liabilities |  |  |
Deferred tax liability | 107,000 |  |  | 107,000 |
Lease liability - operating lease | 717,409 |  |  | 23,878 |
Lease liability - finance lease | 24,243 |  |  | 70,597 |
Other long-term liabilities | 17,874 |  |  | 10,733 |
Total long-term liabilities | 866,526 |  |  | 212,208 |
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 137,983,918 and 120,137,124, respectively. | 137,983 |  |  | 120,138 |
Additional paid-in capital | 183,776,576 |  |  | 178,771,604 |
Accumulated other comprehensive loss | — |  |  | (84,868) |
Accumulated deficit | (165,045,881) |  |  | (157,057,558) |
Total stockholders' equity | 18,868,678 |  |  | 21,749,316 |
Total liabilities and stockholders' equity | $ | 36,175,654 |  |  | $ | 35,557,310 |

See accompanying notes to the consolidated financial statements.
5

INUVO, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Unaudited)

| For the Three Months Ended September 30, |  | For the Nine Months Ended September 30,
| 2023 |  | 2022 |  | 2023 |  | 2022
Net revenue | $ | 24,570,588 |  |  | $ | 17,072,189 |  |  | $ | 53,069,433 |  |  | $ | 58,332,859 |
Cost of revenue | 2,274,626 |  |  | 6,782,047 |  |  | 7,833,729 |  |  | 24,717,143 |
Gross profit | 22,295,962 |  |  | 10,290,142 |  |  | 45,235,704 |  |  | 33,615,716 |
Operating expenses |  |  |  |  |  |  |
Marketing costs | 17,625,806 |  |  | 8,620,161 |  |  | 36,769,972 |  |  | 26,778,020 |
Compensation | 3,525,943 |  |  | 3,237,414 |  |  | 10,202,200 |  |  | 9,611,011 |
General and administrative | 2,335,295 |  |  | 2,206,119 |  |  | 6,229,069 |  |  | 5,944,027 |
Total operating expenses | 23,487,044 |  |  | 14,063,694 |  |  | 53,201,241 |  |  | 42,333,058 |
Operating loss | (1,191,082) |  |  | (3,773,552) |  |  | (7,965,537) |  |  | (8,717,342) |
Financing (expense), net of interest income | 19,852 |  |  | (13,149) |  |  | (37,454) |  |  | (11,078) |
Other income (expense), net | 250 |  |  | (23,861) |  |  | 14,668 |  |  | (401,336) |
Net loss | (1,170,980) |  |  | (3,810,562) |  |  | (7,988,323) |  |  | (9,129,756) |
Other comprehensive income |  |  |  |  |  |  |
Unrealized gain (loss) on marketable securities | — |  |  | 36,170 |  |  | 84,868 |  |  | $ | (186,239) |
Comprehensive loss | $ | (1,170,980) |  |  | $ | (3,774,392) |  |  | $ | (7,903,455) |  |  | $ | (9,315,995) |
Per common share data |  |  |  |  |  |  |
Basic and diluted: |  |  |  |  |  |  |
Net loss | $ | (0.01) |  |  | $ | (0.03) |  |  | $ | (0.06) |  |  | $ | (0.08) |
Weighted average shares |  |  |  |  |  |  |
Basic | 127,381,051 |  |  | 119,995,367 |  |  | 128,793,522 |  |  | 118,838,258 |
Diluted | 127,381,051 |  |  | 119,995,367 |  |  | 128,793,522 |  |  | 118,838,258 |

See accompanying notes to the consolidated financial statements.
6

INUVO, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

| For the Nine Months Ended September 30,
| 2023 |  | 2022
Operating activities: |  |  |
Net loss | $ | (7,988,323) |  |  | $ | (9,129,756) |
Adjustments to reconcile net loss to net cash used in operating activities: |  |  |
Depreciation and amortization | 1,984,139 |  |  | 1,949,845 |
Depreciation-Right of Use Assets - Financing | 77,790 |  |  | 73,313 |
Stock based compensation | 1,471,683 |  |  | 1,890,991 |
Derecognition of contingency and grant | — |  |  | (10,000) |
Amortization of financing fees | 5,833 |  |  | 2,500 |
Provision (recovery) of doubtful accounts | 747,772 |  |  | 259,576 |
Loss (gain) on marketable securities | (14,418) |  |  | 401,336 |
Stock warrant expense | (8,130) |  |  | 28,477 |
Change in operating assets and liabilities: |  |  |
Accounts receivable | 212,393 |  |  | (550,866) |
Referral and support services agreement advance | 225,000 |  |  | 225,000 |
Prepaid expenses, other current assets and other assets | (172,679) |  |  | 316,053 |
Accrued expenses and other liabilities | 3,279,560 |  |  | 916,363 |
Accounts payable | (278,336) |  |  | 806,824 |
Net cash used in operating activities | (457,716) |  |  | (2,820,344) |
Investing activities: |  |  |
Purchases of equipment and capitalized development costs | (1,259,217) |  |  | (1,311,315) |
Purchase of marketable securities | — |  |  | (1,693,963) |
Proceeds from the sale of marketable securities | 2,288,873 |  |  | 1,403,282 |
Net cash provided by (used in) investing activities | 1,029,656 |  |  | (1,601,996) |
Financing activities: |  |  |
Gross proceeds from line of credit | 592,868 |  |  | — |
Repayments on line of credit | (592,868) |  |  | — |
Payments on finance lease obligations | (84,138) |  |  | (75,848) |
Proceeds from at-the-market sales | 61,136 |  |  | — |
Capital raise, net of issuance costs | 3,665,000 |  |  | — |
Net taxes paid on restricted stock unit grants exercised | (166,872) |  |  | (196,894) |
Net cash provided by/(used in) financing activities | 3,475,126 |  |  | (272,742) |
Net change – cash | 4,047,066 |  |  | (4,695,082) |
Cash and cash equivalent, beginning of year | 2,931,415 |  |  | 10,475,964 |
Cash and cash equivalent, end of period | $ | 6,978,481 |  |  | $ | 5,780,882 |
Supplemental information: |  |  |
Interest paid | $ | 85,488 |  |  | $ | 15,128 |
Acquisition of right of use asset for operating lease liability | $ | 1,105,148 |  |  | — |

See accompanying notes to the consolidated financial statements.
7

INUVO, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(unaudited)
For the Nine Months Ended September 30,

2023
| Common Stock |  | Additional Paid in Capital |  | Accumulated Deficit |  | Accumulated Other Comprehensive Income (Loss) |  |  | Total
| Shares |  | Stock |  |  |  |  |  |  |  |  |
Balance as of December 31, 2022 | 120,137,124 |  |  | $ | 120,138 |  |  | $ | 178,771,604 |  |  | $ | (157,057,558) |  |  | $ | (84,868) |  |  |  | $ | 21,749,316 |
Net loss |  |  |  |  |  |  | (3,440,105) |  |  |  |  |  | (3,440,105) |
Unrealized gain on debt securities |  |  |  |  |  |  |  |  | 84,868 |  |  |  | 84,868 |
Stock-based compensation |  |  |  |  | 432,084 |  |  |  |  |  |  |  | 432,084 |
Stock issued for vested restricted stock awards | 1,503,238 |  |  | 1,503 |  | (1,503) |  |  |  |  |  |  |  | — |
Shares withheld for taxes on vested restricted stock |  |  |  |  | (166,872) |  |  |  |  |  |  |  | (166,872) |
Reversal of expense related to a change in warrant vesting |  |  |  |  | (9,874) |  |  |  |  |  |  |  | (9,874) |
Balance as of March 31, 2023 | 121,640,362 |  |  | $ | 121,641 |  |  | $ | 179,025,439 |  |  | $ | (160,497,663) |  |  | $ | — |  |  |  | $ | 18,649,417 |
Net loss |  |  |  |  |  |  | $ | (3,377,238) |  |  |  |  |  | (3,377,238) |
Unrealized loss on debt securities |  |  |  |  |  |  |  |  |  |  |  | — |
Stock-based compensation |  |  |  |  | 503,061 |  |  |  |  |  |  |  | 503,061 |
Stock issued for vested restricted stock awards | 3,333 |  |  | 3 |  |  | (3) |  |  |  |  |  |  |  | — |
Stock warrants issued for referral agreement |  |  |  |  | 1,276 |  |  |  |  |  |  |  | 1,276 |
Capital raise, net of issuance costs | 16,000,000 |  |  | 16,000 |  |  | 3,649,000 |  |  |  |  |  |  |  | 3,665,000 |
AGP Closing at-the-market sale | 173,558 |  | 1 | 174 |  |  | 60,962 |  |  |  |  |  |  |  | 61,136 |
Balance as of June 30, 2023 | 137,817,253 |  |  | $ | 137,818 |  |  | $ | 183,239,735 |  |  | $ | (163,874,901) |  |  | $ | — |  |  |  | $ | 19,502,652 |
Net loss |  |  |  |  |  |  | $ | (1,170,980) |  |  |  |  |  | (1,170,980) |
Stock-based compensation |  |  |  |  | $ | 536,538 |  |  |  |  |  |  |  | 536,538 |
Stock issued for vested restricted stock awards | 166,665 |  |  | $ | 165 |  |  | $ | (165) |  |  |  |  |  |  |  | — |
Stock warrants issued for referral agreement |  |  |  |  | 468 |  |  |  |  |  |  |  | 468 |
Balance as of September 30, 2023 | 137,983,918 |  |  | $ | 137,983 |  |  | $ | 183,776,576 |  |  | $ | (165,045,881) |  |  | $ | — |  |  |  | $ | 18,868,678 |

8

2022
| Common Stock |  | Additional Paid in Capital |  | Accumulated Deficit |  | Accumulated Other Comprehensive Income (Loss) |  | Total
| Shares |  | Stock |  |  |  |  |  |  |  |
Balance as of December 31, 2021 | 118,747,447 |  |  | $ | 118,748 |  |  | $ | 176,586,529 |  |  | $ | (143,951,019) |  |  | $ | 53,737 |  |  | $ | 32,807,995 |
Net loss |  |  |  |  |  |  | (2,089,263) |  |  |  |  | (2,089,263) |
Unrealized loss on debt securities |  |  |  |  |  |  |  |  | (98,156) |  |  | (98,156) |
Stock-based compensation |  |  |  |  | 671,158 |  |  |  |  |  |  | 671,158 |
Stock issued for vested restricted stock awards | 1,059,755 |  |  | 1,060 |  | (1,060) |  |  |  |  |  |  | — |
Shares withheld for taxes on vested restricted stock |  |  |  |  | (128,520) |  |  |  |  |  |  | (128,520) |
Stock warrants issued for referral agreement |  |  |  |  | 12,483 |  |  |  |  |  |  | 12,483 |
Balance as of March 31, 2022 | 119,807,202 |  |  | $ | 119,808 |  |  | $ | 177,140,590 |  |  | $ | (146,040,282) |  |  | $ | (44,419) |  |  | $ | 31,175,697 |
Net loss |  |  |  |  |  |  | (3,229,927) |  |  |  |  | (3,229,927) |
Unrealized loss on debt securities |  |  |  |  |  |  |  |  | (124,253) |  |  | (124,253) |
Stock-based compensation |  |  |  |  | 684,376 |  |  |  |  |  |  | 684,376 |
Stock issued for vested restricted | 66,666 |  |  | $ | 66 |  |  | $ | (66) |  |  |  |  |  |  | — |
Stock warrants issued for referral |  |  |  |  | $ | 462 |  |  |  |  |  |  | 462 |
Balance as of June 30, 2022 | 119,873,868 |  |  | $ | 119,874 |  |  | $ | 177,825,362 |  |  | $ | (149,270,209) |  |  | $ | (168,672) |  |  | $ | 28,506,355 |
Net Loss |  |  |  |  |  |  | $ | (3,810,562) |  |  |  |  | (3,810,562) |
Unrealized gain on debt securities |  |  |  |  |  |  |  |  | $ | 36,170 |  |  | 36,170 |
Stock-based compensation |  |  |  |  | 535,458 |  |  |  |  |  |  | 535,458 |
Shares withhold for taxes on vest restricted stock |  |  |  |  | (68,372) |  |  |  |  |  |  | (68,372) |
Stock issued for vested restricted stock awards | 263,256 |  |  | 264 |  |  | (264) |  |  |  |  |  |  | — |
Stock warrants issued for referral |  |  |  |  | 15,532 |  |  |  |  |  |  | 15,532 |
Balance as of September 30, 2022 | 120,137,124 |  |  | $ | 120,138 |  |  | $ | 178,307,716 |  |  | $ | (153,080,771) |  | — |  | $ | (132,502) |  |  | $ | 25,214,581 |

9

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 solutions predictively identify and message online audiences for any product, service or brand across devices, formats, and channels including video, mobile, connected TV, linear TV, display, social, search and native. These solutions allow Inuvo’s clients to engage with their audiences 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 client's numerous world-renowned brands across industries.
The Inuvo solution incorporates a proprietary form of artificial intelligence, or AI, branded the IntentKey. This patented technology is a model of the human language built from crawling public content on billions of webpages. The AI uses this model of the language to predict and action audiences based on the reasons why consumers are interested, not who the people are within those audiences. In this regard, the technology is designed for a consumer privacy conscious future while
addressing the components of the advertising value chain most responsible for return on advertising spend, the intelligence behind the advertising decision.
Inuvo technology can be consumed both as a managed service and software-as-a-service. For certain clients, Inuvo has also developed proprietary digital properties collectively branded as Bonfire Publishing where content is created specifically to attack the audiences those clients are targeting. These online publications provide information across a wide range of topics including health, finance, travel, careers, auto, education and lifestyle. Collectively, these websites also provide the means to market test various Inuvo advertising technologies.
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 19 issued and eight pending patents.
Liquidity
As of September 30, 2023, we have approximately $7.0 million in cash and cash equivalents. Our net working capital was $1.7 million. We have encountered recurring losses and cash outflows from operations, which historically we have funded through equity offerings and debt facilities. In addition, our investment in internally developed software consists primarily of labor costs which are of a fixed nature. Through September 30, 2023, our accumulated deficit was $165.0 million.
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.
In March 2021, we contracted with an investment management company to manage our cash in excess of current operating
needs. We placed $2.0 million in cash equivalent accounts and $10.0 million in an interest-bearing account. At September 30, 2023, our funds with the investment management company were approximately $68 thousand and were invested in cash and cash equivalent accounts. A detail of the activity is described in Note 3 to our Consolidated Financial Statements.
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 $14,611,900. During the year ended December 31, 2021 and through March 31, 2023, we did not issue any shares of common stock or receive any aggregate proceeds under the ATM Program, and we did not pay any commissions to the Sales Agent. During the quarter ended June 30, 2023, we sold 173,558 shares for gross proceeds totaling $63,136 under the ATM Program and paid the Sales Agent a commission of $1,902. We did not issues any shares of common stock or receive any aggregate proceeds under the ATM during, and we did not pay any commissions to the Sales Agent during the quarter ended September 30, 2023. Any shares of common stock offered and sold in
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the ATM Program will be issued pursuant to our universal shelf registration statement on Form S-3. The ATM Program will terminate upon (a) the election of the Sales 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.
We have focused our resources behind a plan to market our collective multi-channel advertising capabilities differentiated by our AI technology, the IntentKey, where we have a technology advantage and higher margins. If we are successful in implementing our plan, we expect to return to a positive cash flow from operations. However, there is no assurance that we will be able to achieve this objective.
Management plans to support the Company’s future operations and capital expenditures primarily through cash raised through the sale of stock in May 2023, cash generated from future operations and borrowings from the credit facility until reaching profitability. The credit facility is due upon demand and therefore there can be no assurances that sufficient borrowings will be available to support future operations until profitability is reached. Our collection period is less than 30 days and can also be used to meet accrued obligations.We believe our current cash position and credit facility will be sufficient 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.
Customer concentration
For the three-month period ending September 30, 2023, three customers accounted for 87.2% of our overall revenue at 75.0%, 10.0% and 2.2% and for the nine-month period ended September 30, 2023, 79.8% of our overall revenue at 57.6%, 15.6% and 6.7%, respectively. Those same three customers accounted for 55.2% of our gross accounts receivable balance as of September 30, 2023. As of December 31, 2022, the same customers accounted for 23.9% of our gross accounts receivable balance.
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Note 2 – Summary of Significant Accounting Policies
Basis of presentation
The consolidated financial statements presented are for Inuvo and its subsidiaries. The accompanying unaudited consolidated financial statements have been prepared based upon SEC rules that permit reduced disclosure for interim periods. Certain information and footnote disclosures have been condensed or omitted in accordance with those rules and regulations. The accompanying consolidated balance sheet as of December 31, 2022, was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States ("GAAP"). In our opinion, these consolidated financial statements reflect all adjustments that are necessary for a fair presentation of results of operations and financial condition for the interim periods shown including normal recurring accruals and other items. The results for the interim periods are not necessarily indicative of results for the full year. For a more complete discussion of significant accounting policies and certain other information, this report should be read in conjunction with the consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the year ended December 31, 2022, which was filed with the SEC on March 9, 2023.
Use of estimates
The preparation of financial statements, in accordance with GAAP, requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, net revenues and expenses and disclosure of contingent assets and liabilities. The estimates and assumptions used in the accompanying consolidated financial statements are based upon management’s regular evaluation of the relevant facts and circumstances as of the date of the consolidated financial statements. We regularly evaluate estimates and assumptions related to allowance for doubtful accounts, capitalized labor, goodwill and purchased intangible asset valuations 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.
Revenue Recognition
Revenue recognition - We generate revenue by identifying audiences and presenting advertisements on behalf of our customers.
We may contract directly with a brand, a Direct Customer or we may serve a brand through a contract with an agency, an
Indirect Customer. Revenue is recognized when services are provided to a customer in an amount that reflects the consideration
the Company expects to receive in exchange for those services. We charge our customers on a cents per thousand (CPM) basis,
cost per click ("CPC") basis, or as a specific dollar charge. Revenue billed as CPM is generally programmatic digital advertising and is performed under a contract known as an Insertion Order (“IO”). Programmatic digital advertising revenue is recognized in part or fully in the period the IO is partially or fully executed. Revenue earned from placing an ad or an impression on websites, some of which we own, may be on a CPM or CPC basis. We recognize revenue from ad placement and serving impressions in the period in which they occur. We settle ad placement and CPC transactions with our customers net of any adjustments for poor traffic quality. Payments to advertising exchanges that provide access to digital inventory and to a lesser extent, payments to website publishers and app developers that host advertisements we serve are recognized as cost of revenue.
The following table provides revenues for Direct Customers, Indirect Customers and Consulting during the periods presented.

|  |  |  | For the Three Months Ended September 30, | For the Nine Months Ended September 30, |
|  |  |  |  |  | 2023 |  | 2022 | 2023 |  | 2022 |
Direct Customers |  |  |  |  |  |  |  |  |  | $ | 2,981,145 |  |  | 12.1% |  | $ | 7,746,866 |  |  | 45.4% |  | $ | 10,207,707 |  |  | 19.2% |  | $ | 30,032,885 |  |  | 51.5% |
Indirect Customers |  |  |  |  |  |  |  |  |  | 21,567,138 |  |  | 87.8% |  | 9,310,562 |  |  | 54.5% |  | $ | 42,798,227 |  |  | 80.6% |  | $ | 28,195,887 |  |  | 48.3% |
Consulting |  |  |  |  |  |  |  |  |  | 22,305 |  |  | 0.1% |  | 14,761 |  |  | 0.1% |  | $ | 63,499 |  |  | 0.2% |  | $ | 104,087 |  |  | 0.2% |
Total |  |  |  |  |  |  |  |  |  | $ | 24,570,588 |  |  | 100% |  | $ | 17,072,189 |  |  | 100% |  | $ | 53,069,433 |  |  | 100% |  | $ | 58,332,859 |  |  | 100% |

Recently Adopted Accounting Pronouncements
On January 1, 2023, we adopted Accounting Standards Code (ASC) No. 326, Financial Instruments-Credit Losses. ASC 326 requires a financial asset (loans, debt securities, trade receivables, net investments in leases, off-balance sheet credit exposures, reinsurance receivables, and any other financials assets not excluded from scope) measured at amortized cost basis to be
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presented at the net amount expected to be collected. The adoption of this new standard did not have a material impact on our consolidated financial statements.
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Note 3 – Fair Value Measurements
The carrying amounts reported in the balance sheet for cash and cash equivalents, accounts receivable, accounts payable and accrued expenses approximate fair value based on the short-term nature of these items.
In accordance with accounting principles generally accepted in the United States, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A three-level hierarchy prioritizes the inputs used to measure fair value as follows:
Level 1 – Valuation is based on quoted prices in active markets for identical assets or liabilities. Level 1 assets and liabilities generally include debt and equity securities that are traded in an active exchange market. Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities.
Level 2 – Valuation is based on observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 – Valuation is based on unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation.
The following table summarizes our cash equivalents and marketable securities measured at fair value. Certain marketable
securities consist of investments in debt and equity securities. We classify our cash equivalents and marketable securities within Level 1 because we use observable inputs that reflect quoted market prices for identical assets in active markets to determine their fair value. We have classified debt securities as available for sale securities with unrealized gains and losses recorded as other comprehensive income. We have classified equity securities as trading and are marked to market with changes recorded as other income on the income statement. Any interest income or dividends are recorded within financing expense, net on the income statement.

| Investment Assets at Fair Value |  | Investment Assets at Fair Value
| As of September 30, 2023 |  | As of December 31, 2022
| Level 1 |  | Total |  | Level 1 |  | Total
Debt securities | $ | — |  |  | $ | — |  |  | $ | 936,563 |  |  | $ | 936,563 |
Equity securities | — |  |  | — |  |  | 1,253,027 |  |  | 1,253,027 |
Cash equivalents | 68,474 |  |  | 68,474 |  |  | 801 |  |  | 801 |
Total Investments at Fair Value | $ | 68,474 |  |  | $ | 68,474 |  |  | $ | 2,190,391 |  |  | $ | 2,190,391 |

The cost, gross unrealized gains (losses) and fair value of marketable securities by major security type were as follows:

|  |  |  |  | As of December 31, 2022
|  |  |  |  |  |  |  |  |  |  |  |  | Cost |  | Unrealized Gain (Loss) |  | Fair Value
Marketable securities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Debt securities |  |  |  |  |  |  |  |  |  |  |  |  | $ | 1,021,431 |  |  | $ | (84,868) |  |  | $ | 936,563 |
Equity securities |  |  |  |  |  |  |  |  |  |  |  |  | 1,776,773 |  |  | (523,746) |  |  | 1,253,027 |
Total marketable securities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | $ | 2,189,590 |

The realized loss on the securities as of September 30, 2023 was approximately $510,000.
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Note 4 – Property and Equipment
The net carrying value of property and equipment was as follows as of:

| September 30, 2023 |  | December 31, 2022
Furniture and fixtures | $ | 293,152 |  |  | $ | 293,152 |
Equipment | 1,287,925 |  |  | 1,265,752 |
Capitalized internal use and purchased software | 15,740,652 |  |  | 14,503,608 |
Leasehold improvements | 458,885 |  |  | 458,885 |
Subtotal | 17,780,614 |  |  | 16,521,397 |
Less: accumulated depreciation and amortization | (16,098,187) |  |  | (14,852,425) |
Total | $ | 1,682,427 |  |  | $ | 1,668,972 |

During the three months ended September 30, 2023 and September 30, 2022, depreciation expense was $420,808 and $394,942, respectively. During the nine months ended September 30, 2023 and September 30, 2022, depreciation expense was $1,245,762 and $1,124,674, respectively.
Note 5 – Intangible Assets and Goodwill
The following is a schedule of intangible assets and goodwill as of September 30, 2023:

| Term |  | Carrying Value |  | Accumulated Amortization and Impairment |  | Net Carrying Value |  | Year-to-date Amortization
Customer list, Google | 20 years |  | $ | 8,820,000 |  |  | $ | (5,108,250) |  |  | $ | 3,711,750 |  |  | $ | 330,750 |
Technology | 5 years |  | 3,600,000 |  |  | (3,600,000) |  |  | — |  |  | — |
Customer list, ReTargeter | 5 years |  | 1,931,250 |  |  | (1,609,375) |  |  | 321,875 |  |  | 289,687 |
Customer list, all other | 10 years |  | 1,610,000 |  |  | (1,610,000) |  |  | — |  |  | — |
Brand name, ReTargeter | 5 years |  | 643,750 |  |  | (536,459) |  |  | 107,291 |  |  | 96,563 |
Customer relationships | 20 years |  | 570,000 |  |  | (190,000) |  |  | 380,000 |  |  | 21,375 |
Trade names, web properties (1) | - |  | 390,000 |  |  | — |  |  | 390,000 |  |  | — |
Intangible assets classified as long-term |  |  | $ | 17,565,000 |  |  | $ | (12,654,084) |  |  | $ | 4,910,916 |  |  | $ | 738,375 |
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.
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Amortization expense over the next five years and thereafter is as follows:

2023 (remainder of year) | $ | 246,125 |
2024 | 769,917 |
2025 | 469,500 |
2026 | 469,500 |
2027 | 469,500 |
Thereafter | 2,096,374 |
Total | $ | 4,520,916 |

The following is a schedule of intangible assets and goodwill as of December 31, 2022:

| Term |  | Carrying Value |  | Accumulated Amortization and Impairment |  | Net Carrying Value |  | 2022 Amortization
Customer list, Google | 20 years |  | $ | 8,820,000 |  |  | $ | (4,777,500) |  |  | $ | 4,042,500 |  |  | $ | 441,000 |
Technology | 5 years |  | 3,600,000 |  |  | (3,600,000) |  |  | — |  |  | 60,000 |
Customer list, ReTargeter | 5 years |  | 1,931,250 |  |  | (1,319,688) |  |  | 611,562 |  |  | 386,250 |
Customer list, all other | 10 years |  | 1,610,000 |  |  | (1,610,000) |  |  | — |  |  | 26,794 |
Brand name, ReTargeter | 5 years |  | 643,750 |  |  | (439,896) |  |  | 203,854 |  |  | 128,750 |
Customer relationships | 20 years |  | 570,000 |  |  | (168,625) |  |  | 401,375 |  |  | 28,500 |
Trade names, web properties | - |  | 390,000 |  |  | — |  |  | 390,000 |  |  | — |
Intangible assets classified as long-term |  |  | $ | 17,565,000 |  |  | $ | (11,915,709) |  |  | $ | 5,649,291 |  |  | $ | 1,071,294 |
Goodwill, total |  |  | $ | 9,853,342 |  |  | $ | — |  |  | $ | 9,853,342 |  |  | $ | — |

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 has provided us with a $5,000,000 line of credit commitment. We are permitted to borrow up to 80% of the aggregate Eligible Accounts Receivable (which may increase to 85% if certain conditions are met), up to the maximum credit commitment of $5,000,000. We will pay MHCA monthly interest at the rate of 1.75% in excess of the Wall Street Journal Prime Rate. The principal and all accrued but unpaid interest are due on demand. In the event of a default under the terms of the Loan and Security Agreement, the interest rate increases to 6% greater than the interest rate in effect from time to time prior to a default. The Agreement contains certain affirmative and negative covenants to which we are also subject. We agreed to pay MHCA an amendment fee of $10,000 on issuance of the Agreement, and thereafter an annual commitment fee of $10,000. We are also obligated to pay MHCA a quarterly service fee of 0.20% on the monthly unused amount of the maximum credit line. If we terminate the Agreement (i) before February 28, 2024, we are obligated to pay MHCA an exit fee of $50,000, or (ii) after February 28, 2024 but before February 28, 2025, we are obligated to pay MHCA an exit fee of $25,000. The Loan and Security Agreement continues for an indefinite term. At September 30, 2023, there were no outstanding balances due under the Loan and Security Agreement.
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Note 7 – Accrued Expenses and Other Current Liabilities
The accrued expenses and other current liabilities consist of the following as of:

| September 30, 2023 |  | December 31, 2022
Accrued marketing costs | $ | 7,054,416 |  |  | $ | 3,321,598 |
Accrued payroll and commission liabilities | 1,096,895 |  |  | 782,441 |
Accrued expenses and other | 272,229 |  |  | 1,044,664 |
Arkansas grant contingency | 10,000 |  |  | 10,000 |
Accrued taxes, current portion | 7,224 |  |  | 3,755 |
Total | $ | 8,440,764 |  |  | $ | 5,162,458 |

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 which we recorded as $300,000 in other current assets, the remainder in non-current assets, which is being amortized as marketing expenses over five years. As of September 30, 2023, $625,000 has been amortized and the balance is $575,000. As part of the agreement, we granted a warrant exercisable into 300,000 shares of our common stock, which vests over two years upon achieving certain performance metrics (see Note 11 - Stockholders' Equity). Additionally, we agreed to pay quarterly support fees upon reaching certain levels of operational activity. In April 2022, we agreed to Amendment No. 2 ("amendment") to the agreement. The amendment replaced the quarterly support fees with a commission on quarterly cumulative programmatic revenue.
The amendment also revised the cumulative target media spend and the associated commission. In addition, effective September 26, 2023, Inuvo and the business development partner entered into an Offset Agreement whereby the parties agreed that the commission due to the partner be offset against the outstanding receivable balances due to Inuvo approximating $700,000 in addition to a $67,000 reduction in 2023 commission expense. Commission expense for the nine months ended September 30, 2023 and 2022 was approximately $49,000 and $493,000, respectively.
Note 9 – Income Taxes
We have no current income tax expense and incur only the minimum state taxes which are included in operating expenses. We have deferred tax assets of $41,453,068. 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 $40,042,968 for the deferred tax assets that may not be realized as of September 30, 2023 and December 31, 2022. We also have deferred tax liabilities totaling $1,517,100 as of September 30, 2023, related to intangible assets acquired in March 2012 and February 2017. These balances are presented as a net deferred tax liability of $107,000 composed of indefinite lived intangible assets.
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 2023 and 2022 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 based upon 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 increasing the number of shares of our common stock reserved for issuance by 15,000,000 shares. As of September 30, 2023, the total number of authorized shares of our common stock under the 2017 ECP was 24,550,000.
Compensation Expense
For the three and nine months ended September 30, 2023, we recorded stock-based compensation expense for all equity incentive plans of $536,538 and $1,471,683, respectively. For the three and nine months ended September 30, 2022, we recorded stock-based compensation expense for all equity incentive plans of $535,457 and $1,890,991, respectively. Total compensation cost not yet recognized at September 30, 2023 was $2,051,862, which will be recognized over a weighted-average recognition period of approximately three years.
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The following table summarizes the stock grants outstanding under 2017 ECP as of September 30, 2023:

| Options Outstanding |  | RSUs Outstanding |  | Options and RSUs Exercised |  | Available Shares |  | Total Awards Authorized
Total | — |  |  | 6,860,016 |  |  | 6,634,121 |  |  | 11,055,863 |  |  | 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.
The following table summarizes the activity of stock option activity for the nine months ended September 30, 2023:

| Shares Subject to Options Outstanding |
| Number of Shares |  | Weighted Average Exercise Price |  |
Outstanding, beginning of period | 100,000 |  |  | $ | 0.52 |  |  |
Stock options canceled | (100,000) |  |  | $ | 0.52 |  |  |
Outstanding, end of period | — |  |  | — |  |  |

The following table summarizes the activities for our RSUs for the nine months ended September 30, 2023:

| RSUs
| Number of Shares |  | Weighted Average Grant Date Fair Value
Outstanding, beginning of period | 4,913,339 |  |  | $ | 0.79 |
Granted | 4,070,000 |  |  | $ | 0.31 |
Vested | (2,073,322) |  |  | $ | 0.86 |
Cancelled | (50,001) |  |  | $ | 0.54 |
Outstanding, end of period | 6,860,016 |  |  | $ | 0.49 |

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,
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2023, 21,136 shares vested. For the second tranche, we reversed approximately $8.1 thousand for the nine month period ended September 30, 2023 due to a change in the probability of performance criteria being achieved during the three-month period ended March 2023. In accordance with our agreement, after the second anniversary of the Original Issue Date, any interests in Warrant shares that have not vested pursuant to the terms and conditions of the agreement shall be deemed forfeited and shall never become exercisable. At the period ended September 30, 2023, approximately 193 thousand shares have been forfeited.
Earnings per Share
For the three-month period ended September 30, 2023 and 2022, we generated a net loss from continuing operations and as a result, any potential common shares are anti-dilutive.
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 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 obligation to make lease payments is also listed as separate line items on our consolidated balance sheets. As of September 30, 2023 and December 31, 2022, total operating and financed right-of-use assets were $882,919 and $94,266, and $310,162 and $168,750, respectively. As of September 30, 2023 and 2022, we recorded $77,790 and $73,313, respectively, in amortization expense related to finance leases. As of September 30, 2023 and 2022, we recorded $274,707 and $282,580 , 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%.
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 are as follows:

| For the Nine Months Ended September 30,
Cash paid for operating lease liabilities | $ | 85,960 |
Weighted-average remaining lease term | 3.88 years
Weighted-average discount rate | 10.5 | %

Minimum future lease payments ended September 30, 2023 |  |
2023 (remainder of year) | 85,909 |  |
2024 | 220,665 |  |
2025 | 209,681 |  |
2026 | 206,020 |  |
2027 | 204,027 |  |
Thereafter | 221,030 |  |
| 1,147,332 |  |
Less imputed interest | (259,922) |  |
Total lease liabilities | $ | 887,410 |  |

Information related to our financed lease liabilities are as follows:
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| For the Nine Months Ended September 30,
Cash paid for finance lease liabilities | $ | 22,683 |
Weighted-average remaining lease term | 1.47 years
Weighted-average discount rate | 6.25 | %

Minimum future lease payments ended September 30, 2023 |
2023 (remainder of the year) | 15,738 |
2024 | 56,180 |
2025 | 18,490 |
| 90,408 |
Less imputed interest | (2,946) |
Total lease liabilities | $ | 87,462 |

Note 13 – Allowance for Doubtful Accounts
The allowance for doubtful accounts at September 30, 2023 was $2,188,450, an increase of $747,772 from December 31, 2022. During 2022, we expanded our Direct customer business by 73% due in part by acquiring new customers. These customers typically require longer credit terms than CPC based customers. One of these Direct customers was a significant portion, 24.1% of our total 2022 revenue, and has stretched its payments to 120 days and beyond. Ultimately, we agreed to extended payments from the customer through September 2024.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Company Overview
Inuvo is a technology company that develops and sells information technology solutions for marketing and advertising. These solutions predictively identify and message online audiences for any product, service or brand across devices, formats, and channels including video, mobile, connected TV, linear TV, display, social, search and native. These solutions allow Inuvo’s clients to engage with their audiences 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 client’s numerous world-renowned brands across industries.
The Inuvo solution incorporates a proprietary form of artificial intelligence, or AI, branded the IntentKey. This patented technology is a model of the human language built from crawling public content on billions of webpages. The AI uses this model of the language to predict and action audiences based on the reasons why consumers are interested, not who the people are within those audiences. In this regard, the technology is designed for a consumer privacy conscious future while addressing the components of the advertising value chain most responsible for return on advertising spend, the intelligence behind the advertising decision.
Inuvo technology can be consumed both as a managed service and software-as-a-service. For certain clients, Inuvo has also developed proprietary digital properties collectively branded as Bonfire Publishing where content is created specifically to attack the audiences those clients are targeting. These online publications provide information across a wide range of topics including health, finance, travel, careers, auto, education and lifestyle. Collectively, these websites also provide the means to market test various Inuvo advertising technologies.
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 by19 issued and eight pending patents.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of
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revenue and expenses during the reported periods. The more critical accounting estimates include estimates related to revenue recognition, accounts receivable allowances, capitalized software costs, goodwill and stock-based compensation. We also have other key accounting policies, which involve the use of estimates, judgments and assumptions that are significant to understanding our results, which are described in Note 2 to our audited consolidated financial statements for 2022 appearing in our Annual Report on Form 10-K for the year ended December 31, 2022 as filed with the SEC on March 9, 2023. The estimates and assumptions that management makes affect the reported amounts of assets, liabilities, net revenues and expenses and disclosure of contingent assets and liabilities. The estimates and assumptions used are based upon management’s regular evaluation of the relevant facts and circumstances as of the date of the consolidated financial statements. We regularly evaluate estimates and assumptions related to goodwill and purchased intangible asset valuations and 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.
Results of Operations

| For the Three Months Ended September 30, |  | For the Nine Months Ended September 30, |
| 2023 |  | 2022 |  | Change |  | % Change |  | 2023 |  | 2022 |  | Change | % Change |  |  |  |  |  |  |  |
Net Revenue | $ | 24,570,588 |  |  | $ | 17,072,189 |  |  | $ | 7,498,399 |  |  | 43.9 | % |  | $ | 53,069,433 |  |  | $ | 58,332,859 |  |  | $ | (5,263,426) |  | (9.0) | % |  |  |  |  |  |  |  |
Cost of Revenue | 2,274,626 |  |  | 6,782,047 |  |  | (4,507,421) |  |  | (66.5) | % |  | 7,833,729 |  |  | 24,717,143 |  |  | (16,883,414) |  | (68.3) | % |  |  |  |  |  |  |  |
Gross Profit | $ | 22,295,962 |  |  | $ | 10,290,142 |  |  | $ | 12,005,820 |  |  | 116.7 | % |  | $ | 45,235,704 |  |  | $ | 33,615,716 |  |  | $ | 11,619,988 |  | 34.6 | % |  |  |  |  |  |  |  |

Net Revenue
Revenue for the three-month period ended September 30, 2023, increased 43.9% and revenue for the nine-month period ended September 30, 2023, decreased 9.0% as compared to the same periods in 2022, respectively. The higher revenue for the three-month period ended September 30, 2023 compared to comparable prior year period was primarily attributable to an increased focus on Indirect channels and customers since the start of the year. As a result, our indirect revenue for both periods ended September 30, 2023 increased. Our direct revenues this year compared to last year decreased in both the three-months and nine-months periods ended September 30, 2023 due to the loss of Direct clients during the fourth quarter 2022. Refer to the table in Note 2 for which provides revenues for Direct Customers and Indirect Customers.
Cost of Revenue
Cost of revenue is primarily composed of payments to advertising exchanges that provide access to digital inventory where we serve advertisements. To a lesser extent, cost of revenue includes payments to website publishers and app developers that host advertisements. The decline in cost of revenue for the three and nine months period ended September 30, 2023, compared to the same time periods in 2022 was related to the decline in Direct Customer revenues as discussed in the Net Revenue section above. The higher gross margin in the current year quarter, 90.7% compared to 60.3% in the same quarter last year was due to changes in revenue mix, where a greater percent of the revenue this year was from Indirect Customers which typically have higher gross margins.
Operating Expenses

| For the Three Months Ended September 30, |  | For the Nine Months Ended September 30, |
| 2023 |  | 2022 |  | Change |  | % Change |  | 2023 |  | 2022 |  | Change | % Change |  |  |  |  |  |  |  |
Marketing costs | $ | 17,625,806 |  |  | $ | 8,620,161 |  |  | $ | 9,005,645 |  |  | 104.5 | % |  | $ | 36,769,972 |  |  | $ | 26,778,020 |  |  | $ | 9,991,952 |  | 37.3 | % |  |  |  |  |  |  |  |
Compensation | 3,525,943 |  |  | 3,237,414 |  |  | 288,529 |  |  | 8.9 | % |  | 10,202,200 |  |  | 9,611,011 |  |  | 591,189 |  | 6.2 | % |  |  |  |  |  |  |  |
General and administrative | 2,335,295 |  |  | 2,206,119 |  |  | 129,176 |  |  | 5.9 | % |  | 6,229,069 |  |  | 5,944,027 |  |  | 285,042 |  | 4.8 | % |  |  |  |  |  |  |  |
Operating expenses | $ | 23,487,044 |  |  | $ | 14,063,694 |  |  | $ | 9,423,350 |  |  | 67.0 | % |  | $ | 53,201,241 |  |  | $ | 42,333,058 |  |  | $ | 10,868,183 |  | 25.7 | % |  |  |  |  |  |  |  |

Marketing costs consist mostly of traffic acquisition (i.e., Campaigns) costs and include those expenses required to attract an audience to various web properties. Marketing costs were 104.5% higher for the three months ended September 30, 2023 and 37.3% higher for the nine months ended September 30, 2023, compared to the same periods in 2022 due to higher spending focused on Indirect Customers.
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As we reported in our Form 10-Q filing for the quarterly period June 30, 2022, we previously identified certain advertising transactions with a prominent advertising network that, during the quarter ended June 30, 2022, appeared, according to our technology and assessment, to be comprised of invalid advertising clicks. As a result, in that quarter, we refunded $1.5 million to our clients that were impacted and reversed any revenue that would have been recognized related to this invalid traffic. In addition, in June 2022, we held back approximately $1.4 million in net payments due to the advertising network. On September 21, 2023 we reached an agreement with the advertising network resulting in extinguishing of all related liabilities and a reversal of Marketing costs.
Compensation expense was $289 thousand higher for the three months ended September 30, 2023 and $591 thousand higher for the nine months ended September 30, 2023, compared to the same time periods in 2022 primarily due to higher salary, commissions, and incentive expense. Our total employment, both full- and part-time, was 86 at September 30, 2023 compared to 92 at September 30, 2022.
General and administrative costs for the three and nine months ended September 30, 2023 increased 5.9% and 4.8%, respectively, compared to the same periods in 2022. The increase in expense for the three months period ended September 30, 2023 was due primarily to an increase in the reserve for doubtful accounts.
Financing expense, net
Financing (expense), net of interest income, for the three and nine months ended September 30, 2023, was approximately $20 thousand income and $37 thousand expense, respectively. We reported an interest income amount for the three months ended September 30, 2023 due to a decrease in our utilization of our line of credit and an increase in our bank interest income.
Other income, net
Other income (expense) in the three and nine months period ending on September 30, 2023 was income of $250, and $15 thousand, respectively.
Other income (expense), net, for the three and nine months ended September 30, 2022 was an expense of approximately $24
thousand and $401 thousand, respectively, from net realized and unrealized gains and losses discussed in Note 3 to our
Consolidated Financial Statements.
Liquidity and Capital Resources
As of September 30, 2023, we have approximately $7.0 million in cash and cash equivalents and our net working capital was approximately $1.7 million. We have encountered recurring losses and cash outflows from operations, which historically we have funded through equity offerings and debt facilities. In addition, our investment in internally developed software consists primarily of labor costs which are of a fixed nature. Through September 30, 2023, our accumulated deficit was $165.0 million.
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.
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 cash equivalent accounts and $10 million in an interest-bearing account. At September 30, 2023, our funds with the investment management company were approximately $68 thousand and were invested in cash and cash equivalent accounts. A detail of the activity is described in Note 3 to our Consolidated Financial Statements.
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 $14,611,900. During the year ended December 31, 2021 and through March 31, 2023, we did not issue any shares of common stock or receive any aggregate proceeds under the ATM Program, and we did not pay any commissions to the Sales Agent. During the quarter ended June 30, 2023, we sold 173,558 shares for gross proceeds totaling $63,136 under the ATM Program and paid the Sales Agent a commission of $1,902. We did not issues any shares of common stock or receive any aggregate proceeds under the ATM during, and we did not pay any commissions to the Sales Agent during the quarter ended September 30, 2023.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 ATM Program will
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terminate upon (a) the election of the Sales 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.
We have focused our resources behind a plan to market our collective multi-channel advertising capabilities differentiated by our AI technology, the IntentKey, where we have a technology advantage and higher margins. If we are successful in implementing our plan, we expect to return to a positive cash flow from operations. However, there is no assurance that we will be able to achieve this objective.
Management plans to support the Company’s future operations and capital expenditures primarily through cash raised through the sale of stock in May 2023, cash generated from future operations and borrowings from the credit facility until reaching profitability. The credit facility is due upon demand and therefore there can be no assurances that sufficient borrowings will be available to support future operations until profitability is reached. We believe our current cash position and credit facility will be sufficient 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.
Cash Flows
The table below sets forth a summary of our cash flows for the nine months ended September 30, 2023 and 2022:

| For the Nine Months Ended September 30, |  |  |  |  |
| 2023 | 2022 |  |  |  |  |
Net cash used in operating activities | $(457,716) | $(2,820,344) |  |  |  |  |
Net cash provided by/(used in) investing activities | $1,029,656 | $(1,601,996) |  |  |  |  |
Net cash provided by/(used in) financing activities | $3,475,126 | $(272,742) |  |  |  |  |

Cash Flows - Operating
Net cash used in operating activities was $457,716 during the nine months ended September 30, 2023. We reported a net loss of $7,988,323, which included non-cash expenses of depreciation and amortization expense of $1,984,139, depreciation of right of use assets of $77,790 and stock-based compensation expense of $1,471,683. The change in operating assets and liabilities during the nine months ended September 30, 2023 was a net use of cash of $3,265,938 primarily due to an increase of accrued liabilities and other liabilities of $3,279,560, partially offset by a lower accounts payable balance. Our terms are such that we generally collect receivables prior to paying trade payables. However, our Media sales arrangements typically have slower payment terms than the terms of related payables.
During the comparable nine-month period in 2022, cash used in operating activities was $2,820,344 from a net loss of $9,129,756 and included several non-cash expenses of depreciation and amortization expense of $1,949,845 and stock-based compensation expense of $1,890,991. The change in operating assets and liabilities during the nine months ended September 30, 2022, was a net use of cash of $1,713,374.
Cash Flows - Investing
Net cash provided by investing activities was $1,029,656 for the nine months ended September 30, 2023, and consisted primarily of the sale of marketable securities, partially offset by capitalized internal development costs.
Net cash used in investing activities was $1,601,996 for the nine months ended September 30, 2022, and consisted primarily of the purchase of marketable securities and capitalized internal development costs.
Cash Flows - Financing
Net cash provided by financing activities was $3,475,126 during the nine months ended September 30, 2023, and was primarily from proceeds from the capital raise (see Note 1).
Net cash used in financing activities during the nine months ended September 30, 2022 was $272,742.
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Off Balance Sheet Arrangements
As of September 30, 2023, we do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors. The term "off-balance sheet arrangement" generally means any transaction, agreement or other contractual arrangement to which an entity unconsolidated with us is a party, under which we have any obligation arising under a guarantee contract, derivative instrument or variable interest or a retained or contingent interest in assets transferred to such entity or similar arrangement that serves as credit, liquidity or market risk support for such assets.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable to a smaller reporting company.
ITEM 4. 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 September 30, 2023, 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.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the quarter ended September 30, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II
Item 1 - LEGAL PROCEEDINGS
None.
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ITEM 1A. RISK FACTORS-UPDATE
We desire to take advantage of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. Accordingly, we incorporate by reference the risk factors disclosed in Part I, Item 1A of our Form 10-K for the year ended December 31, 2022, as filed with the SEC on March 9, 2023 and our subsequent filings with the SEC, subject to the new or modified risk factors appearing below that should be read in conjunction with the risk factors disclosed in such Form 10-K and our subsequent filings.
We rely on three customers for a significant portion of our revenues. We are reliant upon three customers for most of our revenue. During the third quarter of 2023, they accounted for 75.0%, 10.0% and 2.2% of our revenues, respectively. During the same period in 2022, these customers accounted for 10.2%, 33.1%, and 10.9% of our revenue sources, respectively. The amount of revenue we receive from these customers is dependent on a number of factors outside of our control, including changes in the respective customers advertising budget, both in terms of allocated dollars and media mix, financial resources of the customers, as well as general economic conditions. We would likely experience a significant decline in revenue and our business operations could be significantly harmed if these customers do not continue to utilize our services. Additionally, our business operations and financial condition could be significantly harmed if these customers do not pay for our services on a timely basis. The loss of any of these customers or a material change in the revenue or gross profit they generate or their failure to timely pay us for our services would have a material adverse impact on our business, results of operations and financial condition in future periods.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. MINE SAFETY AND DISCLOSURES.
Not applicable.
ITEM 5. OTHER INFORMATION.
None.
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ITEM 6. EXHIBITS

No. |  | Exhibit Description |  | Form |  | Date Filed | Number | Filed or Furnished Herewith
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 Amended 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 |
10.1 |  | Extension Amendment to Google Services Agreement by and between Vertro, Inc. and Google LLC, dated as of June 23, 2023, and effective as of July 1, 2023 |  | 8-K |  | 6/27/23 | 10.1 |
10.2 |  | Extension Amendment to Google Services Agreement by and between Vertro, Inc. and Google LLC, dated as of July 24, 2023, and effective as of August 1, 2023 |  | 8-K |  | 7/25/23 | 10.1 |
10.3 |  | Extension Amendment to Google Services Agreement by and between Vertro, Inc. and Google LLC, dated as of August 18, 2023, and effective as of September 1, 2023 |  | 8-K |  | 8/18/23 | 10.1 |
10.4 |  | Extension Amendment to Google Services Agreement by and between Vertro, Inc. and Google LLC, dated as of September 22, 2023, and effective as of October 1, 2023 |  | 8-K |  | 9/22/23 | 10.1 |
31.1 |  | Rule 13a-14(a)/15d-14(a) certification of Chief Executive Officer |  |  |  |  |  | Filed
31.2 |  | Rule 13a-14(a)/15d-14(a) certification of Chief Financial Officer |  |  |  |  |  | Filed
32.1 |  | Section 1350 certification of Chief Executive Officer |  |  |  |  |  | Furnished
32.2 |  | Section 1350 certification of Chief Financial Officer |  |  |  |  |  | Furnished
101.INS |  | Inline XBRL Instance Document |  |  |  |  |  | Filed
101.SCH |  | Inline XBRL Taxonomy Extension Schema Document |  |  |  |  |  | Filed
101.CAL |  | Inline XBRL Taxonomy Extension Calculation Linkbase Document |  |  |  |  |  | Filed
101.DEF |  | Inline XBRL Taxonomy Extension Definition Linkbase Document |  |  |  |  |  | Filed
101.LAB |  | Inline XBRL Taxonomy Extension Label Linkbase Document |  |  |  |  |  | Filed
101.PRE |  | Inline XBRL Taxonomy Extension Presentation Linkbase Document |  |  |  |  |  | Filed
101.PRE |  | Inline XBRL Taxonomy Extension Presentation Linkbase Document |  |  |  |  |  | Filed
104 |  | The cover page for Inuvo, Inc.’s quarterly report on Form 10-Q for the period ended September 30, 2023, formatted in Inline XBRL (included with Exhibit 101 attachments). |  |  |  |  |  | Filed

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SIGNATURES
Pursuant to the requirements 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. |
November 13, 2023 | By: | /s/ Richard K. Howe |
|  | Richard K. Howe, |
|  | Chief Executive Officer, principal executive officer |
November 13, 2023 | By: | /s/ Wallace D. Ruiz |
|  | Wallace D. Ruiz, |
|  | Chief Financial Officer, principal financial and accounting officer |

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