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 March 31, 2020 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 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) (State or other juri ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-K (Mark One) ☑ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2019 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 ...

Financial Data and Key Metrics Changes - For Q4 2019, the company reported revenue of $18.2 million, a sequential increase of 32% and a year-over-year increase of 7% [9] - Full year revenue was $61.5 million, down approximately 16% year-over-year [9] - Gross profit for Q4 increased by roughly 42%, while full year gross profit decreased by 11% [12] - Adjusted EBITDA for Q4 was $47,000, up from a loss of $1.2 million year-over-year; full year adjusted EBITDA was a loss of $2.3 million compared to a loss of $1.4 million year-over-year [13] Business Line Data and Key Metrics Changes - ValidClick revenue for Q4 was approximately $15.5 million, a year-over-year increase of about 4%; full year revenue was down roughly $11.2 million [11] - IntentKey revenue for Q4 was $2.7 million, with full year revenue at $8.5 million, showing significant growth [9][17] - IntentKey gross margins improved from 10% in January 2019 to 46% in December 2019 [17] Market Data and Key Metrics Changes - The company noted a modest reduction in Q1 2020 revenue expectations due to the impact of COVID-19, with a forecast of flat year-over-year performance [25] - The company experienced a reduction in costs associated with the IntentKey business due to increased website traffic during quarantine [24] Company Strategy and Development Direction - The company aims to improve gross margins and capitalize on growth opportunities within ValidClick [15] - IntentKey is expected to double its business year-over-year, with a focus on expanding its client base across various industries [20][18] - The company is taking a just-in-time approach to management in light of the economic contraction caused by COVID-19 [26] Management Comments on Operating Environment and Future Outlook - Management expressed uncertainty regarding the long-term impacts of COVID-19 on the business, noting that it is too early to predict outcomes [22] - The company is proactively managing its balance sheet and exploring ways to reduce operating expenses [28] - Management indicated that marketing budgets typically decline during economic downturns, but the current situation is unprecedented [26] Other Important Information - The company closed a loan agreement providing a $5 million line of credit to enhance working capital [45] - Insider purchases of stock totaled approximately $688,000, indicating confidence from management and the board [27] Q&A Session Summary Question: Outlook for Q1 and impact of new clients - Management confirmed that the revised expectation for IntentKey revenue growth to 48% was due to two new clients pausing their campaigns [51][53] Question: ValidClick traffic issues - Management indicated that the impact on ValidClick was traffic-related, with publishers facing challenges due to workforce issues [54][56] Question: Operating expenses and hiring strategy - Management stated that hiring has been paused across the company, with a focus on assessing market conditions before proceeding [64] Question: Cash situation and share count - Management projected cash to remain relatively flat exiting Q1, with an estimated share count of about 57 million [67]

Financial Data and Key Metrics Changes - For Q3 2019, the company reported revenue of $13.8 million, a decrease from $14 million in Q2 2019 and $16.8 million in Q3 2018 [6][20] - For the nine months ended September 30, 2019, revenue was $43.3 million, down from $56.3 million in the same period of 2018 [6][20] - Gross margins for Q3 2019 were approximately 64%, compared to 63% in the same quarter last year [23] Business Line Data and Key Metrics Changes - ValidClick revenue streams generated $11.2 million in Q3 2019, down from approximately $12 million in Q2 2019 [10] - IntentKey revenue was $2.6 million in Q3 2019, representing a 30% sequential growth [13][22] - The publishing component of the business generated approximately $320,000 in revenue, which is being deemed less strategic [11] Market Data and Key Metrics Changes - ValidClick revenue for July, August, and September was $3.2 million, $3.7 million, and $4.3 million respectively, with unaudited October revenue around $5.2 million [12][34] - IntentKey's client base has been growing at roughly 20% month-over-month, with performance results averaging over 30% above client expectations [16] Company Strategy and Development Direction - The company aims to manage towards stable revenue sources that can deliver roughly $50 million annually with improving gross margins [9] - There is a focus on hiring sales professionals for the IntentKey business, with plans to hire 10 by June 2020 [14] - The company is exploring the potential sale of the publishing component of its business as resources shift towards IntentKey [11] Management's Comments on Operating Environment and Future Outlook - Management noted that the macro-level trends in media, marketing, and data are favorable, as third-party data providers face increasing pressure [34] - The company expects to burn an average of $100,000 per month starting in January 2020 until Q3 2020, when gross margins from new IntentKey revenue are anticipated to outpace sales costs [32] Other Important Information - The company reported a net income of approximately $800,000 for Q3 2019, positively impacted by other income associated with the termination of a merger [8][29] - Cash and cash equivalents at September 30 were $714,000, with outstanding bank debt of $2.4 million [30] Q&A Session Summary Question: Guidance on IntentKey revenue - Management acknowledged a downward adjustment in guidance for IntentKey revenue due to a client pushing their budget to Q1 2020, but noted potential for higher revenues [36][38] Question: Sales hiring plans - The target number of IntentKey sales representatives was reduced from 14 to 10 based on reassessment of needs to meet 2020 goals [39][40] Question: Connected TV capabilities - The company confirmed that it has integrated Connected TV media inventory into its offerings through the IntentCloud, enhancing targeting capabilities for clients [42][43]

Revenue Performance - Net revenue for Q3 2019 was $13.79 million, a decrease of 17.9% compared to Q3 2018, and for the nine months ended September 30, 2019, revenue was $43.30 million, down 23.1% year-over-year [97]. - The IntentKey business generated approximately $2.6 million in revenue for Q3 2019, representing a 61.6% increase compared to the same period last year, partially offsetting declines in other operations [99]. Operating Expenses - Operating expenses for the nine months ended September 30, 2019, decreased by 14.1% to $32.42 million compared to the same period in 2018 [100]. - Marketing costs decreased by 16.2% in Q3 2019 and by 20.0% for the nine months ended September 30, 2019, due to adjustments in traffic acquisition campaigns [101]. Net Loss and Cash Flow - The company reported a net loss of approximately $6.23 million for the nine months ended September 30, 2019, which included $1 million in merger-related costs [108]. - Net cash used in operating activities was $4.64 million for the nine months ended September 30, 2019, compared to $0.28 million in the same period of 2018 [114]. - The company expects to return to positive cash flow by the second half of 2020, focusing on growing the IntentKey technology [109]. Working Capital and Other Income - As of September 30, 2019, the company's net working capital was negative $8.1 million, compared to negative $6.9 million at the end of 2018 [107]. - Other income for the nine months ended September 30, 2019, was $3.3 million, primarily from a one-time gain related to the CPT Merger Termination fee [105]. Market Overview - The U.S. digital advertising market is projected to grow 19% in 2019, reaching $129 billion, with Facebook and Google capturing nearly 60% of the investment [94]. Financing Activities - Net cash provided by financing activities was $6,020,718 during the nine months ended September 30, 2019, primarily from proceeds from the sale of common stock and Convertible Promissory Notes [117]. - Net cash provided by financing activities was $1,689,889 during the nine months ended September 30, 2018, primarily from proceeds of the secondary public offering in May 2018 [117]. Off-Balance Sheet Arrangements - As of September 30, 2019, the company does not have any off-balance sheet arrangements that are material to investors [118].

Financial Data and Key Metrics Changes - For Q2 2019, the company reported revenue of $14 million, down from $15.5 million in Q1 2019 and $19 million in Q2 2018 [7] - For the first half of 2019, revenue was $29.5 million, compared to $39.5 million in the same period of 2018 [34] - Gross margins for Q2 2019 were 59.6%, a decrease from 63.2% in Q2 2018 [37] - Adjusted EBITDA loss was approximately $850,000 in Q2 2019 [17] Business Line Data and Key Metrics Changes - The IntentKey revenue for Q2 2019 was $2 million, with the media component generating over $900,000 in June alone, up from approximately $95,000 in January [18][61] - The ValidClick business experienced a revenue decline due to slow adaptation to pricing fluctuations and reduced emphasis on the supply side, resulting in a revenue decrease of $963,000 in Q2 2019 compared to the same quarter last year [36] Market Data and Key Metrics Changes - The IntentKey has seen a greater than 200% increase in the number of RFPs it is competing for year-over-year through July 2019, with a win rate increasing from 38% in 2018 to over 55% in 2019 [24] - The largest client, a major insurance provider, is spending an average of $150,000 per month with the IntentKey, with $400,000 spent in June [26] Company Strategy and Development Direction - The company is focusing resources and investments towards scaling the IntentKey while ensuring a stable ValidClick business [51] - The IntentKey is viewed as a unique and powerful data product for the 21st century, with plans to challenge existing marketing information providers [50] Management's Comments on Operating Environment and Future Outlook - Management acknowledged that the Q2 results are not indicative of the larger opportunity ahead, citing the impact of the terminated merger and product defocusing [8][9] - The company expects the IntentKey business to contribute positively to cash flow in 2020 and be a major contributor thereafter [30] Other Important Information - The company raised $4.4 million in July 2019 to fund working capital and IntentKey growth, primarily through hiring additional sales professionals [32] - The balance sheet at June 30, 2019, showed cash and cash equivalents of $995,000, with outstanding bank debt of $2.9 million and notes of $2.5 million [42] Q&A Session Summary Question: Has anyone new been hired in the sales force? - No new hires have occurred yet, but plans include hiring one in August and a total of roughly 14 salespeople by mid-2020 [53] Question: Can progress on IntentKey leverage ValidClick? - The focus will be on IntentKey due to its higher growth and margin potential, rather than leveraging ValidClick [54] Question: What was the IntentKey contribution in the first quarter? - The IntentKey contributed $2 million in Q2, with a materially lower contribution in Q1 [61] Question: What is the expected cash position post-capital raise? - Pro forma cash is approximately $2.5 million, with roughly $5 million in debt [76]

[Front Matter](index=1&type=section&id=Front%20Matter) [Filing Information](index=1&type=section&id=Filing%20Information) Details Inuvo, Inc.'s Form 10-Q filing, registrant identification, and common stock information - Registrant: **Inuvo, Inc.**, a Nevada corporation, with Commission file number **001-32442**[2](index=2&type=chunk) - Filing Type: Quarterly Report under Section 13 or 15(d) of the Securities Exchange Act of 1934 for the period ended **June 30, 2019**[2](index=2&type=chunk) Common Stock Outstanding as of August 9, 2019 | Title of Class | August 9, 2019 | | :------------- | :------------- | | Common Stock | 48,500,689 | [Cautionary Statement Regarding Forward-Looking Information](index=4&type=section&id=Cautionary%20Statement%20Regarding%20Forward-Looking%20Information) Warns that forward-looking statements are subject to risks and uncertainties, potentially altering actual results - Forward-looking statements are identified by terms such as 'will,' 'should,' 'intend,' 'expect,' 'plan,' 'anticipate,' 'believe,' 'estimate,' 'predict,' 'potential,' or 'continue,' or their negatives[12](index=12&type=chunk) - Key risks include: history of losses, declining revenues, working capital deficit, ability to continue as a going concern, reliance on limited customers, seasonality, dependence on supply partners, ability to acquire profitable traffic, technology changes, network infrastructure interruption, dependence on key personnel, regulatory/legal uncertainties, privacy/data security compliance, third-party infringement claims, fraudulent clicks, global economy downturn, impact of quarterly results on stock price, difficulties in meeting credit agreement covenants, and dilution from stock options/RSUs[16](index=16&type=chunk) - The company undertakes no obligation to publicly release revisions to forward-looking statements or report unanticipated events, except as required by Federal securities laws[14](index=14&type=chunk) [PART I - FINANCIAL INFORMATION](index=5&type=section&id=PART%20I%20-%20FINANCIAL%20INFORMATION) [ITEM 1. FINANCIAL STATEMENTS](index=5&type=section&id=ITEM%201.%20FINANCIAL%20STATEMENTS) Presents Inuvo, Inc.'s unaudited consolidated financial statements, including balance sheets, operations, cash flows, and equity, with detailed notes [Consolidated Balance Sheets](index=5&type=section&id=Consolidated%20Balance%20Sheets) Consolidated Balance Sheet Highlights | Metric | June 30, 2019 (Unaudited) | December 31, 2018 | | :---------------------- | :------------------------ | :---------------- | | Cash | $995,467 | $228,956 | | Total Current Assets | $6,274,831 | $7,212,017 | | Total Assets | $27,644,127 | $28,665,882 | | Total Current Liabilities | $15,667,269 | $14,099,228 | | Total Long-Term Liabilities | $5,222,781 | $3,532,839 | | Total Stockholders' Equity | $6,754,077 | $11,033,815 | - Cash increased significantly from **$228,956** at December 31, 2018, to **$995,467** at June 30, 2019[18](index=18&type=chunk) - Total stockholders' equity decreased from **$11,033,815** at December 31, 2018, to **$6,754,077** at June 30, 2019[18](index=18&type=chunk) [Consolidated Statements of Operations](index=7&type=section&id=Consolidated%20Statements%20of%20Operations) Consolidated Statements of Operations Highlights | Metric (Unaudited) | Three Months Ended June 30, 2019 | Three Months Ended June 30, 2018 | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | | :----------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net Revenue | $14,047,907 | $19,004,851 | $29,512,476 | $39,508,836 | | Gross Profit | $8,373,547 | $12,013,547 | $17,157,488 | $23,738,938 | | Operating Loss | $(2,103,785) | $(739,121) | $(4,049,470) | $(2,053,901) | | Net Loss | $(1,954,993) | $(832,697) | $(4,417,386) | $(2,240,721) | | Basic and Diluted EPS | $(0.06) | $(0.03) | $(0.14) | $(0.08) | - Net revenue decreased by **26.1%** for the three months ended June 30, 2019, and by **25.3%** for the six months ended June 30, 2019, compared to the respective prior year periods[21](index=21&type=chunk)[88](index=88&type=chunk)[89](index=89&type=chunk) - Net loss more than doubled for both the three-month and six-month periods ended June 30, 2019, compared to the same periods in 2018[21](index=21&type=chunk) [Consolidated Statements of Cash Flows](index=8&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Consolidated Statements of Cash Flows Highlights (Six Months Ended June 30) | Activity | 2019 | 2018 | | :------------------- | :------------ | :------------ | | Net cash used in operating activities | $(709,846) | $(154,238) | | Net cash used in investing activities | $(581,839) | $(941,636) | | Net cash provided by financing activities | $2,058,196 | $1,128,576 | | Net change – cash | $766,511 | $32,702 | | Cash, end of period | $995,467 | $4,117,388 | - Net cash used in operating activities increased significantly in 2019, primarily due to a higher net loss, partially offset by changes in working capital[23](index=23&type=chunk)[100](index=100&type=chunk) - Net cash provided by financing activities increased in 2019, driven by proceeds from convertible promissory notes[23](index=23&type=chunk)[103](index=103&type=chunk) [Consolidated Statements of Stockholders' Equity](index=9&type=section&id=Consolidated%20Statements%20of%20Stockholders'%20Equity) Stockholders' Equity Changes (Six Months Ended June 30, 2019) | Metric | Balance as of Dec 31, 2018 | Net Loss | Stock-based Compensation | Stock Issued for Vested RSUs | Shares Withheld for Taxes | Balance as of June 30, 2019 | | :---------------------- | :------------------------- | :------------ | :----------------------- | :--------------------------- | :------------------------ | :-------------------------- | | Common Stock (Shares) | 32,381,290 | — | — | 233,244 | — | 32,614,534 | | Common Stock (Value) | $32,759 | — | — | $233 | — | $32,992 | | Additional Paid-in Capital | $138,867,509 | — | $146,693 | $(233) | $(9,045) | $139,004,924 | | Accumulated Deficit | $(126,469,894) | $(4,417,386) | — | — | — | $(130,887,280) | | Treasury Stock | $(1,396,559) | — | — | — | — | $(1,396,559) | | Total Equity | $11,033,815 | $(4,417,386) | $146,693 | — | $(9,045) | $6,754,077 | - The accumulated deficit increased by **$4,417,386** during the six months ended June 30, 2019, primarily due to the net loss[25](index=25&type=chunk) - Stock-based compensation added **$146,693** to additional paid-in capital during the six months ended June 30, 2019[25](index=25&type=chunk) [Notes to Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) [Note 1 – Organization and Business](index=10&type=section&id=Note%201%20%E2%80%93%20Organization%20and%20Business) - Inuvo is a technology company providing data-driven platforms that use proprietary AI (**IntentKey**) to identify and message online audiences across various channels, facilitating over a **billion marketing messages monthly**[28](index=28&type=chunk)[29](index=29&type=chunk) - The company terminated its Merger Agreement with ConversionPoint Technologies Inc. on **June 20, 2019**, due to the acquirer's inability to fulfill the **$36 million** financing condition, resulting in a **$2.8 million** termination fee, partially satisfied by the cancellation of the CPTI Note[32](index=32&type=chunk)[33](index=33&type=chunk)[34](index=34&type=chunk)[41](index=41&type=chunk) - Liquidity concerns exist due to a **25.3% revenue decline** for the six months ended June 30, 2019, a **$4.4 million net loss**, lower credit availability, and negative cash flows from operations, raising doubt about the company's ability to continue as a going concern[41](index=41&type=chunk)[42](index=42&type=chunk) Customer Revenue Concentration | Customer | Q2 2019 Revenue % | Q2 2018 Revenue % | H1 2019 Revenue % | H1 2018 Revenue % | | :------- | :---------------- | :---------------- | :---------------- | :---------------- | | Yahoo! | 69.7% | 73.1% | 71.8% | 71.7% | | Google | 11.3% | 9.0% | 11.5% | 9.2% | | Total | 81.0% | 82.1% | 83.3% | 80.9% | [Note 2 – Summary of Significant Accounting Policies](index=13&type=section&id=Note%202%20%E2%80%93%20Summary%20of%20Significant%20Accounting%20Policies) - The financial statements are unaudited and prepared under SEC rules for interim periods, with certain disclosures condensed or omitted[45](index=45&type=chunk) - Revenue recognition follows Topic 606, recognizing revenue when control of promised goods/services is transferred, with most revenue generated from clicks on advertisements[47](index=47&type=chunk)[48](index=48&type=chunk) Revenue Disaggregation by Source | Source | Q2 2019 Revenue | Q2 2019 % | Q2 2018 Revenue | Q2 2018 % | H1 2019 Revenue | H1 2019 % | H1 2018 Revenue | H1 2018 % | | :------- | :-------------- | :-------- | :-------------- | :-------- | :-------------- | :-------- | :-------------- | :-------- | | Partners | $10,478,313 | 74.6% | $13,542,270 | 71.3% | $21,976,771 | 74.5% | $27,448,202 | 69.5% | | O&O | $3,569,594 | 25.4% | $5,462,581 | 28.7% | $7,535,705 | 25.5% | $12,060,634 | 30.5% | | Total | $14,047,907 | 100.0% | $19,004,851 | 100.0% | $29,512,476 | 100.0% | $39,508,836 | 100.0% | Revenue Disaggregation by Channel | Channel | Q2 2019 Revenue | Q2 2018 Revenue | H1 2019 Revenue | H1 2018 Revenue | | :------ | :-------------- | :-------------- | :-------------- | :-------------- | | Mobile | $8,823,577 | $12,946,533 | $19,370,199 | $27,268,202 | | Desktop | $4,935,654 | $5,693,452 | $9,530,276 | $11,657,328 | | Other | $288,676 | $364,866 | $612,001 | $583,306 | | Total | $14,047,907 | $19,004,851 | $29,512,476 | $39,508,836 | - The company adopted ASC 842 (Leases) effective **January 1, 2019**, on a modified retrospective basis, recognizing operating and finance lease liabilities and corresponding right-of-use assets[51](index=51&type=chunk)[52](index=52&type=chunk) [Note 3 – Property and Equipment](index=14&type=section&id=Note%203%20%E2%80%93%20Property%20and%20Equipment) Net Carrying Value of Property and Equipment | Category | June 30, 2019 | December 31, 2018 | | :-------------------------------------- | :------------ | :---------------- | | Furniture and fixtures | $293,152 | $293,152 | | Equipment | $1,004,022 | $1,527,054 | | Capitalized internal use and purchased software | $9,718,308 | $9,142,075 | | Leasehold improvements | $421,016 | $421,016 | | Less: accumulated depreciation and amortization | $(9,867,993) | $(9,259,625) | | Total | $1,568,505 | $2,123,672 | - Depreciation expense was **$873,426** for the six months ended June 30, 2019, a slight decrease from **$885,975** in the prior year period[53](index=53&type=chunk) [Note 4 – Other Intangible Assets and Goodwill](index=14&type=section&id=Note%204%20%E2%80%93%20Other%20Intangible%20Assets%20and%20Goodwill) Intangible Assets and Goodwill as of June 30, 2019 | Asset Category | Term | Carrying Value | Accumulated Amortization and Impairment | Net Carrying Value | Year-to-date Amortization | | :-------------------- | :------- | :------------- | :-------------------------------------- | :----------------- | :------------------------ | | Customer list, Google | 20 years | $8,820,000 | $(3,234,000) | $5,586,000 | $220,500 | | Technology | 5 years | $3,600,000 | $(1,740,000) | $1,860,000 | $360,000 | | Customer list, all other | 10 years | $1,610,000 | $(1,180,696) | $429,304 | $80,502 | | Customer relationships | 20 years | $570,000 | $(68,875) | $501,125 | $14,250 | | Trade names, web properties | Indefinite | $390,000 | — | $390,000 | — | | Total Intangible Assets | | $14,990,000 | $(6,223,571) | $8,766,429 | $675,252 | | Goodwill | Indefinite | $9,853,342 | — | $9,853,342 | — | Amortization Expense Schedule | Year | Amortization Expense | | :-------- | :------------------- | | 2019 | $675,252 | | 2020 | $1,350,504 | | 2021 | $1,350,504 | | 2022 | $556,294 | | 2023 | $469,500 | | Thereafter | $3,974,375 | | Total | $8,376,429 | [Note 5 - Bank Debt](index=15&type=section&id=Note%205%20-%20Bank%20Debt) Bank Debt (Financed Receivables) | Metric | June 30, 2019 | December 31, 2018 | | :---------------------- | :------------ | :---------------- | | Financed receivables | $2,856,428 | $1,859,853 | - The Amended and Restated Business Financing Agreement with Western Alliance Bank, secured by all company assets, provides a revolving credit line with an advance rate of **85%** on invoiced receivables (prime plus **1%** interest) and a sub-limit on uninvoiced receivables (prime plus **2%** interest)[57](index=57&type=chunk) - Amendments in May and June 2019 extended and then modified the **$2.5 million** sub-limit for uninvoiced eligible receivables, granting the lender discretion and the right to terminate financing upon notice[57](index=57&type=chunk)[58](index=58&type=chunk) [Note 6 - Notes Payable](index=16&type=section&id=Note%206%20-%20Notes%20Payable) - Four directors of the Company lent an aggregate of **$250,000** under **10% Promissory Notes** on **November 2, 2018**, to cover merger-related costs, with these unsecured notes due **November 2, 2019**[60](index=60&type=chunk) [Note 7 – Accrued Expenses and Other Current Liabilities](index=16&type=section&id=Note%207%20%E2%80%93%20Accrued%20Expenses%20and%20Other%20Current%20Liabilities) Accrued Expenses and Other Current Liabilities | Category | June 30, 2019 | December 31, 2018 | | :-------------------------------- | :------------ | :---------------- | | Accrued marketing costs (TAC) | $1,453,827 | $1,509,843 | | Accrued expenses and other | $791,301 | $461,823 | | Operating lease liability | $433,908 | $198,769 | | Financing lease liability | $174,815 | — | | Accrued payroll and commission liabilities | $73,126 | $200,290 | | Arkansas grant contingency | $50,000 | $55,000 | | Accrued sales allowance | $50,000 | $50,000 | | Accrued taxes | $8,840 | $14,109 | | Total | $3,035,817 | $2,489,834 | - Total accrued expenses and other current liabilities increased from **$2,489,834** at December 31, 2018, to **$3,035,817** at June 30, 2019, primarily due to increases in accrued expenses and other, and operating/financing lease liabilities[61](index=61&type=chunk) [Note 8 - Convertible Promissory Notes](index=16&type=section&id=Note%208%20-%20Convertible%20Promissory%20Notes) - In March 2019, Inuvo issued **$1,440,000** principal of Original Issue Discount Unsecured Subordinated Convertible Notes (Calvary Notes) in a private placement, receiving **$1,200,000** in proceeds for working capital[62](index=62&type=chunk) - The CPTI Note (**$1,000,000** principal) issued to CPT Investments in November 2018 was terminated and cancelled on **June 20, 2019**, as partial satisfaction of the merger termination fee[63](index=63&type=chunk) [Note 9 – Other Long-Term Liabilities](index=17&type=section&id=Note%209%20%E2%80%93%20Other%20Long-Term%20Liabilities) Other Long-Term Liabilities | Category | June 30, 2019 | December 31, 2018 | | :---------------------------- | :------------ | :---------------- | | Capital leases, less current portion | — | $80,969 | | Deferred rent | $79,628 | $98,276 | | Accrued taxes, less current portion | $13,762 | $13,762 | | Total | $93,390 | $193,007 | - Total other long-term liabilities decreased from **$193,007** at December 31, 2018, to **$93,390** at June 30, 2019, primarily due to the elimination of capital leases[65](index=65&type=chunk) [Note 10 – Income Taxes](index=17&type=section&id=Note%2010%20%E2%80%93%20Income%20Taxes) - The company has a deferred tax liability of **$2,339,832** as of June 30, 2019, and December 31, 2018, related to acquired intangible assets[66](index=66&type=chunk) - A valuation allowance has been recorded for the net deferred tax assets of approximately **$32,663,706**, as it is deemed unlikely that these assets will be realized[66](index=66&type=chunk) [Note 11 - Stock-Based Compensation](index=17&type=section&id=Note%2011%20-%20Stock-Based%20Compensation) Stock-Based Compensation Expense | Period | 2019 | 2018 | | :----------------------------------- | :------------ | :------------ | | Three months ended June 30 | $49,823 | $289,950 | | Six months ended June 30 | $146,693 | $667,797 | - Total compensation cost not yet recognized at June 30, 2019, was **$866,528**, to be recognized over a weighted-average period of **1.44 years**[68](index=68&type=chunk) Unvested RSUs Activity (Three Months Ended June 30, 2019) | Activity | Number of Shares | Weighted Average Grant Date Fair Value | | :---------------------------- | :--------------- | :------------------------------------- | | Unvested as of December 31, 2018 | 1,571,864 | $0.79 | | Granted | 112,773 | $1.40 | | Vested | 254,782 | $0.86 | | Forfeited | 40,688 | $0.93 | | Unvested as of June 30, 2019 | 1,389,167 | $0.83 | [Note 12 - Earnings per Share](index=18&type=section&id=Note%2012%20-%20Earnings%20per%20Share) - Due to a net loss from continuing operations for the three and six months ended June 30, 2019 and 2018, all shares are considered anti-dilutive[71](index=71&type=chunk) [Note 13 - Leases](index=18&type=section&id=Note%2013%20-%20Leases) - Upon adoption of ASC 842 on **January 1, 2019**, the company recognized approximately **$1.2 million** in right-of-use assets and lease liabilities for operating leases, and **$265,000** for finance leases[72](index=72&type=chunk) - For the six months ended June 30, 2019, total lease costs were approximately **$309 thousand**, comprising **$204 thousand** in operating lease costs and **$105 thousand** in finance lease costs[72](index=72&type=chunk) Operating Lease Liabilities Information (Six Months Ended June 30, 2019) | Metric | Value | | :------------------------------ | :---------- | | Cash paid for operating lease liabilities | $219,534 | | Weighted-average remaining lease term | 2.6 years | | Weighted-average discount rate | 6.25% | | Total lease liabilities | $970,016 | Financed Lease Liabilities Information (Six Months Ended June 30, 2019) | Metric | Value | | :------------------------------ | :---------- | | Cash paid for finance lease liabilities | $136,539 | | Weighted-average remaining lease term | 1.1 years | | Weighted-average discount rate | 6.25% | | Total lease liabilities | $174,933 | [Note 14 - Related Party Transactions](index=19&type=section&id=Note%2014%20-%20Related%20Party%20Transactions) - In June 2019, the company entered into a six-month office space lease agreement with First Orion Corp., partially owned by two directors, for **$60,000** (prepaid)[76](index=76&type=chunk) - Four directors provided **$250,000** in **10% Promissory Notes** on **November 2, 2018**, to cover merger-related costs[77](index=77&type=chunk) [Note 15 - Subsequent Events](index=19&type=section&id=Note%2015%20-%20Subsequent%20Events) - On **July 15, 2019**, the company closed an underwritten public offering of **15,812,500 shares** of common stock at **$0.30 per share**, generating approximately **$4.7 million** in gross proceeds[78](index=78&type=chunk) - The conversion price of the Calvary Notes was adjusted from **$1.08** to **$0.30 per share** on **July 15, 2019**, to match the equity offering price[79](index=79&type=chunk) - On **July 23, 2019**, the CPTI Note was officially cancelled and terminated, extinguishing all related obligations[80](index=80&type=chunk) [ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS](index=20&type=section&id=ITEM%202.%20MANAGEMENT'S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) This section provides management's perspective on Inuvo's financial performance and condition, detailing business operations, industry trends, critical accounting policies, and a comprehensive analysis of results of operations, liquidity, and cash flows for the reported periods [Company Overview](index=20&type=section&id=Company%20Overview_MD%26A) - Inuvo is a technology company that uses data-driven platforms and its proprietary AI (**IntentKey**) to identify and message online audiences across various digital channels[81](index=81&type=chunk)[82](index=82&type=chunk) - The company owns websites (e.g., alot.com, earnspendlive.com) to test technologies and deliver high-quality consumers through proprietary content[83](index=83&type=chunk) - Inuvo's intellectual property is protected by **15 issued** and **eight pending patents**, creating significant barriers to entry[84](index=84&type=chunk) [Industry Trends](index=20&type=section&id=Industry%20Trends) - The U.S. digital advertising market is projected to grow **19%** to **$129 billion** in 2019, with Facebook and Google capturing nearly **60%** of the investment[85](index=85&type=chunk) - Mobile advertising spend is expected to increase from **$71 billion** in 2018 to **$87 billion** in 2019[85](index=85&type=chunk) - Programmatic display advertising spend is forecasted to exceed **$59 billion** in 2019, growing to **$81 billion** by 2021[85](index=85&type=chunk) [Critical Accounting Policies and Estimates](index=20&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) - Key accounting estimates include revenue recognition, allowances for doubtful accounts, goodwill and intangible asset valuations, long-lived asset valuation, deferred income tax asset valuation allowances, contingent liabilities, and stock compensation[86](index=86&type=chunk)[87](index=87&type=chunk) - Management regularly evaluates these estimates and assumptions, with historical differences between estimates and actual results being immaterial[87](index=87&type=chunk) [Results of Operations](index=21&type=section&id=Results%20of%20Operations) Key Financial Results (YoY Change) | Metric | Q2 2019 | Q2 2018 | Q2 Change | Q2 % Change | H1 2019 | H1 2018 | H1 Change | H1 % Change | | :-------------- | :----------- | :----------- | :----------- | :---------- | :----------- | :----------- | :----------- | :---------- | | Net Revenue | $14,047,907 | $19,004,851 | $(4,956,944) | (26.1%) | $29,512,476 | $39,508,836 | $(9,996,360) | (25.3%) | | Cost of Revenue | $5,674,360 | $6,991,304 | $(1,316,944) | (18.8%) | $12,354,988 | $15,769,898 | $(3,414,910) | (21.7%) | | Gross Profit | $8,373,547 | $12,013,547 | $(3,640,000) | (30.3%) | $17,157,488 | $23,738,938 | $(6,581,450) | (27.7%) | - Net revenue declined due to a strategic reduction in focus on non-strategic publisher-side technologies and reduced monetization from advertising inventory sold to largest Demand partners, partly influenced by the terminated merger[89](index=89&type=chunk) Operating Expenses (YoY Change) | Expense Category | Q2 2019 | Q2 2018 | Q2 Change | Q2 % Change | H1 2019 | H1 2018 | H1 Change | H1 % Change | | :------------------------ | :----------- | :----------- | :----------- | :---------- | :----------- | :----------- | :----------- | :---------- | | Marketing costs (TAC) | $6,528,336 | $8,446,163 | $(1,917,827) | (22.7%) | $13,072,345 | $16,740,457 | $(3,668,112) | (21.9%) | | Compensation | $1,735,489 | $2,323,654 | $(588,165) | (25.3%) | $3,544,045 | $4,943,169 | $(1,399,124) | (28.3%) | | Selling, general and administrative | $2,213,507 | $1,982,851 | $230,656 | 11.6% | $4,590,568 | $4,109,213 | $481,355 | 11.7% | | Total Operating Expenses | $10,477,332 | $12,752,668 | $(2,275,336) | (17.8%) | $21,206,958 | $25,792,839 | $(4,585,881) | (17.8%) | - Selling, general and administrative costs increased due to **$887 thousand** in merger-related professional fees for the first six months of 2019[94](index=94&type=chunk) - Interest expense, net, was lower for Q2 2019 due to the derivative liability associated with the Calvary Notes reducing to **$0**, but higher for H1 2019 due to higher interest rates on financed receivables[95](index=95&type=chunk) [Liquidity and Capital Resources](index=22&type=section&id=Liquidity%20and%20Capital%20Resources) - The company's liquidity is impacted by a **25.3% revenue decline** and a **$4.4 million net loss** for the six months ended June 30, 2019, leading to lower credit availability and negative cash flows from operations[99](index=99&type=chunk) - The termination of the Merger Agreement resulted in a **$2.8 million** termination fee, partially satisfied by the cancellation of the CPTI Note[99](index=99&type=chunk) - Recent financing activities include **$1.2 million** in proceeds from Calvary Notes in March 2019 and an additional **$4.7 million** (gross) from a public offering of common stock in July 2019[99](index=99&type=chunk) - Given current conditions, there is doubt about the company's ability to continue as a going concern without additional credit or substantial reductions in operating expenses[99](index=99&type=chunk) [Cash Flows - Operating](index=23&type=section&id=Cash%20Flows%20-%20Operating) - Net cash used in operating activities was **$709,846** for the six months ended June 30, 2019, compared to **$154,238** in the prior year period[100](index=100&type=chunk)[101](index=101&type=chunk) - The net loss of **$4,417,386** was partially offset by non-cash expenses (depreciation, amortization, stock-based compensation) totaling approximately **$1.99 million**[100](index=100&type=chunk) - Changes in operating assets and liabilities provided **$1,656,973** in cash, primarily due to a decrease in accounts receivable[100](index=100&type=chunk) [Cash Flows - Investing](index=23&type=section&id=Cash%20Flows%20-%20Investing) - Net cash used in investing activities was **$581,839** for the six months ended June 30, 2019, primarily for capitalized internal development costs[102](index=102&type=chunk) [Cash Flows - Financing](index=23&type=section&id=Cash%20Flows%20-%20Financing) - Net cash provided by financing activities was **$2,058,196** for the six months ended June 30, 2019, mainly from proceeds of the Calvary Notes[103](index=103&type=chunk) - In the comparable 2018 period, net cash provided by financing activities was **$1,128,576**, primarily from a secondary public offering[103](index=103&type=chunk) [Off Balance Sheet Arrangements](index=23&type=section&id=Off%20Balance%20Sheet%20Arrangements) - As of June 30, 2019, Inuvo had no material off-balance sheet arrangements that would significantly affect its financial condition or results of operations[104](index=104&type=chunk) [ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.](index=23&type=section&id=ITEM%203.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK.) This section states that quantitative and qualitative disclosures about market risk are not applicable to Inuvo, Inc. as it qualifies as a smaller reporting company - This item is not applicable to a smaller reporting company[105](index=105&type=chunk) [ITEM 4. CONTROLS AND PROCEDURES.](index=23&type=section&id=ITEM%204.%20CONTROLS%20AND%20PROCEDURES.) This section addresses the effectiveness of the company's disclosure controls and procedures and confirms that there have been no material changes in internal control over financial reporting during the period [Evaluation of Disclosure Controls and Procedures](index=23&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) - Management, including the CEO and CFO, concluded that Inuvo's disclosure controls and procedures were effective as of **June 30, 2019**, providing reasonable assurance that required information is recorded, processed, summarized, and reported timely[106](index=106&type=chunk)[109](index=109&type=chunk) - The company acknowledges that no control system can provide absolute assurance against all errors and fraud due to inherent limitations like resource constraints, human judgment, and potential circumvention[107](index=107&type=chunk)[108](index=108&type=chunk) [Changes in Internal Control over Financial Reporting](index=24&type=section&id=Changes%20in%20Internal%20Control%20over%20Financial%20Reporting) - There were no changes in internal control over financial reporting during the period ended **June 30, 2019**, that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[110](index=110&type=chunk) [PART II](index=24&type=section&id=PART%20II) [Item 1 - Legal Proceedings](index=24&type=section&id=Item%201%20-%20Legal%20Proceedings) This section details several class action lawsuits filed against Inuvo and its directors related to the terminated merger, and their subsequent resolution through dismissal or confidential settlement - Multiple putative class action lawsuits were filed by stockholders in late 2018 and early 2019, challenging the Merger Transactions and adequacy of disclosures[112](index=112&type=chunk)[113](index=113&type=chunk)[114](index=114&type=chunk)[116](index=116&type=chunk) - Most lawsuits were dismissed following the filing of Parent's amended S-4 Registration Statement or voluntary dismissal by plaintiffs[115](index=115&type=chunk)[117](index=117&type=chunk) - On **June 20, 2019**, Inuvo entered into a Confidential Settlement Agreement resolving outstanding litigation, contingent on Inuvo paying a settlement fee by **September 30, 2019**[118](index=118&type=chunk) [ITEM 1A. RISK FACTORS](index=25&type=section&id=ITEM%201A.%20RISK%20FACTORS) This section highlights key risks, including the adverse effects of the terminated merger, significant customer concentration, and potential impacts of non-compliance with credit facility covenants, supplementing the risks disclosed in the annual report - The termination of the Mergers on **June 20, 2019**, has had continuing adverse effects, including a decline in stock price, impaired business operations due to pending restrictions, and negative impacts on relationships with employees, suppliers, and partners[120](index=120&type=chunk) Customer Revenue Concentration Risk | Customer | Q2 2019 Revenue % | Q2 2018 Revenue % | | :------- | :---------------- | :---------------- | | Yahoo! | 69.7% | 73.1% | | Google | 11.3% | 9.0% | - A significant decline in revenue and harm to business operations could occur if key customers (**Yahoo!** and **Google**) do not approve new websites/applications, if guidelines are violated, or if guidelines change, and suitable alternatives cannot be found[122](index=122&type=chunk) - Failure to comply with covenants in the credit facility with Western Alliance Bank could lead to a default, acceleration of outstanding borrowings, and potential seizure of collateral, jeopardizing the company's ability to conduct business[123](index=123&type=chunk)[124](index=124&type=chunk)[125](index=125&type=chunk) [ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.](index=26&type=section&id=ITEM%202.%20UNREGISTERED%20SALES%20OF%20EQUITY%20SECURITIES%20AND%20USE%20OF%20PROCEEDS.) This section states that there were no unregistered sales of equity securities or use of proceeds to report, except as previously disclosed - No unregistered sales of equity securities or use of proceeds, except as previously disclosed[126](index=126&type=chunk) [ITEM 3. DEFAULTS UPON SENIOR SECURITIES.](index=26&type=section&id=ITEM%203.%20DEFAULTS%20UPON%20SENIOR%20SECURITIES.) This section reports that there were no defaults upon senior securities during the period - No defaults upon senior securities[127](index=127&type=chunk) [ITEM 4. MINE SAFETY AND DISCLOSURES.](index=26&type=section&id=ITEM%204.%20MINE%20SAFETY%20AND%20DISCLOSURES.) This section states that mine safety and disclosures are not applicable to the company - Not applicable[128](index=128&type=chunk) [ITEM 5. OTHER INFORMATION.](index=26&type=section&id=ITEM%205.%20OTHER%20INFORMATION.) This section details resolutions adopted by the Nominating, Corporate Governance and Compensation Committee regarding the vesting of outstanding restricted stock unit (RSU) grants, aimed at employee attraction and retention - On **August 14, 2019**, the Committee resolved that performance criteria for **319,198 performance-based RSU grants** were met, making them vested as of **June 30, 2019**[129](index=129&type=chunk) - Additionally, **1,122,724 service-based RSU grants** will vest in three equal installments: **August 19, 2019**, **January 1, 2020**, and **July 1, 2020**[129](index=129&type=chunk) [ITEM 6. EXHIBITS](index=27&type=section&id=ITEM%206.%20EXHIBITS) This section lists all exhibits filed as part of the Form 10-Q, including various agreements, corporate documents, and certifications - Exhibits include the Underwriting Agreement, Merger Termination Agreement, Inuvo Note Termination Agreement, Articles of Incorporation, Amended and Restated By-Laws, Business Financing Modification Agreement, and certifications from the CEO and CFO[130](index=130&type=chunk) [SIGNATURES](index=28&type=section&id=SIGNATURES) This section contains the official signatures of the company's principal executive and financial officers, certifying the accuracy and completeness of the Form 10-Q report - The report was signed on **August 14, 2019**, by **Richard K. Howe**, Chief Executive Officer, and **Wallace D. Ruiz**, Chief Financial Officer[133](index=133&type=chunk)

Part I - Financial Information [Financial Statements](index=5&type=section&id=Item%201.%20Financial%20Statements.) This section presents the unaudited consolidated financial statements for Inuvo, Inc. for the quarterly period ended March 31, 2019, including balance sheets, statements of operations, cash flows, and detailed notes [Consolidated Balance Sheets](index=5&type=section&id=Consolidated%20Balance%20Sheets) As of March 31, 2019, total assets slightly increased to **$28.7 million**, while rising liabilities to **$20.0 million** reduced stockholders' equity from **$11.0 million** to **$8.7 million** Consolidated Balance Sheet Highlights (Unaudited) | Account | March 31, 2019 | December 31, 2018 | | :--- | :--- | :--- | | **Assets** | | | | Total current assets | $6,672,396 | $7,212,017 | | Total assets | $28,686,088 | $28,665,882 | | **Liabilities & Equity** | | | | Total current liabilities | $14,582,477 | $14,099,228 | | Total long-term liabilities | $5,435,318 | $3,532,839 | | Total stockholders' equity | $8,668,293 | $11,033,815 | | Total liabilities and stockholders' equity | $28,686,088 | $28,665,882 | [Consolidated Statements of Operations](index=6&type=section&id=Consolidated%20Statements%20of%20Operations) For Q1 2019, net loss increased to **$2.46 million** from **$1.41 million** in Q1 2018, driven by a **24.6% revenue decline** to **$15.5 million** and a **25.1% gross profit decrease** Q1 2019 vs Q1 2018 Statement of Operations (Unaudited) | Metric | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | | :--- | :--- | :--- | | Net revenue | $15,464,569 | $20,503,985 | | Gross profit | $8,783,941 | $11,725,391 | | Operating loss | ($1,945,685) | ($1,314,780) | | Net loss | ($2,462,393) | ($1,408,024) | | Net loss per share (Basic & Diluted) | ($0.08) | ($0.05) | [Consolidated Statements of Cash Flows](index=7&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Q1 2019 saw **$1.05 million** net cash used in operations, a shift from **$0.63 million** provided in Q1 2018, with financing activities providing **$1.38 million** resulting in a net cash increase of **$19,441** Q1 2019 vs Q1 2018 Cash Flow Summary (Unaudited) | Cash Flow Activity | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | ($1,047,835) | $629,096 | | Net cash used in investing activities | ($310,221) | ($514,065) | | Net cash provided by (used in) financing activities | $1,377,497 | ($53,839) | | **Net change – cash** | **$19,441** | **$61,192** | [Notes to Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) Notes detail the pending merger with CPT, significant liquidity concerns raising going concern doubt, high revenue concentration with Yahoo! and Google, and the adoption of new lease accounting standards - The company entered into a merger agreement with ConversionPoint Technologies (CPT) on November 2, 2018; stockholders approved the merger on May 8, 2019[32](index=32&type=chunk)[41](index=41&type=chunk) - Due to a **24.6%** revenue decline in Q1 2019, a **$2.5 million** net loss, and reliance on credit facilities, there is substantial doubt about the Company's ability to continue as a going concern[43](index=43&type=chunk)[44](index=44&type=chunk) Customer Revenue Concentration | Customer | Q1 2019 Revenue % | Q1 2018 Revenue % | | :--- | :--- | :--- | | Yahoo! | 73.6% | 70.5% | | Google | 11.7% | 9.5% | | **Total** | **85.3%** | **80.0%** | - In March 2019, the company sold **$1,440,000** of Original Issue Discount Unsecured Subordinated Convertible Notes and received **$1,200,000** in proceeds for working capital[63](index=63&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=19&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations.) Management attributes the **24.6% revenue decline** to strategic shifts and lower monetization, while operating expenses decreased **17.7%** despite merger costs, leading to significant going concern doubt Q1 2019 vs Q1 2018 Performance | Metric | 2019 | 2018 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Net Revenue | $15,464,569 | $20,503,985 | $(5,039,416) | (24.6%) | | Gross Profit | $8,783,941 | $11,725,391 | $(2,941,450) | (25.1%) | - The revenue decline was caused by a strategy to reduce focus on non-strategic publisher technologies and reduced monetization from largest Demand partners[103](index=103&type=chunk) - Compensation expense decreased **31.0%** due to a reduction in headcount from **91** at March 31, 2018 to **66** at March 31, 2019[107](index=107&type=chunk) - Selling, general and administrative costs increased by **11.8%**, which included **$501,000** in costs related to the pending merger[107](index=107&type=chunk) - The company's financial condition has raised substantial doubt about its ability to continue as a going concern, necessitating reliance on financing and the successful closing of the merger[110](index=110&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=23&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk.) This section is not applicable as Inuvo, Inc. qualifies as a smaller reporting company - Disclosure is not applicable to a smaller reporting company[118](index=118&type=chunk) [Controls and Procedures](index=23&type=section&id=Item%204.%20Controls%20and%20Procedures.) Management concluded disclosure controls and procedures were effective as of March 31, 2019, with no material changes to internal control over financial reporting during the quarter - As of March 31, 2019, the Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective[121](index=121&type=chunk) - No changes in internal control over financial reporting occurred during the period that have materially affected, or are reasonably likely to materially affect, internal controls[122](index=122&type=chunk) Part II - Other Information [Legal Proceedings](index=23&type=section&id=Item%201.%20Legal%20Proceedings.) The company and its board faced putative class action lawsuits challenging merger disclosures, which the company believes are without merit and were mooted by an amended S-4 filing - Multiple putative class action lawsuits were filed by stockholders in December 2018 and January 2019, challenging the adequacy of disclosures related to the merger transactions[124](index=124&type=chunk)[126](index=126&type=chunk)[129](index=129&type=chunk) - The company believes the claims are without merit and that the allegations were mooted by the filing of an amended S-4 Registration Statement on March 15, 2019[127](index=127&type=chunk)[130](index=130&type=chunk) [Risk Factors](index=24&type=page&id=Item%201A.%20Risk%20Factors.) Key risks include potential merger delays or failure, significant revenue concentration with Yahoo! and Google, and the risk of non-compliance with credit facility covenants impacting liquidity - The merger is subject to closing conditions that, if not satisfied, could delay or prevent its completion, potentially causing the stock price to decline and impacting business relationships[133](index=133&type=chunk) - The company relies on Yahoo! and Google for a significant portion of its revenue (**85.3%** combined in Q1 2019), and the loss of either would have a material adverse impact[134](index=134&type=chunk)[135](index=135&type=chunk) - Failure to comply with covenants in the credit facility with Western Alliance Bank could result in a default, jeopardizing the company's ability to access capital and conduct business[136](index=136&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=26&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds.) None, except as previously disclosed in other reports - None, except as previously disclosed[137](index=137&type=chunk) [Defaults upon Senior Securities](index=26&type=section&id=Item%203.%20Defaults%20upon%20Senior%20Securities.) The company reported no defaults upon senior securities - None[138](index=138&type=chunk) [Mine Safety and Disclosures](index=26&type=section&id=Item%204.%20Mine%20Safety%20and%20Disclosures.) This item is not applicable to the company - Not applicable[139](index=139&type=chunk) [Other Information](index=26&type=section&id=Item%205.%20Other%20Information.) None, except as previously reported - None, except as previously reported[140](index=140&type=chunk) [Exhibits](index=27&type=section&id=Item%206.%20Exhibits.) This section lists exhibits filed with the Form 10-Q, including corporate governance documents, financing agreements, and CEO/CFO certifications - Lists exhibits filed with the report, including financing agreements, corporate documents, and required certifications[142](index=142&type=chunk)

PART I [ITEM 1. BUSINESS.](index=5&type=section&id=Item%201.%20Business.) Inuvo provides data-driven platforms using proprietary AI, IntentKey, for online audience engagement, with a pending merger and seasonal revenue patterns - Inuvo provides data-driven platforms utilizing **proprietary AI, IntentKey**, to identify and message online audiences across various channels [19](index=19&type=chunk)[20](index=20&type=chunk) - The company's intellectual property is protected by **15 issued and 8 pending patents**, creating barriers to entry [22](index=22&type=chunk) - On November 2, 2018, Inuvo entered a Merger Agreement with ConversionPoint Technologies (CPT), forming ConversionPoint Holdings, Inc. (Parent) [23](index=23&type=chunk) - Merger consideration for Inuvo stockholders includes **$0.45 in cash** and **0.18877 shares of Parent common stock** per share [24](index=24&type=chunk) - Key products include ValidClick (pay-per-click), IntentKey (consumer intent recognition), and Digital Publishing (branded web properties) [31](index=31&type=chunk) - Inuvo maintains long-standing relationships with Yahoo!, Google, and Microsoft Online, collectively accounting for **92.9% of total revenue in 2018** [32](index=32&type=chunk) - The business is subject to seasonality, with lower revenue in late Q4 and early Q1 due to declining demand and advertiser budget recalibrations [50](index=50&type=chunk) [ITEM 1A. RISK FACTORS.](index=9&type=section&id=Item%201A.%20Risk%20Factors.) Inuvo faces significant risks from merger uncertainties, a history of losses, declining revenues, liquidity issues, customer concentration, and regulatory challenges - The pending Merger is subject to closing conditions, and failure or delay could adversely affect Inuvo's business and stock price [56](index=56&type=chunk) - Inuvo reported a net loss of **$5.9 million in 2018** and a working capital deficit of **$6.9 million** at December 31, 2018 [57](index=57&type=chunk) - A strategic decision to discontinue non-strategic technologies resulted in an estimated revenue loss of **$7.2 million in 2018** [57](index=57&type=chunk) Revenue Concentration by Key Customer (2018 vs. 2017) | Customer | 2018 Revenue % | 2017 Revenue % | | :--------- | :------------- | :------------- | | Yahoo! | 71.8% | 66.7% | | Google | 10.1% | 10.4% | | Microsoft Online | 5.5% | N/A (OpenX 9.4%) | - Failure to comply with credit facility covenants could impact access to capital, potentially leading to default and debt acceleration [63](index=63&type=chunk) - As of December 31, 2018, Inuvo had **39 full-time employees** in Arkansas, falling short of the **50 required by a grant agreement**, resulting in a contingent liability of **$55,000** [76](index=76&type=chunk) [ITEM 1B. UNRESOLVED STAFF COMMENTS.](index=13&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments.) This item is not applicable to Inuvo as it is a smaller reporting company - This item is not applicable to Inuvo as it is a smaller reporting company [78](index=78&type=chunk) [ITEM 2. PROPERTIES.](index=13&type=section&id=Item%202.%20Properties.) Inuvo's corporate headquarters are in Little Rock, Arkansas, with additional office space in San Jose, California, and third-party data centers - Inuvo's corporate headquarters are in Little Rock, Arkansas, occupying **12,245 sq ft** under a **5-year lease** from October 1, 2015 [79](index=79&type=chunk) - The company also leases **4,801 sq ft** of office space in San Jose, CA, under a **five-year agreement** from June 2017 [79](index=79&type=chunk) - Data center operations are maintained in third-party collocation facilities in Little Rock, AR, and San Jose, CA [79](index=79&type=chunk) [ITEM 3. LEGAL PROCEEDINGS.](index=13&type=section&id=Item%203.%20Legal%20Proceedings.) Inuvo faces multiple class action lawsuits challenging merger disclosures and alleging fiduciary duty breaches, which the company intends to vigorously contest - Multiple putative class action lawsuits were filed by stockholders in late 2018 and early 2019, challenging merger disclosures and alleging breach of fiduciary duties [80](index=80&type=chunk)[81](index=81&type=chunk)[84](index=84&type=chunk) - The lawsuits seek injunctions preventing the merger, damages if consummated, and attorneys' fees [82](index=82&type=chunk)[84](index=84&type=chunk) - Inuvo believes the claims lack merit and intends to vigorously contest them, having filed motions to dismiss and responded to preliminary injunctions [82](index=82&type=chunk)[85](index=85&type=chunk) [ITEM 4. MINE SAFETY DISCLOSURES.](index=14&type=section&id=Item%204.%20Mine%20Safety%20Disclosures.) This item is not applicable to Inuvo - This item is not applicable to Inuvo [86](index=86&type=chunk) PART II [ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.](index=14&type=section&id=Item%205.%20Market%20for%20Registrant's%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities.) Inuvo's common stock is listed on NYSE American, with **32.35 million shares outstanding** as of March 2019, and no cash dividends paid or anticipated - Inuvo's common stock is listed on the NYSE American under the symbol **"INUV"** [88](index=88&type=chunk) - As of March 8, 2019, there were **32,350,906 shares of common stock outstanding** and approximately **407 stockholders of record** [5](index=5&type=chunk)[88](index=88&type=chunk) - The company has not declared or paid cash dividends since inception and does not anticipate paying any in the foreseeable future [89](index=89&type=chunk) - There have been no recent sales of unregistered securities or purchases of equity securities by the issuer or affiliated purchasers [90](index=90&type=chunk)[91](index=91&type=chunk) [ITEM 6. SELECTED FINANCIAL DATA.](index=15&type=section&id=Item%206.%20Selected%20Financial%20Data.) This item is not applicable to Inuvo as it is a smaller reporting company - This item is not applicable to Inuvo as it is a smaller reporting company [92](index=92&type=chunk) [ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.](index=15&type=section&id=Item%207.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations.) Inuvo's 2018 operations focused on AI integration, resulting in a **$7.2 million revenue loss** from discontinued technologies and a **$5.9 million net loss**, impacting liquidity and requiring capital raises - In 2018, Inuvo focused on integrating **artificial intelligence** into digital marketing and expanding marketing technology following the NetSeer acquisition [97](index=97&type=chunk) - The strategic decision to discontinue non-strategic technologies resulted in an estimated revenue loss of **$7.2 million in 2018** and eliminated approximately **20 full-time employees** [99](index=99&type=chunk) - In January 2019, Inuvo integrated its **IntentKey AI** into AppNexus, a major digital advertising marketplace, to improve competitive positioning and client results [100](index=100&type=chunk) Key Financial Results (2018 vs. 2017) | Metric | 2018 (USD) | 2017 (USD) | Change (USD) | % Change | | :----------------------------------- | :--------- | :--------- | :----------- | :------- | | Net Revenue | 73,330,642 | 79,554,493 | (6,223,851) | (7.8%) | | Cost of Revenue | 29,921,482 | 36,669,543 | (6,748,061) | (18.4%) | | Gross Profit | 43,409,160 | 42,884,950 | 524,210 | 1.2% | | Marketing Cost (TAC) | 31,852,190 | 28,578,401 | 3,273,789 | 11.5% | | Gross Profit adjusted for Marketing Cost (TAC) | 11,556,970 | 14,306,549 | (2,749,579) | (19.2%) | | Operating Loss | (5,470,380)| (4,236,474)| (1,233,906) | 29.1% | | Net Loss | (5,890,832)| (3,057,700)| (2,833,132) | 92.6% | - Net cash used in operating activities was **$2.1 million in 2018**, an increase from **$1.1 million in 2017**, primarily due to net loss and changes in operating assets and liabilities [118](index=118&type=chunk)[119](index=119&type=chunk) - Inuvo's cash balance decreased significantly to **$228,956** at December 31, 2018, from **$4.1 million** in 2017, and the working capital deficit increased to **$6.9 million** from **$6.2 million** [57](index=57&type=chunk)[250](index=250&type=chunk) - The company raised approximately **$2.0 million (net)** from a public offering, borrowed **$1 million** from a CPT affiliate, and **$250,000** from directors in 2018 to fund working capital and merger costs [116](index=116&type=chunk)[117](index=117&type=chunk)[121](index=121&type=chunk) [ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.](index=19&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk.) This item is not applicable to Inuvo as it is a smaller reporting company - This item is not applicable to Inuvo as it is a smaller reporting company [124](index=124&type=chunk) [ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.](index=19&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data.) The consolidated financial statements and supplementary data for Inuvo, Inc. are presented starting on page F-1 of this annual report - The consolidated financial statements and Report of Independent Registered Public Accounting Firm are listed in the "Index to Financial Statements and Schedules" beginning on **page F-1** [229](index=229&type=chunk) [ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.](index=19&type=section&id=Item%209.%20Changes%20In%20and%20Disagreements%20With%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure.) Inuvo reported no changes in or disagreements with its accountants on accounting and financial disclosure matters - There were no changes in or disagreements with accountants on accounting and financial disclosure [126](index=126&type=chunk) [ITEM 9A. CONTROLS AND PROCEDURES.](index=19&type=section&id=Item%209A.%20Controls%20and%20Procedures.) Inuvo's management concluded that its disclosure controls and internal control over financial reporting were effective as of December 31, 2018, with no material changes - As of December 31, 2018, Inuvo's management concluded its disclosure controls and procedures were effective for timely and accurate reporting [130](index=130&type=chunk) - Management assessed and concluded that internal control over financial reporting was effective as of December 31, 2018, based on the **COSO 2013 framework** [133](index=133&type=chunk) - No material changes in internal control over financial reporting occurred during the year ended December 31, 2018 [134](index=134&type=chunk) [ITEM 9B. OTHER INFORMATION.](index=20&type=section&id=Item%209B.%20Other%20Information.) Inuvo reported no other information required under this item - No other information was reported under this item [135](index=135&type=chunk) PART III [ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.](index=20&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance.) This section details Inuvo's executive officers and directors, corporate governance, board oversight, ethics codes, director compensation, and audit committee functions Directors and Executive Officers | Name | Age | Positions | | :-------------------- | :-- | :--------------------------------------------- | | Richard K. Howe | 56 | Executive Chairman of the Board and CEO | | Wallace D. Ruiz | 67 | Chief Financial Officer, Secretary | | John B. Pisaris, Esq. | 53 | General Counsel | | Don Walker "Trey" Barrett III | 54 | Chief Operating Officer | | Charles D. Morgan | 76 | Class III director | | Gordon J. Cameron | 54 | Class I director | | G. Kent Burnett | 74 | Class II director | | Patrick Terrell | 64 | Class III director | - Inuvo maintains a Code of Conduct and Business Code of Ethics for all directors, officers, and employees, and a Whistleblower Notice for reporting improper activities [147](index=147&type=chunk) - The board's leadership structure includes **Richard K. Howe** as Executive Chairman and CEO, and **Charles D. Morgan** as Lead Independent Director, providing independent oversight [151](index=151&type=chunk)[152](index=152&type=chunk) - The Audit Committee, composed of independent directors, oversees financial statement integrity, regulatory compliance, and auditor independence; **Mr. Terrell and Mr. Cameron** qualify as "audit committee financial experts" [154](index=154&type=chunk) - Independent directors receive a **$30,000 annual retainer** and **$30,000 in restricted stock units** [177](index=177&type=chunk) 2018 Director Compensation | Name | Fees earned or paid in cash ($) | Stock awards ($) | Total ($) | | :-------------- | :------------------------------ | :--------------- | :-------- | | Charles D. Morgan | 30,000 | 27,060 | 57,060 | | Charles L. Pope | 22,500 | 8,557 | 31,057 | | Patrick Terrell | 30,000 | 27,060 | 57,060 | | Gordon J. Cameron | 30,000 | 27,060 | 57,060 | | G. Kent Burnett | 30,000 | 27,060 | 57,060 | - No officer, director, or **10% or greater stockholder** failed to file required reports under **Section 16(a) of the Exchange Act** on a timely basis during 2018 [181](index=181&type=chunk) [ITEM 11. EXECUTIVE COMPENSATION.](index=28&type=section&id=Item%2011.%20Executive%20Compensation.) Inuvo's executive compensation aims to attract and retain officers through base salary, equity awards, and benefits, with no cash bonuses paid in 2018 due to unmet performance targets - The executive compensation program aims to attract, retain, and motivate executives, aligning their interests with stockholders through equity awards and performance-based compensation [182](index=182&type=chunk)[183](index=183&type=chunk)[184](index=184&type=chunk) - The 2018 compensation program included base salary, a cash bonus plan, **2010 and 2017 Equity Compensation Plan awards**, and other fringe benefits [185](index=185&type=chunk) - No cash bonuses were paid to executive officers for 2018 because the targets under the **2018 Management Incentive Program** were not met [192](index=192&type=chunk) - The company's **401(k) plan** employer match, previously up to **4% of annual earnings**, was suspended in November 2018 [197](index=197&type=chunk) Summary Compensation Table (2018 vs. 2017) | Name and principal position | Year | Salary ($) | Bonus ($) | Stock Awards ($) | Total ($) | | :-------------------------- | :--- | :--------- | :-------- | :--------------- | :-------- | | Richard K. Howe, Chairman and Chief Executive Officer | 2018 | 425,000 | — | 272,897 | 708,897 | | | 2017 | 420,000 | 245,000 | 442,175 | 1,117,975 | | Wallace D. Ruiz, Chief Financial Officer | 2018 | 275,000 | — | 97,463 | 383,463 | | | 2017 | 275,000 | 105,000 | 157,919 | 548,719 | | Don (Trey) Barrett III, Chief Operating Officer | 2018 | 250,000 | — | 129,951 | 386,171 | | | 2017 | 250,000 | 140,000 | 210,560 | 603,560 | - Employment agreements for Messrs. Howe and Ruiz provide for minimum annual base salaries (**$425,000** and **$275,000**, respectively) and specific compensation/benefits upon termination [201](index=201&type=chunk)[202](index=202&type=chunk) Outstanding Equity Awards at December 31, 2018 | Name | Options exercisable () | Stock that have not vested () | Market value of unvested stock ($) | | :-------------------- | :---------------------- | :----------------------------- | :--------------------------------- | | Richard K. Howe | 120,000 | 126,000 | 134,820 | | Wallace D. Ruiz | 43,000 | 45,000 | 48,150 | | Don (Trey) Barrett III | 40,000 | 60,000 | 64,200 | [ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.](index=32&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters.) As of March 1, 2019, Inuvo had **32.76 million shares** outstanding, with this section detailing beneficial ownership by principal stockholders, directors, and executive officers, and equity compensation plans - As of March 1, 2019, Inuvo had **32,757,817 shares of common stock** issued and outstanding [210](index=210&type=chunk) Beneficial Ownership of Common Stock (as of March 1, 2019) | Name of Beneficial Owner | No. of Shares Beneficially Owned | % of Class | | :----------------------- | :------------------------------- | :--------- | | Charles Morgan | 2,061,200 | 6.4% | | Richard K. Howe | 1,094,808 | 3.4% | | Patrick Terrell | 684,694 | 2.1% | | Wallace D. Ruiz | 373,483 | 1.2% | | John B. Pisaris | 320,855 | 1% | | Don Walker "Trey" Barrett III | 359,290 | 1.1% | | G. Kent Burnett | 173,685 | 0.5% | | Gordon J. Cameron | 120,815 | 0.4% | | All named executive officers, directors and director nominees as a group (eight persons) | 5,188,800 | 15.9% | | Onset V L.P. | 2,559,691 | 7.9% | | Ingalls & Snyder, LLC | 2,349,471 | 7.9% | | Renaissance Technologies LLC | 1,633,390 | 5% | Securities Authorized for Issuance under Equity Compensation Plans (as of December 31, 2018) | Plan category | Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) (1) | Weighted average exercise price of outstanding options, warrants and rights (a) (2) | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) | | :---------------------------- | :------------------------------------------------------------------------------------------------ | :---------------------------------------------------------------------------------- | :------------------------------------------------------------------------------------------------------------------------------------------ | | Plans approved by our stockholders: | | | | | 2005 Long-Term Incentive Plan | 13,748 | $ 2.97 | — | | 2010 Equity Compensation Plan | 1,088,862 | $ 2.83 | 612,237 | | 2017 Equity Compensation Plan | 733,500 | $ — | 1,524,836 | | Plans not approved by stockholders | — | $ — | — | [ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.](index=34&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence.) Inuvo engaged in related party transactions, including IT services from First Orion Corp. and **$250,000** in loans from directors, while confirming the independence of certain board members - Inuvo received **$31,500 in 2018** and **$117,385 in 2017** from First Orion Corp. for IT services, a company partially owned by two Inuvo directors and shareholders [217](index=217&type=chunk) - On November 2, 2018, four directors lent Inuvo an aggregate of **$250,000** through **10% Promissory Notes** to cover costs associated with the pending Merger [218](index=218&type=chunk) - Messrs. Morgan, Terrell, Cameron, and Burnett are considered independent directors as defined by the **NYSE American Company Guide** [220](index=220&type=chunk) [ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.](index=34&type=section&id=Item%2014.%20Principal%20Accounting%20Fees%20and%20Services.) Fees paid to Mayer Hoffman McCann P.C. for audit and other services decreased from **$331,711 in 2017** to **$294,000 in 2018**, with all fees pre-approved Principal Accounting Fees and Services (2018 vs. 2017) | Category | 2018 (USD) | 2017 (USD) | | :---------------- | :--------- | :--------- | | Audit Fees | 262,000 | 331,711 | | Audit-Related Fees | 32,000 | — | | Tax Fees | — | — | | All Other Fees | — | — | | Total | 294,000 | 331,711 | - The Audit Committee pre-approves all fees charged by the independent registered public accounting firm, and the 2018 audit fees were pre-approved [226](index=226&type=chunk) PART IV [ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.](index=37&type=section&id=Item%2015.%20Exhibits%2C%20Financial%20Statement%20Schedules.) This section lists the financial statements, schedules, and exhibits included in the Form 10-K report, with some portions omitted due to confidential treatment - The consolidated financial statements and Report of Independent Registered Public Accounting Firm are listed in the "Index to Financial Statements and Schedules" beginning on **page F-1** [229](index=229&type=chunk) - All financial statement schedules are either not required, not applicable, or their disclosures are contained in the consolidated financial statements [230](index=230&type=chunk) - The exhibits include various agreements, corporate documents, and certifications, such as the Merger Agreement and Rule 13a-14(a) certifications [232](index=232&type=chunk)[233](index=233&type=chunk)[234](index=234&type=chunk) - Portions of some exhibits have been omitted pursuant to requests for confidential treatment filed with the SEC [231](index=231&type=chunk)[234](index=234&type=chunk) [Item 16. Form 10-K Summary](index=39&type=section&id=Item%2016.%20Form%2010-K%20Summary) Inuvo, Inc. has elected not to provide the optional Form 10-K Summary information - The Company has elected not to provide this optional information [236](index=236&type=chunk) FINANCIAL STATEMENTS [Report of Independent Registered Public Accounting Firm](index=43&type=section&id=Report%20of%20Independent%20Registered%20Public%20Accounting%20Firm) Mayer Hoffman McCann P.C. issued an unqualified opinion on Inuvo's consolidated financial statements for 2018 and 2017, affirming fair presentation in conformity with U.S. GAAP - Mayer Hoffman McCann P.C. audited Inuvo, Inc.'s consolidated financial statements for the years ended **December 31, 2018 and 2017** [244](index=244&type=chunk) - The auditors issued an **unqualified opinion**, stating the financial statements present fairly Inuvo's financial position, results of operations, and cash flows in conformity with **U.S. GAAP** [244](index=244&type=chunk) - Mayer Hoffman McCann P.C. has served as the Company's auditor since **2009** [248](index=248&type=chunk) [Consolidated Balance Sheets](index=44&type=section&id=Consolidated%20Balance%20Sheets) Inuvo's balance sheets show cash declined from **$4.1 million to $229,000** and total current assets from **$15.2 million to $7.2 million** from 2017 to 2018, with total equity decreasing to **$11.0 million** Consolidated Balance Sheet Highlights (as of December 31) | Metric | 2018 (USD) | 2017 (USD) | | :-------------------------- | :----------- | :----------- | | Cash | 228,956 | 4,084,686 | | Accounts receivable, net | 6,711,595 | 10,759,250 | | Total current assets | 7,212,017 | 15,244,127 | | Total assets | 28,665,882 | 38,247,836 | | Accounts payable | 9,499,541 | 13,614,053 | | Revolving line of credit | — | 4,900,000 | | Total current liabilities | 14,099,228 | 21,401,869 | | Convertible promissory note | 1,000,000 | — | | Total liabilities | 17,632,067 | 24,160,494 | | Total stockholders' equity | 11,033,815 | 14,087,342 | [Consolidated Statements of Operations](index=45&type=section&id=Consolidated%20Statements%20of%20Operations) Inuvo's consolidated statements of operations show a **7.8% decrease in net revenue** to **$73.3 million in 2018**, a **1.2% increase in gross profit** to **$43.4 million**, and a wider net loss of **$5.9 million** in 2018 compared to **$3.1 million in 2017** Consolidated Statements of Operations Highlights (Years Ended December 31) | Metric | 2018 (USD) | 2017 (USD) | | :-------------------------- | :----------- | :----------- | | Net revenue | 73,330,642 | 79,554,493 | | Cost of revenue | 29,921,482 | 36,669,543 | | Gross profit | 43,409,160 | 42,884,950 | | Marketing costs (TAC) | 31,852,190 | 28,578,401 | | Compensation | 8,524,476 | 10,200,117 | | Selling, general and administrative | 8,502,874 | 8,342,906 | | Total operating expenses | 48,879,540 | 47,121,424 | | Operating loss | (5,470,380) | (4,236,474) | | Net loss | (5,890,832) | (3,057,700) | | Basic and diluted net loss per share | (0.19) | (0.11) | [Consolidated Statements of Stockholders' Equity](index=46&type=section&id=Consolidated%20Statements%20of%20Stockholders'%20Equity) Inuvo's total stockholders' equity decreased from **$14.1 million in 2017** to **$11.0 million in 2018**, primarily due to a **$5.9 million net loss**, partially offset by **$2.0 million** from common stock sales and **$915,469** in stock-based compensation Changes in Stockholders' Equity (Years Ended December 31) | Metric | 2018 (USD) | 2017 (USD) | | :-------------------------- | :------------ | :------------ | | Balances as of Dec 31 | 11,033,815 | 14,087,342 | | Net loss | (5,890,832) | (3,057,700) | | Stock-based compensation | 915,469 | 1,279,807 | | Stock issued for vested restricted stock awards | — | 22,509 | | Sale of common stock | 2,000,583 | — | | 2017 asset acquisition | — | 4,459,244 | - The number of common stock shares outstanding increased from **28,618,454** at December 31, 2017, to **32,381,290** at December 31, 2018 [254](index=254&type=chunk) [Consolidated Statements of Cash Flows](index=47&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Inuvo's cash flows show a net outflow from operating activities of **$2.1 million in 2018**, an increase from **$1.1 million in 2017**, with overall cash decreasing by **$3.8 million** in 2018 to **$228,956** at year-end Consolidated Statements of Cash Flows Highlights (Years Ended December 31) | Cash Flow Category | 2018 (USD) | 2017 (USD) | | :-------------------------- | :------------ | :------------ | | Net cash used in operating activities | (2,100,167) | (1,148,281) | | Net cash used in investing activities | (1,634,919) | (1,322,930) | | Net cash (used in) provided by financing activities | (120,644) | 2,609,093 | | Net change – cash | (3,855,730) | 137,882 | | Cash, end of year | 228,956 | 4,084,686 | - Key financing activities in 2018 included **$2.0 million net proceeds** from common stock sale, **$1.9 million** from financed receivables, **$1.0 million** from a convertible promissory note, and **$250,000** from notes payable, offset by **$4.9 million** in net repayments on the revolving line of credit [121](index=121&type=chunk)[257](index=257&type=chunk) - Interest paid increased to **$388,757 in 2018** from **$268,960 in 2017** [257](index=257&type=chunk) [Notes to Consolidated Financial Statements](index=48&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) The Notes provide detailed information on Inuvo's accounting policies, financial instruments, liquidity challenges, capital raises, the pending merger, and changes in assets and liabilities - Inuvo adopted **Accounting Standards Update No. 2014-09 (Topic 606)** "Revenue from Contracts with Customers" on **January 1, 2018**, using the modified retrospective approach [268](index=268&type=chunk) - The company's liquidity is challenged by declining revenues and negative cash flows, necessitating capital raises including a **$1 million convertible promissory note** from a CPT affiliate and **$250,000** from directors in 2018, and an additional **$1.2 million** from convertible notes in March 2019 [265](index=265&type=chunk)[266](index=266&type=chunk)[313](index=313&type=chunk)[314](index=314&type=chunk)[359](index=359&type=chunk) - The Amended and Restated Business Financing Agreement with **Western Alliance Bank** (October 11, 2018) is secured by all assets and includes a sub-limit provision for uninvoiced receivables expiring in **April 2019** [263](index=263&type=chunk)[312](index=312&type=chunk) - Goodwill and intangible assets, including an **$8.82 million Google customer list (20-year useful life)** and **$3.6 million NetSeer technology (5-year useful life)**, are tested for impairment annually, with no impairment recorded in 2018 or 2017 [276](index=276&type=chunk)[278](index=278&type=chunk)[279](index=279&type=chunk)[280](index=280&type=chunk)[281](index=281&type=chunk)[304](index=304&type=chunk)[305](index=305&type=chunk) - Inuvo recorded stock-based compensation expense of **$915,469 in 2018** (vs. **$1,279,807 in 2017**), with **$944,426** of unrecognized cost remaining at year-end 2018 [325](index=325&type=chunk) - The Merger Agreement with **ConversionPoint Technologies** (November 2, 2018) outlines merger consideration, conditions (including **$36 million financing**), and termination rights, with subsequent amendments extending deadlines and permitting additional share issuances [348](index=348&type=chunk)[349](index=349&type=chunk)[352](index=352&type=chunk)[353](index=353&type=chunk)[360](index=360&type=chunk)