UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Inuvo, Inc. FORM 10-Q (Mark One) ☒ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (Exact name of registrant as specified in its charter) For the quarterly period ended September 30, 2020 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 | Title of each ...

Part I [Financial Statements](index=5&type=section&id=Item%201.%20Financial%20Statements.) Inuvo, Inc.'s unaudited Q2 2020 financial statements show reduced assets, significantly lower liabilities, and a narrowed net loss despite a 46% revenue drop, with cash boosted by financing activities [Consolidated Balance Sheets](index=6&type=section&id=Consolidated%20Balance%20Sheets) Total assets slightly decreased to $29.3 million, while cash significantly increased to $4.2 million due to financing, and total liabilities decreased to $11.3 million Consolidated Balance Sheet Highlights (Unaudited) | Account | June 30, 2020 | December 31, 2019 | | :--- | :--- | :--- | | **Assets** | | | | Cash | $4,181,214 | $372,989 | | Accounts receivable, net | $3,256,697 | $7,529,785 | | Total current assets | $7,681,048 | $8,146,662 | | Total assets | $29,342,669 | $30,690,928 | | **Liabilities & Equity** | | | | Accounts payable | $3,674,697 | $7,520,567 | | Total current liabilities | $8,878,497 | $15,678,327 | | Total liabilities | $11,268,137 | $16,237,378 | | Total stockholders' equity | $18,074,532 | $14,453,550 | [Consolidated Statements of Operations](index=8&type=section&id=Consolidated%20Statements%20of%20Operations) Q2 2020 net revenue declined 46% to $7.6 million, but an 81% cost of revenue reduction narrowed the net loss to $1.36 million Statement of Operations Summary (Unaudited) | Metric | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | | :--- | :--- | :--- | | Net revenue | $7,590,187 | $14,047,907 | | Gross profit | $6,520,159 | $8,373,547 | | Operating loss | $(1,236,668) | $(2,103,785) | | Net loss | $(1,359,288) | $(1,954,993) | | Net loss per share (Basic & Diluted) | $(0.02) | $(0.06) | Six-Month Performance Comparison (Unaudited) | Metric | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :--- | :--- | :--- | | Net revenue | $22,523,170 | $29,512,476 | | Gross profit | $18,013,641 | $17,157,488 | | Operating loss | $(3,769,086) | $(4,049,470) | | Net loss | $(4,184,524) | $(4,417,386) | [Consolidated Statements of Cash Flows](index=10&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Net cash used in operations increased to $2.3 million, while financing activities provided $6.7 million, leading to a $3.8 million net cash increase Cash Flow Summary for Six Months Ended June 30 (Unaudited) | Cash Flow Activity | 2020 | 2019 | | :--- | :--- | :--- | | Net cash used in operating activities | $(2,336,029) | $(709,846) | | Net cash used in investing activities | $(557,818) | $(581,839) | | Net cash provided by financing activities | $6,702,072 | $2,058,196 | | **Net change – cash** | **$3,808,225** | **$766,511** | [Notes to Consolidated Financial Statements](index=12&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) Notes detail the company's AI-driven business, COVID-19 liquidity challenges, revenue concentration with Yahoo! and Google, and a subsequent stock offering - The company's business is centered on its proprietary AI technology, the IntentKey, which predicts consumer intent for marketing purposes. It is protected by **17 issued and eight pending patents**[28](index=28&type=chunk)[29](index=29&type=chunk)[31](index=31&type=chunk) - The company is facing liquidity pressure due to a **23.7% revenue decline** in the first six months of 2020. To address this, it raised capital through multiple stock sales in March, April, and June 2020, and obtained a **$1.1 million PPP loan**[38](index=38&type=chunk)[40](index=40&type=chunk)[43](index=43&type=chunk) Customer Revenue Concentration | Customer | Q2 2020 | Q2 2019 | | :--- | :--- | :--- | | Yahoo! | 36.7% | 69.7% | | Google | 25.0% | 11.3% | | **Total** | **61.7%** | **81.0%** | - The COVID-19 pandemic caused a significant reduction in marketing budgets from some clients, a decrease in traffic from supply partners, and lower monetization rates, leading to a significant reduction in the company's revenue run rate starting in late April 2020[51](index=51&type=chunk) Revenue by Platform (Six Months Ended June 30) | Platform | 2020 Revenue | 2020 % | 2019 Revenue | 2019 % | | :--- | :--- | :--- | :--- | :--- | | ValidClick | $18,726,715 | 83.1% | $26,265,946 | 89.0% | | IntentKey | $3,796,455 | 16.9% | $3,246,530 | 11.0% | | **Total** | **$22,523,170** | **100.0%** | **$29,512,476** | **100.0%** | - Subsequent to the quarter end, on July 27, 2020, the company closed an underwritten public offering of **21.5 million shares** at **$0.50 per share**, for gross proceeds of **$10.75 million**[113](index=113&type=chunk) - The company identified a potential compliance issue with a previous amendment to increase its authorized shares from **60 million to 100 million** and is seeking stockholder ratification to resolve any uncertainty[114](index=114&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=22&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations.) Management attributes the 46% Q2 2020 revenue decline to COVID-19, primarily impacting ValidClick, while IntentKey grew 16% in H1, and gross profit increased 5% due to cost reductions Q2 and H1 2020 vs 2019 Performance | Metric | Q2 2020 vs Q2 2019 Change | H1 2020 vs H1 2019 Change | | :--- | :--- | :--- | | Net Revenue | -46.0% | -23.7% | | Cost of Revenue | -81.1% | -63.5% | | Gross Profit | -22.1% | +5.0% | - The decline in revenue was most pronounced in the ValidClick business, while the higher-margin IntentKey business saw revenue remain flat in Q2 and grow **16%** in H1 2020 compared to the prior year[130](index=130&type=chunk) - Marketing costs (TAC) decreased **40.9%** in Q2 2020 due to lower revenue and renegotiated partner payments. SG&A costs were down **19.5%** in Q2, primarily due to the absence of legal fees related to the terminated merger from the previous year[131](index=131&type=chunk)[134](index=134&type=chunk) - The company's liquidity strategy involves focusing resources on growing the AI-powered IntentKey platform. Despite negative working capital of **$1.2 million** as of June 30, 2020, the company raised approximately **$5.7 million** from security sales in Q2 and an additional **$10.8 million** in July 2020[122](index=122&type=chunk)[138](index=138&type=chunk) - In response to COVID-19, the company curtailed expenses, implemented a work-from-home policy, and temporarily reduced compensation for senior officers and employees with salaries over **$100,000**[124](index=124&type=chunk)[140](index=140&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=26&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk.) This section is not applicable as the company qualifies as a smaller reporting company - The company has not provided this disclosure as it is not applicable to a smaller reporting company[149](index=149&type=chunk) [Controls and Procedures](index=26&type=section&id=Item%204.%20Controls%20and%20Procedures.) Management concluded disclosure controls were ineffective due to a material weakness in deferred tax asset accounting, with remedial actions underway - An error was identified in the accounting for the deferred tax asset valuation allowance, originating in 2012. While deemed not material to previously issued financial statements, it indicated a material weakness in internal controls[154](index=154&type=chunk) - As a result of the identified material weakness, the CEO and CFO concluded that disclosure controls and procedures were not effective as of the end of the reporting period[155](index=155&type=chunk) - The company has started to undertake remedial actions to ensure future tax provisions are accounted for correctly in accordance with ASC 740[155](index=155&type=chunk)[156](index=156&type=chunk) Part II [Legal Proceedings](index=28&type=section&id=Item%201.%20Legal%20Proceedings.) The company reported no legal proceedings during the period - There are no legal proceedings to report[159](index=159&type=chunk) [Risk Factors](index=28&type=section&id=Item%201A.%20Risk%20Factors.) Key risks include heavy reliance on Yahoo! and Google for revenue and the potential failure of stockholders to ratify an increase in authorized shares - The company relies heavily on two customers, Yahoo! and Google, which accounted for **36.7%** and **25.0%** of revenues, respectively, in Q2 2020. The loss of either customer would materially harm the business[161](index=161&type=chunk) - A potential defect in the 2019 amendment to increase authorized shares from **60 million to 100 million** requires stockholder ratification. Failure to obtain this ratification could invalidate past share issuances and limit future capital raising, posing a significant risk to liquidity[162](index=162&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=28&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds.) The company reported no unregistered sales of equity securities during the period - There were no unregistered sales of equity securities to report for the period[163](index=163&type=chunk) [Defaults upon Senior Securities](index=28&type=section&id=Item%203.%20Defaults%20upon%20Senior%20Securities.) The company reported no defaults upon senior securities - There were no defaults upon senior securities[164](index=164&type=chunk) [Mine Safety and Disclosures](index=29&type=section&id=Item%204.%20Mine%20Safety%20and%20Disclosures.) This section is not applicable to the company - This item is not applicable[166](index=166&type=chunk) [Other Information](index=29&type=section&id=Item%205.%20Other%20Information.) The company reported no other information - There is no other information to report[167](index=167&type=chunk) [Exhibits](index=30&type=section&id=Item%206.%20Exhibits.) This section lists exhibits filed with the quarterly report, including financing agreements, corporate governance documents, and certifications - Exhibits filed include agreements related to recent financing activities, corporate governance documents, and required SEC certifications[169](index=169&type=chunk)

Inuvo, Inc (NYSE:INUV) Q2 2020 Results Conference Call August 13, 2020 4:30 PM ET Company Participants Valter Pinto - Investor Relations Richard Howe - Chief Executive Officer Wallace Ruiz - Chief Financial Officer Conference Call Participants Brian Kinstlinger - Alliance Global Partners Ryan Meyers - Lake Street Capital Markets Operator Good day, and welcome to the Inuvo Inc 2020 Second Quarter Financial Results Conference Call. Today’s conference is being recorded. At this time, I would like to turn the c ...

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)