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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion of our financial condition and results of operations for 2021 and 2020 should be read in conjunction with the consolidated financial statements and the notes to those statements that are included elsewhere in this report. Our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including those set forth under Cautionary Statements Regarding Forward-Looking Information, Part I. Item 1. Business and Item 1A. Risk Factors. We use words such as "anticipate," "estimate," "plan," "project," "continuing," "ongoing," "expect," "believe," "intend," "may," "will," "should," "could," and similar expressions to identify forward-looking statements.

Company Overview

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

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

Inuvo technology can be consumed both as a managed service and software-as-a-service. For clients, Inuvo has also developed a collection of propriety websites collectively branded as Bonfire Publishing where content is created specifically to attract qualified consumer traffic for clients through the publication of information across a wide range of topics including health, finance, travel, careers, auto, education and lifestyle. These sites also provide the means to market test various Inuvo advertising technologies.

There are many barriers to entry associated with the Inuvo business model, including a proficiency in large scale information processing, predictive software development, marketing data products, analytics, artificial intelligence, integration to the internet of things ("IOT"), and the relationships required to execute within the IOT. Inuvo’s intellectual property is protected by 17 issued and eight pending patents.

Hitachi Credit Agreement

On March 12, 2020, we closed on the Loan and Security Agreement dated February 28, 2020 with Hitachi. Under the terms of

the Loan and Security Agreement, Hitachi has provided us with a $5,000,000 line of credit commitment. We are permitted to

borrow (i) 90% of the aggregate Eligible Accounts Receivable, plus (ii) the lesser of (A) 75% of the aggregate Unbilled

Accounts Receivable or (B) 50% of the amount available to borrow under (i), up to the maximum credit commitment. The

interest rate under the Hitachi agreement is 2% in excess of the Wall Street Journal Prime Rate, with a minimum rate of 6.75%

per annum, on outstanding amounts. The principal and all accrued but unpaid interest are due on demand. In the event of a default under the terms of the Loan and Security Agreement, the interest rate increases to 6% greater than the interest rate in effect from time to time prior to a default. The Loan and Security Agreement contains certain affirmative and negative covenants to which we are also subject.

We agreed to pay Hitachi a commitment fee of $50,000, with one half due upon the execution of the agreement and the balance

due six months thereafter. We are obligated to pay Hitachi a commitment fee of $15,000 annually. We are also obligated to

pay Hitachi a quarterly service fee of 0.30% on the monthly unused amount of the maximum credit line. In addition to a $2,000

document fee we have paid to Hitachi, if we exited our relationship with Hitachi before March 1, 2022, we are obligated to pay

Hitachi an exit fee of $50,000. On March 12, 2020, we drew $5,000,000 under this agreement, using $2,959,573 of these

proceeds to satisfy all of our obligations under a credit agreement with Western Alliance Bank. The balance was used for working capital and was repaid in 2020. At December 31, 2021 and 2020, there were no outstanding balances due under the Loan and Security Agreement with Hitachi.

2021 Overview

We had an extraordinary year in 2021 despite recurring pandemic induced disruptions occurring across supply chains and labor markets. Year-over-year (YOY) revenue was up 34% closing out the fourth quarter of the year at $19.7 million, an increase of 53% YOY and 17% quarter-over-sequential quarter. Both the ValidClick and IntentKey platforms had strong YOY revenue gains; ValidClick by 22% and the IntentKey by 75%. For the first time in 2021, our strategy of bringing together the capabilities of both platforms to serve joint clients was realized. Gross margins declined slightly in 2021 compared to 2020. We reported gross margins of 73.4% in 2021 compared to 81.4% in 2020, primarily due to change in revenue mix.

The ValidClick and IntentKey platforms provide a similar service to clients, where ultimately their purpose is the delivery of high converting consumers to maximize return on advertising spend. The distinction between the platforms is mostly related to the channels each platform serves, social and search for ValidClick and programmatic for the IntentKey. As the number of joint clients grows, the need to distinguish between the platforms diminishes.

Impact of COVID-19 Pandemic

First identified in late 2019 and known now as COVID-19, the outbreak has impacted millions of individuals and businesses

worldwide. In response, many countries have implemented measures to combat the outbreak which has had an unprecedented

economic consequence. We did not experience an impact from COVID-19 through the end of fiscal year 2019 and had only

minor impact from COVID-19 in the first quarter of 2020. Because we operate in the digital advertising industry, unlike a brick

and mortar-based company, predicting the impact of the coronavirus pandemic on our company is difficult. Beginning in late

April 2020, we experienced a significant reduction in marketing budgets and a decrease in monetization rates which impacted

ValidClick more severely than IntentKey. This resulted in a significant reduction in our overall revenue run rates during 2020

with the low point occurring during May 2020.

In response to COVID-19, we curtailed expenses, including compensation and travel throughout 2020 in addition to other

actions. Additionally, in April 2020, we obtained the $1.1 million PPP Loan which we used primarily for payroll costs. The

PPP Loan was fully forgiven by the SBA on November 2, 2020.

Beginning mid-June 2020, we began to experience an improvement in overall daily revenue. Due to the unprecedented

sustainability of COVID-19 on our business, we were unable to predict with any certainty how our clients would adapt their

business strategies within the context of COVID-19 and therefore how our revenue run rate would change as a result. We,

therefore, focused our resources on areas we believed could have more immediate revenue potential, attempting to reduce

expenses and raising additional capital so as to mitigate operating disruptions while the impact of COVID-19 abates. Since the

start of 2021 with the roll out of vaccinations, we have seen an increase in our client’s willingness to spend on advertising and thereby an improvement in our revenue run rates.

Results of Operations

For the Years Ended December 31,

Net Revenue

We experienced 34% higher year over year revenue for the year ended December 31, 2021 as compared to the same period in 2020. Revenue from both platforms, ValidClick and IntentKey, exceeded the prior year. ValidClick YOY revenue was up by 22% and IntentKey YOY revenue by 75%. Both platforms acquired new customers within the year, benefiting from the agreement with a business development partner discussed in Note 11 to our Consolidated Financial Statements and because of the economic improvements associated with the COVID-19 pandemic recovery. Revenue in 2020 was affected by the COVID-19 pandemic which had a material impact on advertising budgets beginning in April of 2020. The renegotiation of payment terms and conditions as a trade-off for higher gross margins with ValidClick marketing clients in the quarter ended June 30, 2020 also contributed to the lower revenue in 2020.

Cost of Revenue

Cost of revenue for the year ended December 31, 2021 was primarily generated by payments to advertising exchanges that provide access to a supply of advertising inventory where we serve advertisements using information predicted by the IntentKey platform and, to a lesser extent, payments to website publishers and app developers that host advertisements we serve through ValidClick. Cost of revenue for the year ended December 31, 2020 time periods was primarily generated by payments to website publishers and app developers that host advertisements we serve through ValidClick. The components of the cost of revenue have shifted, as the IntentKey platform revenue becomes a greater percentage of net revenue and as the ValidClick service has continued to expand its owned and operated publishing assets. The increase in the cost of revenue was largely due to the acquisition of new customers as mentioned in the Net Revenue section above and the renegotiation of payment terms and conditions with a ValidClick marketing partner in the quarter ended June 30, 2020.

Operating Expenses

For the Year Ended December 31,

Marketing costs consists mostly of traffic acquisition costs (“TAC”) and includes those expenses required to attract an audience to the ValidClick platform. The increase in marketing costs was largely due to higher TAC that resulted in the increase in ValidClick revenue discussed above in the Net Revenue section.

Compensation expense was higher for the year ended December 31, 2021 compared to the same time period in 2020 due primarily to higher stock-based compensation expense and to a lesser extent to salaries, benefits, commissions and incentive pay. Our total employment, both full and part-time, was 78 at December 31, 2021 compared to 75 at December 31, 2020.

Selling, general and administrative costs were lower for the year ended December 31, 2021 compared to the same time period in 2020 primarily due to lower IT costs and lower depreciation and amortization costs. In addition, professional fees were lower in 2021 than the prior year.

Interest Expense, net

Interest expense, net, was approximately $87 thousand for the year ended December 31, 2021 and was primarily composed of interest expense on finance lease obligations, the Hitachi Loan and Security Agreement and our marketable securities.

For the year ended December 31, 2020, interest expense, net, was approximately $254 thousand and composed of interest expense on financed receivables, finance lease obligations and the PPP loan.

Other income, net

Other income, net, was approximately $257 thousand for the year ended December 31, 2021 and included the reversal of deferred revenue from the contract cancellation discussed in Note 11 to our Consolidated Financial Statements of

approximately $415 thousand and reversal of an accrued sales reserve of $50 thousand, partially offset by the unrealized losses on trading securities discussed in Note 3 to our Consolidated Financial Statements.

For the year ended December 31, 2020, other income, net, was $997 thousand and was primarily due to the $1.1 million PPP loan being fully forgiven on November 2, 2020. The PPP loan helped fund compensation expenses. Partially offsetting the PPP loan was a $103 thousand other expense due to the change of the fair market value of the derivative liability associated with convertible promissory notes that were extinguished by May 2020.

Liquidity and Capital Resources

As of December 31, 2021, we have approximately $13.3 million in cash, cash equivalents and marketable securities. Our net working capital was $12.4 million. We have encountered recurring losses and cash outflows from operations, which historically we have funded through equity offerings and debt facilities. In addition, our investment in internally developed software consists primarily of labor costs which are of a fixed nature. Through December 31, 2021, our accumulated deficit was $144.0 million.

Our principal sources of liquidity are the sale of our common stock and our credit facility with Hitachi described in Note 7 to

our Consolidated Financial Statements. During March 2020 and April 2020, we raised approximately $1.5 million in gross

proceeds, before expenses, through sales of our common stock and in April 2020 we received a $1.1 million PPP Loan. On June

8, 2020, we raised an additional $5.5 million in gross proceeds, before expenses, through the sale of our common stock and on

July 27, 2020, we raised an additional $10.75 million in gross proceeds, before expenses, through sales of our common stock.

On January 19, 2021, we raised an additional $8 million in gross proceeds, before expenses, through the sale of our common

stock, and on January 22, 2021, we raised an additional $6.25 million in gross proceeds, before expenses, through sales of our

common stock.

In March 2021, we contracted with an investment management company to manage our cash in excess of current operating

needs. We placed $2 million in cash equivalent accounts and $10 million in an interest-bearing account. At December 31, 2021,

our funds with the investment management company were approximately $8 million and were invested in cash equivalent accounts and marketable debt and equity securities. A detail of the activity is described in Note 3 to our Consolidated Financial Statements.

On May 28, 2021, we entered into a Sales Agreement (the "Sales Agreement") with A.G.P./Alliance Global Partners, as sales agent (the "Sales Agent"), pursuant to which we may offer and sell through or to the Sales Agent shares of our common stock (the "ATM Program") up to an aggregate amount of gross proceeds of $35,000,000. During the year ended December 31, 2021, we did not issue any shares of common stock or receive any aggregate proceeds from the ATM Program, and we did not pay any commissions to the Sales Agent. Any shares of common stock offered and sold in the ATM Program will be issued pursuant to our universal shelf registration statement on Form S-3 (the “Shelf Registration Statement”). The ATM Program will terminate upon (a) the election of the Sales Agent upon the occurrence of certain adverse events, (b) 10 days’ advance notice from one party to the other, or (c) the sale of the balance available under our Shelf Registration Statement. Under the terms of the Sales Agreement, the Sales Agent is entitled to a commission at a fixed rate of 3.0% of the gross proceeds from each sale of shares under the Sales Agreement.

We have focused our resources behind a plan to grow our AI technology, the IntentKey, where we have a technological advantage and higher margins. If we are successful in implementing our plan, we expect to return to a positive cash flow from operations. However, there is no assurance that we will be able to achieve this objective.

We believe our current cash position and credit facility will be sufficient to sustain operations for at least the next twelve

months from the date of this filing. If our plan to grow the IntentKey product is unsuccessful, we may need to fund operations through private or public sales of securities, debt financings or partnering/licensing transactions over the long term.

In April 2020, the Company experienced a significant reduction in advertiser marketing budgets across both the ValidClick and

IntentKey platforms as a direct consequence of COVID-19. These reductions adversely impacted our overall revenue

throughout 2020. As a result, in May 2020 and June 2020 we implemented a temporary compensation change for senior

officers and employees. Certain employees with salaries in excess of $100,000 per year had forgone a percentage of the cash portion of their salary and instead received an equivalent restricted stock grant. We curtailed expenses, including compensation and travel and issued a work from home policy to protect our employees and their families from virus transmission associated with co-workers. Though we continue to monitor the pandemic and related government guidelines and regulations, we have returned to a hybrid working model where employees are working partially from the office and partially from home.

Cash Flows

The table below sets forth a summary of our cash flows for the years ended 2021 and 2020:

Cash Flows - Operating

Net cash used in operating activities was $5,276,257 during 2021. We reported a net loss of $7,600,649, which included non-cash expenses; depreciation and amortization of $3,143,168, amortization of right of use assets $322,746 and stock-based compensation of $2,179,254; partially offset by the $1.4 million referral agreement and the reversal of $420,000 in deferred revenue discussed in Note 11 to our Consolidated Financial Statements. The change in operating assets and liabilities was a net use of cash of $3,077,525 primarily due to an increase in accrued liabilities of $1,264,687 and the accounts payable balance by $796,456, offset by an increase in the accounts receivable balance by $3,045,690. Our terms are such that we generally collect receivables prior to paying trade payables. Our Media sales arrangements typically have slower payment terms than the terms of related payables.

During 2020, cash used in operating activities was $5,599,335. We reported a net loss of $7,304,569 which included the non-cash expenses of depreciation and amortization of $3,237,930, amortization of right of use assets $367,981 and stock-based compensation expenses of $858,683. The change in operating assets and liabilities was a net use of cash of $656,529.

Cash Flows - Investing

Net cash used in investing activities was $4,597,885 and $1,185,335 for 2021 and 2020, respectively. Cash used in investing activities in 2021 consisted of capitalized internal development costs and purchase of marketable securities. Cash used in investing activities in 2020 consisted of capitalized internal development costs.

Cash Flows - Financing

Net cash provided by financing activities was $12,459,441 and $14,302,346 during 2021 and 2020, respectively, primarily from proceeds from the sale of common stock.

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of revenue and expenses during the reported periods.The following disclosure supplements the descriptions of our accounting policies, which are described in Note 2 to our Consolidated Financial Statements regarding significant areas of judgement. The estimates and assumptions that management makes affect the reported amounts of assets, liabilities, net revenues and expenses and disclosure of contingent assets and liabilities. The estimates and assumptions used are based upon management’s regular evaluation of the relevant facts and circumstances as of the date of the consolidated financial statements. Actual results may differ from the estimates and assumptions used in preparing the accompanying consolidated financial statements, and such differences could be material. A discussion of some of our more significant accounting policies and estimates follows.

Revenue recognition - Both of our platforms generate revenue from ad placements and clicks on advertisements on websites, some of which we own. We recognize revenue from ad placements and clicks in the period in which they occur. We also recognize revenue from serving impressions when we complete all or a part of an order from an advertiser. The revenue is recognized in the period that the impression is served. Revenues are recognized net of adjustments based on the traffic generated and is billed monthly. We subsequently settle these transactions with our business partners at which time adjustments for invalid traffic may impact the amount collected. Payments to publishers who display advertisements on our behalf and payments to ad exchanges are recognized as cost of revenue. There have been no material changes to our estimates of revenue for the periods presented within this Annual Report on Form 10-K.

Accounts receivable - Accounts receivable consists of trade receivables from customers. We record accounts receivable at its net realizable value, recognizing an allowance for doubtful accounts based on our best estimate of probable credit losses on our existing accounts receivable. Balances are written off against the allowance after all means of collection have been exhausted and the possibility of recovery is considered remote.

Goodwill - Goodwill is recorded as the difference, if any, between the aggregate consideration paid for an acquisition and the fair value of the net tangible and intangible assets acquired. We perform an impairment test annually as of December 31, 2021. As a result, we perform our annual goodwill impairment test by comparing the fair value of our reporting unit with its carrying amount. We generally determine the fair value of our reporting unit using the income approach methodology of valuation that includes the undiscounted cash flow method as well as other generally accepted valuation methodologies. If the carrying amount of a reporting unit exceeds the reporting unit’s fair value, the amount it exceeds fair value is equivalent to the amount of impairment loss.

Intangible Assets - We allocate a portion of the purchase price of acquisitions to identifiable intangible assets and we amortize definite-lived assets over their estimated useful lives. We consider our indefinite-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Trade names are not amortized as they are believed to have an indefinite life. Trade names are reviewed annually for impairment under ASC 350. We also acquire intangible assets outside of acquisitions and record them at their fair value and amortize them over their estimated useful lives. We recorded no impairment of intangible assets during 2021 or 2020.

Capitalized Software Costs - We capitalize certain costs related to internally developed software and amortize these costs using the straight-line method over the estimated useful life of the software, generally two years. We do not sell internally developed software. Certain development costs not meeting the criteria for capitalization, in accordance with ASC 350-40 Internal-Use Software, are expensed as incurred.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not applicable to a smaller reporting company.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

Our Consolidated Financial Statements begin on page F-1 at the end of this annual report.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

None.

ITEM 9A. CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures

We maintain “disclosure controls and procedures” as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934. Disclosure controls and procedures are controls and procedures designed to reasonably assure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, such as this report, is recorded, processed, summarized and reported within the time periods prescribed by SEC rules and regulations, and to reasonably assure that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

Our management does not expect that our disclosure controls will prevent all errors and fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. In addition, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the control. The design of any systems of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any

design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of these inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

As required by Rule 13a-15 under the Securities Exchange Act of 1934, as of December 31, 2021, the end of the period covered by this report, our management concluded their evaluation of the effectiveness of the design and operation of our disclosure controls and procedures. As of the evaluation date, our Chief Executive Officer and Chief Financial Officer concluded that we maintain disclosure controls and procedures that are effective in providing reasonable assurance that information required to be disclosed in our reports under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods prescribed by SEC rules and regulations, and that such information is accumulated and communicated to our management to allow timely decisions regarding required disclosure.

Management’s Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Securities Exchange Act of 1934 Rule 13a-15(f). Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our internal control over financial reporting includes those policies and procedures that:

•pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets;

•provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and

•provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.

Because of the inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2021. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the 2013 Treadway Commission (“COSO”) in Internal Control-Integrated Framework. Based upon this assessment, our Chief Executive Officer and Chief Financial Officer concluded that as of December 31, 2021 our internal controls over financial reporting were effective.

Changes in Internal Control over Financial Reporting

There were no changes in our internal controls over financial reporting that occurred during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

ITEM 9B. OTHER INFORMATION.

None

ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS.

N/A

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.

The information required by this Item will be contained in our proxy statement for our 2022 Annual Meeting of Shareholders to be filed on or prior to April 30, 2022 (the “Proxy Statement”) and is incorporated herein by this reference.

ITEM 11. EXECUTIVE COMPENSATION.

The information required by this item will be contained in our Proxy Statement and is incorporated herein by this reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.

The information required by this item will be contained in our Proxy Statement and is incorporated herein by this reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.

The information required by this item will be contained in our Proxy Statement and is incorporated herein by this reference.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

The information required by this item will be contained in our Proxy Statement and is incorporated herein by this reference.

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.

1. Financial Statements

The consolidated financial statements and Report of Independent Registered Accounting Firm are listed in the “Index to Financial Statements and Schedules” beginning on page F-1 and included on pages F-2 through F-22.

2. Financial Statement Schedules

All schedules for which provision is made in the applicable accounting regulations of the SEC are either not required under the related instructions, are not applicable (and therefore have been omitted), or the required disclosures are contained in the consolidated financial statements herein.

3. Exhibits (including those incorporated by reference).

*** Portions of this exhibit have been omitted pursuant to a request for confidential treatment filed with the Commission under Rule 24b-2. The omitted material has been filed separately with the Commission. Certain portions of this exhibit have also been redacted pursuant to Item 601(b)(10)(iv) of Regulation S-K. The omitted information is (i) not material and (ii) would likely cause competitive harm to Inuvo if publicly disclosed. The location of the omitted confidential information is indicated in the exhibit with asterisks (***).

No. Exhibit Description Form Date Filed Number Filed or Furnished Herewith

3(i).1 Articles of Incorporation, as amended 10-KSB 3/1/04 4

3(ii).1 Amended and Restated By-Laws 10-K 3/31/10 3(ii).4

10.26 Form of Insider Offering Subscription Agreement 8-K 3/20/20 10.1

23.1 Consent of EisnerAmper LLP, PCAOB FIRM ID 274 Filed

23.2 Consent of Mayer Hoffman McCann P.C., PCAOB FIRM ID 199 Filed

31.1 Rule 13a-14(a)/15d-14(a) certification of Chief Executive Officer Filed

32.1 Section 1350 certification of Chief Executive Officer Filed

32.2 Section 1350 certification of Chief Financial Officer Filed

101.INS XBRL Instance Document Filed

101.SCH XBRL Taxonomy Extension Schema Document Filed

101.CAL XBRL Taxonomy Extension Calculation Linkbase Document Filed

101.DEF XBRL Taxonomy Extension Definition Linkbase Document Filed

101.LAB XBRL Taxonomy Extension Label Linkbase Document Filed

101.PRE XBRL Taxonomy Extension Presentation Linkbase Document Filed

Item 16. Form 10-K Summary

The Company has elected not to provide this optional information.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Inuvo, Inc.

March 17, 2022 By: /s/ Wallace D. Ruiz

Wallace D. Ruiz, Chief Financial Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature Title Date

Richard K. Howe

Wallace D. Ruiz

/s/ G. Kent Burnett Director March 17, 2022

G. Kent Burnett

/s/ Gordon J. Cameron Director March 17, 2022

Gordon J. Cameron

/s/ Charles D. Morgan Director March 17, 2022

Charles D. Morgan

INUVO, INC.

CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020

INDEX TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS

CONTENTS

Report of Independent Registered Public Accounting Firm 1

Consolidated Financial Statements:

Consolidated Balance Sheets 4

Consolidated Statements of Operations and Comprehensive Loss 6

Consolidated Statements of Stockholders’ Equity 7

Consolidated Statements of Cash Flows 8

Notes to Consolidated Financial Statements 9

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of Inuvo, Inc.:

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheet of Inuvo, Inc. (the “Company”) as of December 31, 2021, and the related consolidated statements of operations, stockholders’ equity, and cash flows for the year then ended, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Capitalized software development costs

As described in Note 2 to financial statements, the Company capitalizes certain labor costs related to internally developed software. Management determines the amount of internal software costs to be capitalized based on the amount of time spent by developers on projects in the application stage of development. There is judgment involved in estimating time allocated to a particular project in the application stage.The gross balance of capitalized software development costs was $12.9 million as of December 31, 2021. Related accumulated amortization and the net carrying amount of capitalized software was approximately $11.5 million and $1.4 million, respectively, as of December 31, 2021.

We identified the estimate of time and related costs eligible for capitalization as capitalized software development costs as a critical audit matter due the significant judgment by management when determining the amount of time to capitalize for projects. This in turn led to a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating audit evidence related to management’s determination of capitalized costs and management’s judgment related to the amount of time incurred by developers on projects in the application stage.

F-1

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included gaining an understanding of the controls relating to capitalized software development costs,testing management’s process for determining the time and related costs eligible for capitalization in the current year, evaluating whether the time and related costs were eligible for capitalization, testing the completeness and accuracy of underlying data used in management’s estimate of eligible time and related costs, and evaluating the reasonableness of significant assumptions used by management in estimating eligible time and related costs. Evaluating management’s assumptions related to eligible software development time for capitalization involved performing inquiries with management and with a sample of individual software developers regarding the nature, timing and extent of time worked on development activities.

/s/ EisnerAmper, LLP

We have served as the Company’s auditor since 2021.

March 17, 2022

Iselin, NJ

Report of Independent Registered Public Accounting Firm

To the Board of Directors and

Stockholders of Inuvo, Inc.:

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheet of Inuvo, Inc. (the “Company”) as of December 31, 2020, and the related consolidated statements of operations, stockholders’ equity, and cash flows for the year ended December 31, 2020, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020, and the results of its operations and its cash flows for the year ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.

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Critical Audit Matters

Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (i) relate to accounts or disclosures that are material to the financial statements and (ii) involved our especially challenging, subjective, or complex judgements. We determined that there are no critical audit matters.

We have served as the Company’s auditors since 2009.

/s/ Mayer Hoffman McCann P.C.

February 11, 2021

Clearwater, Florida

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Inuvo, Inc.

Consolidated Balance Sheets

For the Years Ended December 31,

Assets

Current assets

Marketable securities - short term 1,927,979 —

Other assets

Referral and support services agreement advance 1,100,000 —

Marketable securities - long term 859,512 —

Liabilities and Stockholders’ Equity

Current liabilities

Long-term liabilities

Stockholders’ equity

Preferred stock, $0.001 par value:

Authorized shares - 500,000 - none issued and outstanding — —

Common stock, $0.001 par value:

Accumulated other comprehensive income 53,737 —

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See accompanying report of independent registered public accounting firm and notes to the consolidated financial statements.

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Inuvo, Inc.

Consolidated Statements of Operations and Comprehensive Loss

For the Years Ended December 31,

Operating expenses:

Other comprehensive income

Unrealized gain on marketable securities 53,737 —

Per common share data:

Basic and diluted

Weighted average shares:

See accompanying report of independent registered public accounting firm and notes to the consolidated financial statements.

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Inuvo, Inc.

Consolidated Statements of Stockholders' Equity

For the Years Ended December 31, 2021 and 2020

Shares Stock

Stock issued for vested restricted stock awards 1,020,882 1,020 (1,020) — — — —

Shares withheld for taxes on vested restricted stock — — (74,550) — — — (74,550)

Unrealized gain on debt securities — — — — — 53,737 53,737

Stock issued for vested restricted stock awards 1,696,467 1,696 (1,696) — — — —

Proceeds from exercise of options — — 1,569 — — — 1,569

Stock warrants issued for referral agreement — — 19,519 — — — 19,519

See accompanying report of independent registered public accounting firm and notes to the consolidated financial statements.

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Inuvo, Inc.

Consolidated Statements of Cash Flows

For the Years Ended December 31, 2021 and 2020

Operating activities:

Adjustments to reconcile net loss to net cash used in operating activities:

Loss on marketable securities 266,762 —

Third party rights agreement termination (420,000) —

Derecognition of contingencies (110,000) —

Loss on extinguishment of convertible debt — 65,700

Mark to market fair value of derivative — 102,664

Amortization of OID interest expense — 13,167

Amortization of debt discount — 18,286

Third party rights agreement — (78,762)

Change in operating assets and liabilities:

Referral and support services agreement advance (1,100,000) —

Prepaid expenses, unbilled revenue and other assets (992,978) (175,702)

Investing activities:

Purchases of equipment and capitalized development costs (1,597,369) (1,185,335)

Purchase of marketable securities (3,143,000) —

Proceeds from the sale of marketable securities 142,484 —

Financing activities:

Proceeds from PPP and SBA loans — 1,258,900

Proceeds from ValidClick licensing agreement — 500,000

Payments net of proceeds on revolving line of credit — (3,381,364)

Net taxes paid on RSU grants exercised (272,049) (74,550)

Proceeds from exercise of options 1,569 —

Supplemental information:

Non-cash investing and financing activities:

Assets purchased under finance lease obligations $ 125,825 $ 547,303

Assets purchased under operating lease obligations $ 344,311 $ 249,595

See accompanying report of independent registered public accounting firm and notes to the consolidated financial statements.

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Inuvo, Inc.

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2021 and 2020

Note 1 – Organization and Business

Company Overview

Liquidity

Our principal sources of liquidity are the sale of our common stock and our credit facility with Hitachi described in Note 7 to

our Consolidated Financial Statements. During March 2020 and April 2020, we raised approximately $1.5 million in gross

proceeds, before expenses, through sales of our common stock and in April 2020 we received a $1.1 million PPP Loan. On June

8, 2020, we raised an additional $5.5 million in gross proceeds, before expenses, through the sale of our common stock and on

July 27, 2020, we raised an additional $10.75 million in gross proceeds, before expenses, through sales of our common stock.

On January 19, 2021, we raised an additional $8 million in gross proceeds, before expenses, through the sale of our common

stock, and on January 22, 2021, we raised an additional $6.25 million in gross proceeds, before expenses, through sales of our

common stock.

In March 2021, we contracted with an investment management company to manage our cash in excess of current operating

needs. We placed $2 million in cash equivalent accounts and $10 million in an interest-bearing account. At December 31, 2021,

On May 28, 2021, we entered into a Sales Agreement (the “Sales Agreement”) with A.G.P./Alliance Global Partners, as sales agent (the “Sales Agent”), pursuant to which we may offer and sell through or to the Sales Agent shares of our common stock (the “ATM Program”) up to an aggregate amount of gross proceeds of $35,000,000. During the year ended December 31, 2021, we did not issue any shares of common stock or receive any aggregate proceeds under the ATM Program, and we did not pay any commissions to the Sales Agent. Any shares of common stock offered and sold in the ATM Program will be issued

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pursuant to our universal shelf registration statement on Form S-3 (the “Shelf Registration Statement”). The ATM Program will terminate upon (a) the election of the Sales Agent upon the occurrence of certain adverse events, (b) 10 days’ advance notice from one party to the other, or (c) the sale of the balance available under our Shelf Registration Statement. Under the terms of the Sales Agreement, the Sales Agent is entitled to a commission at a fixed rate of 3.0% of the gross proceeds from each sale of shares under the Sales Agreement.

We have focused our resources behind a plan to grow our AI technology, the IntentKey, where we have a technology advantage

and higher margins. If we are successful in implementing our plan, we expect to return to a positive cash flow from operations.

However, there is no assurance that we will be able to achieve this objective.

We believe our current cash position and credit facility will be sufficient to sustain operations for at least the next twelve

COVID-19

In April 2020, the Company experienced a significant reduction in advertiser marketing budgets across both the ValidClick and

IntentKey platforms as a direct consequence of COVID-19. These reductions adversely impacted our overall revenue

throughout 2020. As a result, in May 2020 and June 2020 we implemented a temporary compensation change for senior

Note 2 – Summary of Significant Accounting Policies

Basis of presentation - The consolidated financial statements include our accounts and those of our wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.

Cash and cash equivalents - Cash and cash equivalents consist of highly liquid investments with original maturities of three months or less.

Investments - We have classified debt securities as available for sale securities with unrealized gains and losses recorded as other comprehensive income. Equity securities are marked to market with changes recorded as other income on the income statement. Any interest income or dividends are recorded as interest income on the income statement.

Revenue recognition - Both of our platforms generate revenue from ad placements and clicks on advertisements on websites, some of which we own. We recognize revenue from ad placements and clicks in the period in which they occur. We also recognize revenue from serving impressions when we complete all or a part of an order from an advertiser. The revenue is recognized in the period that the impression is served. The Company subsequently settles these transactions with it business partners at which time adjustments for invalid traffic may impact the amount collected. Payments to publishers who display advertisements on our behalf and payments to ad exchanges are recognized as cost of revenue.

The below table shows the revenue and the proportion of revenue that is generated through advertisements on our ValidClick and IntentKey platforms:

For the Years Ended December 31,

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Marketing costs - Marketing costs are predominately traffic acquisition costs and include those expenses required to attract an audience to our owned and operated applications and websites. We expense these costs as incurred and present them as a separate line item in operating expenses in the consolidated statements of operations.

Property and equipment - Property and equipment are stated at cost, net of accumulated depreciation and amortization. Major renewals and improvements are capitalized while maintenance and repairs which do not improve or extend the life of the respective assets are expensed as incurred. Costs of assets sold or retired and the related accumulated depreciation are eliminated from accounts and the net gain or loss is reflected as an operating expense in the consolidated statements of operations.

Property and equipment are depreciated on a straight-line basis over three years for equipment, five to seven years for furniture and fixtures and two to three years for software. Leasehold improvements are amortized over the lesser of the estimated useful life of the asset or the remaining term of the lease. Depreciation expense was $1,277,664 and $1,372,426, respectively, for the years ended December 31, 2021 and 2020.

Capitalized Software Costs - We capitalize certain labor costs related to internally developed software and amortize these costs using the straight-line method over the estimated useful life of the software, generally two years. We do not sell internally developed software. Certain development costs not meeting the criteria for capitalization, in accordance with ASC 350-40 Internal-Use Software, are expensed as incurred.

We generally determine the fair value of our reporting unit using the income approach methodology of valuation that includes the undiscounted cash flow method as well as other generally accepted valuation methodologies. If the carrying amount of a reporting unit exceeds the reporting unit’s fair value, the amount it exceeds fair value is equivalent to the amount of impairment loss.

We determined there was no impairment of goodwill during 2021 and 2020.

See Note 6, Intangible Assets and Goodwill, for more information.

We recorded no impairment of intangible assets during 2021 or 2020.

See Note 6, Intangible Assets and Goodwill, for more information.

Income taxes - We utilize the liability method of accounting for income taxes as set forth in ASC 740, Income Taxes (“ASC 740”). Under the liability method, deferred taxes are determined based on the temporary differences between the financial statement and tax bases of assets and liabilities. A valuation allowance is recorded when it is more likely than not that some of the deferred tax assets will not be realized. In assessing the need for a valuation allowance, we must project future levels of taxable income. We examine evidence related to the history of taxable losses or income, the economic conditions in which we operate, organizational characteristics, our forecasts and projections, as well as factors affecting liquidity. All our deferred tax assets and liabilities are recorded as long-term assets and liabilities in the consolidated balance sheets. We believe it is more likely than not that essentially none of our deferred tax assets will be realized, and we have recorded a valuation for a significant portion of the net deferred tax assets as of December 31, 2021 and 2020.

We have adopted certain provisions of ASC 740. This statement clarifies the criteria that an individual tax position must satisfy for some or all of the benefits of that position to be recognized in a company’s financial statements. ASC 740 prescribes a recognition threshold of more likely than not, and a measurement attribute for all tax positions taken or expected to be taken on a tax return, in order to be recognized in the financial statements.

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We recognize interest and penalties related to income taxes in income tax expense. We have incurred no penalties and interest for the years ended December 31, 2021 and 2020

Impairment of long-lived assets - In accordance with ASC 360, Property, Plant and Equipment, long-lived assets, such as property and equipment, and purchased intangibles subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of the asset is measured by comparison of the carrying amount to future undiscounted cash flows the asset is expected to generate. If such assets are considered to be impaired, the impairment to be recognized is measured as the amount by which the carrying amount of the asset exceeds the fair value.

Stock-based compensation - We recognize stock compensation based on the recognition provisions ASC 718, Compensation – Stock Compensation, which establishes accounting for stock-based awards exchanged for employee and non-employee services and requires companies to expense the estimated grant date fair value of stock awards over the requisite employee service period.

The fair value of restricted stock awards is based on the market price of our common stock on the date of the grant. To value stock option awards, we use the Black-Scholes-Merton option pricing model. This model involves assumptions including the expected life of the option, stock price volatility, risk-free interest rate, dividend yield and exercise price. We recognize compensation expense in earnings over the requisite service period, applying a forfeiture rate to account for expected forfeitures of awards.

See Note 13, Stock-Based Compensation, for further details on our stock awards.

Government Grant- During the first quarter of 2013, we received a grant from the state of Arkansas to relocate our corporate headquarters to Conway, AR. We recognized the grant funds into income as a reduction of the related expense in the period in which those expenses were recognized. We deferred grant funds related to capitalized costs and classified them as current or long-term liabilities on the balance sheet according to the classification of the associated asset.

As of December 31, 2021, there were 41 employees in Arkansas, two employees under the required 43. As such, we recorded a contingent liability $10,000.

As of December 31, 2020, there were 38 employees in Arkansas, twelve employees under the required 50. As such, we recorded a contingent liability $60,000.

Treasury Stock - The cost method was used in recording the purchase of the treasury stock. Treasury stock changes as a result of common stock we acquire in the market. On July 14, 2020, our Board of Directors authorized the cancellation of 376,527 shares of treasury stock.

Earnings per share - During the periods presented, we had securities that could potentially dilute basic earnings per share in the future, but were excluded from the computation of diluted net loss per share, as their effect would have been anti-dilutive. We reported a net loss for 2021 and 2020 and therefore, shares associated with stock options, restricted stock and convertible debt are not included because they are anti-dilutive. Basic and diluted net loss per share is the same for all periods presented.

Operating segments -In accordance with ASC 280- Segment reporting, segment information reported is built on the basis of internal management data used for performance analysis of businesses and for the allocation of resources. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision making group, in deciding how to allocate resources and in assessing performance. Our chief operating decision maker, our chief executive officer, reviews financial information presented on a consolidated basis and no expense or operating income is evaluated at a segment level. Given the consolidated level of review by the our chief executive officer, we operate as one reportable segment.

Concentration of credit risk - We are exposed to concentrations of risk primarily in cash and accounts receivable, which are generally not collateralized. Our policy is to place our cash with high credit, quality financial institutions in order to limit the amount of credit exposure. Our cash deposits exceed FDIC limits. We do not require collateral from our customers, but our credit extension and collection policies include monitoring payments and aggressively pursuing delinquent accounts. We maintain allowances for potential credit losses.

Customer concentrations - At December 31, 2021, we had three individual customers with revenue concentration greater than 10% of the our total revenue. These customers combined accounted for 62.9% of our total revenue as of December 31, 2021.

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In 2020, we had two individual customers with revenue concentration greater than 10% of our total revenue. These customers combined accounted for 60.5% of our revenue for the year ended and December 31, 2020.

Use of estimates - The preparation of financial statements, in accordance with accounting principles generally accepted in the United States ("U.S. GAAP"), requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, net revenues and expenses and disclosure of contingent assets and liabilities. The estimates and assumptions used in the accompanying consolidated financial statements are based upon management’s regular evaluation of the relevant facts and circumstances as of the date of the consolidated financial statements. We regularly evaluate estimates and assumptions related to goodwill and purchased intangible asset valuations and income tax valuation allowance. Actual results may differ from the estimates and assumptions used in preparing the accompanying consolidated financial statements, and such differences could be material.

Litigation and settlement costs - From time to time, we are involved in disputes, litigation and other legal actions. In accordance with ASC 450, Contingencies, we record a charge equal to at least the minimum estimated liability for a loss contingency when both of the following conditions are met: (i) information available prior to issuance of the consolidated financial statements indicates that it is probable that an asset had been impaired or a liability had been incurred as of the date of the consolidated financial statements and (ii) the range of loss can be reasonably estimated.

Recent Accounting Pronouncements Not Yet Adopted

In June 2016, (FASB) issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (ASU 2016-13), which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. ASU 2016-13 replaces the existing incurred loss impairment model with a forward- looking expected credit loss model which will result in earlier recognition of credit losses. On November 15, 2019, the FASB delayed the effective date certain small public companies and other private companies. As amended, the effective date of ASC Topic 326 was delayed until fiscal years beginning after December 15, 2022 for SEC filers that are eligible to be smaller reporting companies under the SEC’s definition, as well as private companies and not-for-profit entities.

Note 3– Fair Value Measurements

The carrying amounts reported in the balance sheet for cash and cash equivalents, accounts receivable, accounts payable and accrued expenses approximate fair value based on the short-term nature of these items.

In accordance with accounting principles generally accepted in the United States, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A three-level hierarchy prioritizes the inputs used to measure fair value as follows:

Level 1 – Valuation is based on quoted prices in active markets for identical assets or liabilities. Level 1 assets and liabilities generally include debt and equity securities that are traded in an active exchange market. Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities.

Level 2 – Valuation is based on observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 – Valuation is based on unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation.

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The following table summarizes our cash equivalents and marketable securities measured at fair value. Certain marketable

securities consist of investments in debt and equity securities. Debt securities are classified as available for sale securities. We classify our cash equivalents and marketable securities within Level 1 because we use quoted market prices models utilizing market observable inputs to determine their fair value.

The cost, gross unrealized gains (losses) and fair value of marketable securities by major security type as of December 31, 2021 were as follows:

Cost Unrealized Gain (Loss) Fair Value

Cash and cash equivalents:

Marketable securities

Total marketable securities 2,787,491

Total cash and cash equivalents and marketable securities $ 13,263,455

The gross unrealized losses and realized gains on our marketable securities were approximately $272 thousand and $5 thousand, respectively, for the twelve months ended December 31, 2021.

Note 4 – Allowance for Doubtful Accounts

The activity in the allowance for doubtful accounts was as follows during the years ended December 31, 2021 and 2020:

Note 5– Property and Equipment

The net carrying value of property and equipment at December 31, 2021 and 2020 was as follows:

Depreciation expense was $1,277,664 and $1,372,426, respectively, for the years ended December 31, 2021 and 2020.

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Note 6 – Intangible Assets and Goodwill

The following is a schedule of intangible assets and goodwill as of December 31, 2021:

The following is a schedule of intangible assets and goodwill as of December 31, 2020:

Term CarryingValue Accumulated Amortization Net Carrying Value 2020Amortization

___________

(1)The trade names related to our web properties have an indefinite life, and as such are not amortized.

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

Note 7 - Bank Debt

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On March 12, 2020, we closed on the Loan and Security Agreement dated February 28, 2020 with Hitachi. Under the terms of the Loan and Security Agreement, Hitachi has provided us with a $5,000,000 line of credit commitment. We are permitted to borrow (i) 90% of the aggregate Eligible Accounts Receivable, plus (i) the lesser of 75% of the aggregate Unbilled Accounts Receivable or 50% of the amount available to borrow under (i), up to the maximum credit commitment. The interest rate of 2% in excess of the Wall Street Journal Prime Rate, with a minimum rate of 6.75% per annum, on outstanding amounts. The principal and all accrued but unpaid interest are due on demand.

We agreed to pay Hitachi a commitment fee of $50,000, with one half due upon the execution of the agreement and the balance due six months thereafter. Thereafter, we are obligated to pay Hitachi a commitment fee of $15,000 annually. We are also obligated to pay Hitachi a quarterly service fee of 0.30% on the monthly unused amount of the maximum credit line. In addition to a $2,000 document fee we have paid to Hitachi, if we exit our relationship with Hitachi before March 1, 2022, we are obligated to pay Hitachi an exit fee of $50,000. On March 12, 2020, we drew $5,000,000 under this agreement, using $2,959,573 of these proceeds to satisfy existing debt obligations and the balance was used for working capital. At December 31, 2021 and 2020, there were no outstanding balances due under the Loan and Security Agreement.

Note 8 - Convertible Promissory Note

On March 1, 2019, Inuvo entered into a Securities Purchase Agreement with three accredited investors for the purchase and sale

of an aggregate of $1,440,000 of principal of Original Issue Discount Unsecured Subordinated Convertible Notes due

September 1, 2020 (the "Calvary Notes") to fund working capital and additional expenses resulting from the delay in closing of

certain planned, and since terminated, mergers with ConversionPoint Technologies Inc. and ConversionPoint Holdings Inc. The

initial conversion price of the Calvary Notes was $1.08 per share which would have made the Calvary Notes then convertible

into 1,333,333 unregistered shares of Inuvo’s common stock upon conversion. The Calvary Notes were issued in a private

placement and the shares of common stock issuable upon conversion are restricted, subject to resale under Rule 144. The

proceeds to Inuvo from the offering were $1,200,000. Inuvo did not pay any commissions or finders fees in connection with

the sale of the Calvary Notes and Inuvo utilized the proceeds for working capital.

On November 11, 2019, we entered into Note Modification and Release Agreements with the holders of $1,080,000 principal

amount of the Calvary Notes. Under the terms of the Note Modification and Release Agreement, the parties agreed that in

consideration of such noteholder’s agreement to convert a minimum of 50% of the outstanding amount of the note (the "First

Conversion Amount") that the conversion price for the First Conversion Amount would be $0.265 per share and that the

conversion price for any remaining amount due under the note would be $0.30 per share, subject to future adjustments under the

terms of the note including dilutive issuances at a price below $0.30 per share, subject to a floor of $0.23 per share. The

agreement contains mutual general releases. These holders converted an aggregate of $765,000 due under the Calvary Notes

into 2,886,792 shares of our common stock.

In January 2020, a noteholder of a $360,000 principal amount Calvary note converted the note into 1,200,000 shares of our

common stock. On April 21, 2020, a noteholder converted $200,000 principal amount due under the Calvary Notes into

1,142,857 shares of our common stock. On May 5, 2020, a noteholder converted the final $115,000 principal amount due under

the Calvary Notes into 657,143 shares of our common stock, thereby satisfying the Calvary Notes in full and completing the

extinguishment of the Calvary Notes.

Note 9 – Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consist of the following at December 31, 2021 and 2020:

Accrued sales allowance — 50,000

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Note 10 – Other Long-Term Liabilities

Other long-term liabilities consist of the following at December 31, 2021 and 2020:

In April 2020, we obtained the $1.1 million PPP Loan which we used primarily for payroll costs. The PPP Loan was fully forgiven by the SBA on November 2, 2020. On May 15, 2020, we received a COVID-19 Economic Injury Disaster Loan ("EIDL") from the SBA for $149,900. We repaid the EIDL in full on January 28, 2021.

Note 11 - Commitments

On September 17, 2021, we signed a multi-year agreement with a business development partner to provide referral and support services to us. The agreement required an advance fee of $1.5 million and was recorded as an asset to be amortized as marketing expenses over five years. As of December 31, 2021, $100,000 has been amortized. As part of the agreement, we granted a warrant exercisable into 300,000 shares of our common stock, which vest over two years upon achieving certain performance metrics (see Note 14 - Stockholders' Equity). Additionally, we agreed to pay quarterly support fees upon reaching certain levels of operational activity.

In March 2020, we entered into an agreement to allow a third party to license and use ValidClick technology. The agreement required a nonrefundable fee of $500,000 in March with subsequent fees as earned in later quarters. The $500,000 fee was recorded as deferred revenue in March 2020.Effective March 1, 2021, the agreement was canceled and the remaining deferred revenue balance of $420,000 was recognized as other income.

Note 12 - Income Taxes

The provision for income taxes consists of the following at December 31, 2021 and 2020:

Current tax provision $ — $ —

Deferred tax benefit — —

Total tax benefit $ — $ —

A reconciliation of the expected Federal statutory rate to our actual rate as reported for each of the periods presented is as follows:

Federal statutory rate 21 % 21 %

State income tax rate, net of federal benefit 2 % — %

Permanent differences 2 % 3 %

Change in valuation allowance (25 %) (25 %)

— % — %

Deferred Income Taxes

Deferred income taxes are the result of temporary differences between book and tax basis of certain assets and liabilities, timing of income and expense recognition of certain items and net operating loss carry-forwards.

When required, we record a liability for unrecognized tax positions, defined as the aggregate tax effect of differences between positions taken on tax returns and the benefits recognized in the financial statements. Tax positions are measured at the largest

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amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement. No tax benefits are recognized for positions that do not meet this threshold. We have no uncertain tax positions that require the us to record a liability. Our federal income tax returns are subject to examination by the IRS, generally for three years after they are filed.

We assess temporary differences resulting from different treatments of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are recorded in the consolidated balance sheets. We evaluate the realizability of our deferred tax assets on a regular basis, an exercise that requires significant judgment. In the course of this evaluation we considered our recent history of tax losses, the economic conditions in which we operate, recent organizational changes and our forecasts and projections. We believe it is more likely than not that essentially none of our deferred tax assets will be realized, and we have recorded a valuation allowance for a significant portion of the net deferred tax assets that may not be realized as of December 31, 2021 and 2020.

The following is a schedule of the deferred tax assets and liabilities as of December 31, 2021 and 2020:

Deferred tax assets:

Stock compensation expense 610,900 —

Deferred tax liabilities:

The net operating losses amounted to approximately $99,454,160 and expire beginning 2022 through 2037. Included in the federal net operating loss carryforwards are $23.1 million generated from 2018 to 2021 that will not expire and are limited to offset 80% of our taxable income for years beginning after December 31, 2020.

As of December 31, 2021, the Company has a net deferred tax liability of $107,000, due to having goodwill that is amortized for tax purposes but not for financial reporting.

The deferred tax liability relating to goodwill can only be offset up to 80% by NOLs generated in tax years ending December 31, 2018 and beyond, as well as NOLs available after consideration of IRC Section 382 limitation. The remaining portion that cannot be used remains as a liability. In future years, if the deferred tax assets are determined by management to be “more likely than not” to be realized, the recognized tax benefits relating to the reversal of the valuation allowance as of December 31, 2021 will be recorded.

Under the provisions of the Internal Revenue Code, the net operating loss carryforwards are subject to review and possible adjustment by the Internal Revenue Service and state tax authorities. Net operating loss carryforwards may become subject to an annual limitation in the event of certain cumulative changes in the ownership interest of significant shareholders over a three-year period in excess of 50%, as defined under Sections 382 and 383 of the Internal Revenue Code, respectively, as well as similar state provisions. This could limit the amount of tax attributes that can be utilized annually to offset future taxable income or tax liabilities. The amount of the annual limitation is determined based on the value of the Company immediately prior to the ownership change. Subsequent ownership changes may further affect the limitation in future years. The Company has not conducted a study to assess whether a change of control has occurred or whether there have been multiple changes of control since inception due to the significant complexity and cost associated with such a study. If the Company has experienced a change of control, as defined by Section 382, at any time since inception, utilization of the net operating loss carryforwards would be subject to an annual limitation under Section 382, which is determined by first multiplying the value of the

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Company’s stock at the time of the ownership change by the applicable long-term tax-exempt rate, and then could be subject to additional adjustments, as required. Any limitation may result in expiration of a portion of the net operating loss carryforwards before utilization. Further, until a study is completed by the Company and any limitation is known, no amounts are being presented as an uncertain tax position.

The Company remains open to examination by the Internal Revenue Service for the years ending December 31, 2018 through 2021. Carryforward attributes generated in all years since inception remain subject to adjustment. Our state income tax returns are open to audit under the statute of limitations for the same periods.

Note 13 - Stock-Based Compensation

We maintain a stock-based compensation program intended to attract, retain and provide incentives for talented employees and directors and align stockholder and employee interests. During the 2021 and 2020 periods, we granted restricted stock units ("RSUs") from the 2017 Equity Compensation Plan, as amended (“2017 ECP”). RSU vesting periods are generally up to three years and/or achieving certain financial targets.

On January 4, 2021, in accordance with the plan provisions, the number of shares available for issuance under the 2017 ECP plan was increased by 150,000 shares.

Compensation Expense

We recorded stock-based compensation expense for all equity incentive plans of $2,179,254 and $858,683 for the years ended December 31, 2021 and 2020, respectively. Total compensation cost not yet recognized at December 31, 2021 was $3,595,258 to be recognized over a weighted-average recognition period of one year.

The following table summarizes the stock grants outstanding under our 2010 Employee Compensation Plan ("2010 ECP") and 2017 ECP plans as of December 31, 2021:

(*) 2010 ECP Expired April 2020

The fair value of restricted stock units is determined using market value of the common stock on the date of the grant. The fair value of stock options is determined using the Black-Scholes-Merton valuation model. The use of this valuation model involves assumptions that are judgmental and highly sensitive in the determination of compensation expense and include the expected life of the option, stock price volatility, risk-free interest rate, dividend yield, exercise price, and forfeiture rate. Forfeitures are estimated at the time of valuation and reduce expense ratably over the vesting period. The forfeiture rate, which is estimated at a weighted average of 0% of unvested options outstanding, is adjusted periodically based on the extent to which actual forfeitures differ, or are expected to differ, from the previous estimate. At December 31, 2021, the 2010 ECP plan had 1,500 outstanding options and all were exercisable with an aggregate intrinsic value of $0, a weighted average exercise price of $0.56 and a weighted average remaining contractual term of less than a year.

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The following table summarizes our stock option activity under the 2010 ECP plan during 2021:

Options Weighted Average Exercise Price

Outstanding, beginning of year 9,500 $ 0.56

Stock options exercised 4,750 $ 0.56

Outstanding, end of year 1,500 $ 0.56

Exercisable, end of year 1,500 $ 0.56

No options were granted during 2021 or 2020.

Expected volatility is based on the historical volatility of our common stock over the period commensurate with or longer than the expected life of the options. The expected life of the options is based on the vesting schedule of the option in relation to the overall term of the option. The risk free interest rate is based on the market yield of the U.S. Treasury Bill with a term equal to the expected term of the option awarded. We do not anticipate paying any dividends so the dividend yield in the model is zero.

The following table summarizes our restricted stock unit activity for 2021:

Restricted Stock Unit Weighted Average Fair Value

Note 14 – Stockholders Equity

Common Stock

On March 20, 2020, we sold an aggregate of 3,931,428 shares of our common stock to the five members of our Board of

Directors in a private placement exempt from registration under Section 4(a)(2) and Rule 506(b) of Regulation D under the

Securities Act of 1933, as amended. We received proceeds of $688,000 in this offering. On March 27, 2020, we closed on the

first tranche of a registered direct offering in which we sold 3,115,001 shares of our common stock for gross proceeds of

$545,125. On April 2, 2020, we closed on a second tranche of the registered direct offering in which we sold 1,400,285 shares

of our common stock for gross proceeds of $245,050. On June 8, 2020, we raised $5.5 million in gross proceeds, before expenses, through the sale of our common stock and on July 27, 2020, we raised $10.75 million in gross proceeds, before expenses, through sales of our common stock. On January 19, 2021, we raised $8 million in gross proceeds, before expenses, through the sale of our common stock, and on January 22, 2021, we raised $6.25 million in gross proceeds, before expenses, through sales of our common stock.

In 2020, our convertible promissory notes were converted into $3 million of common stock. See Note 8 - Convertible Promissory Note for details.

Warrants

On September 17, 2021, we signed an agreement with a marketing platform and consulting company to provide referral and support services to us for a period of five years (see Note 11 - Commitments).As part of that agreement, we granted a warrant exercisable into 300,000 shares of our common stock, which vests in two tranches when certain performance metrics are achieved. The warrant was valued using the Black Scholes option pricing model at a total of $149,551 based on a seven-year term, an implied volatility of 100%, a risk-free equivalent yield of 1.17%, and a stock price of $0.71. The warrant is classified as equity and will be expensed on a ratable basis over the vesting period of each tranche.For the twelve months ended December 31, 2021, we recognized approximately $20 thousand in expense and $130 thousand is unrealized.

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Earnings per Share

During the 2021 and 2020, we generated a net loss from continuing operations and as a result, all of our shares are anti-dilutive.

Treasury Stock

On July 14, 2020, our Board of Directors authorized the cancellation of the 376,527 shares of treasury stock.

Note 15 – Retirement Plan Costs

We provide a 401(k) plan to help our employees prepare for retirement where we matched each employee's contributions to the plan up to the first four of the employee's annual salary. The matching contribution for the years ended 2021 and 2020 was $260,540 and $186,483, respectively.

Note 16 – Leases

We have entered into operating and finance leases primarily for real estate and equipment rental. These leases have terms which

range from two years to four years, and often include one or more options to renew or in the case of equipment rental, to

purchase the equipment. These operating and finance leases are listed as separate line items on our consolidated balance sheets

and represent our right to use the underlying asset for the lease term. Our obligations to make lease payments are also listed as

separate line items on our consolidated balance sheets. As of December 31, 2021 and December 31, 2020, total operating and financed right-of-use assets were $641,306 and $201,902, and $606,573 and $395,910, respectively.

For the years-ended December 31, 2021 and 2020, we recorded $322,747 and $367,981 in amortization expense related to finance leases.

Because the rate implicit in each lease is not readily determinable, we use our incremental borrowing rate to

determine the present value of the lease payments.

Information related to our operating lease liabilities for are as follows:

Cash paid for operating lease liabilities $ 532,585

Weighted-average remaining lease term 2.45 years

Weighted-average discount rate 6.25 %

Minimum future lease payments ended December 31, 2021

Less imputed interest (21,648)

Total lease liabilities $ 208,365

Information related to our financed lease liabilities are as follows:

Cash paid for finance lease liabilities $ 248,035

Weighted-average remaining lease term 2.3 years

Weighted-average discount rate 6.25 %

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Minimum future lease payments ended December 31, 2021

Less imputed interest (53,441)

Total lease liabilities $ 641,305

Note 17 – Related Party Transactions

On March 20, 2020, we sold an aggregate of 3,931,428 shares of our common stock at a purchase price of $0.175 per share to the five members of our Board of Directors in a private placement exempt from registration under Section 4(a)(2) and Rule 506(b) of Regulation D under the Securities Act of 1933, as amended. We received proceeds of $688,000 in this offering. The purchase price of the shares of our common stock sold in the offering exceeded the closing market price of our common stock on March 19, 2020, the trading day immediately preceding the day the binding Insider Subscription Agreements were executed by the purchasers. The purchasers were all accredited investors. We did not pay any commissions or finder’s fees, and we used the proceeds for general working capital.

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Inuvo, Inc. INUV US Equity

INUV · 10-K · period ended 2021-12-31

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

ITEM 9A. CONTROLS AND PROCEDURES.

ITEM 9B. OTHER INFORMATION.

ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS.

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.

ITEM 11. EXECUTIVE COMPENSATION.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.

Item 16. Form 10-K Summary

Inuvo, Inc. INUV US Equity☆

INUV · 10-K · period ended 2021-12-31

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

ITEM 9A. CONTROLS AND PROCEDURES.

ITEM 9B. OTHER INFORMATION.

ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS.

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.

ITEM 11. EXECUTIVE COMPENSATION.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.

Item 16. Form 10-K Summary

Inuvo, Inc. INUV US Equity