What changed in Inuvo, Inc.'s 10-K — 2023 vs 2024

ITEM 1. BUSINESS. Company Overview Inuvo is a leading advertising technology and services business that has successfully developed and commercialized large language generative artificial intelligence that can discover and target digital audiences instantly without having to track consumers around the internet.

Inuvo’s innovative technology positions it as a leader within the advertising industry, offering a valuable solution to marketers seeking to navigate the evolving landscape of consumer privacy. Rather than targeting people, the artificial intelligence (AI) targets the reasons behind why people are interested in products, services and brands.

Inuvo’s AI technology solves this identity challenge by leveraging artificial intelligence, data analytics, and automation that can optimize the purchase and placement of advertising in real time without consumer data.

Inuvo clients, who are agencies and brands (collectively, “Agencies & Brands”) and large consolidators of advertising demand (“Platforms”) both benefit from Inuvo’s ability to intelligently process vast amounts of data, detect patterns in behavior, and enhance advertising efficiency, whether through direct media execution or integration into existing campaign management systems.

These capabilities are typically sold with services both individually and in combination with each other based on client needs. Agencies & Brands utilize our artificial intelligence-based consumer intent recognition system to reach highly targeted mobile and desktop In-Market audiences with precision.

For our Platform clients we utilize a collection of data, analytics, software, content management and website creation technologies to align merchant advertising messages with online content. Inuvo’s revenue is derived from the placement of digital advertising across devices, websites, applications and browsers within social, search and programmatic advertising channels.

Inuvo facilitates and gets paid to deliver millions of advertising messages monthly and counts among its client's numerous world-renowned companies across industries. Inuvo generates revenue from Agencies & Brands through its fully managed and self-service offerings, both of which utilize IntentKey, and through the placement of advertising on third-party publisher and owned websites designed to meet Platform client requirements.

In 2024, we had one individual customer with revenue concentration greater than 10% of our total revenues accounting for 75.0%. In 2023, we had two individual customers with revenue concentration greater than 10% of our total revenue accounting for 60.4% and 12.8%, respectively.

Our overarching goal is to be the driving engine behind advertising transaction decisions, rather than simply facilitating the ad placement process. Platforms: Our Platforms business mitigates market risk by partnering with some of the largest advertising platforms globally. This enables our business to scale rapidly, particularly as these platforms lead industry changes.

With strong working capital, low receivables risk, and minimal go-to-market investment requirements, our Platforms business is well-positioned for growth. Our strategy within the Platforms sector is to deepen existing relationships, expand our footprint with current clients, and integrate emerging technologies from our Agencies & Brands business to enhance our competitive advantage.

Agencies & Brands: The Agencies & Brands business leverages our proprietary AI-driven technology to solve key challenges in modern advertising. IntentKey technology, built on the foundation of large language generative AI, is designed to displace entrenched incumbents across the advertising value chain.

This revolutionary technology addresses critical issues such as third-party cookies, first-party cookies, IP addresses, URL tracking, audience segmentation, media measurement, and identity management. The strategy is to embed our technology as broadly as possible across the industry particularly as it transitions away from legacy targeting methods used by traditional advertising solutions.

We compensate these partners for their services. Within our Platforms business, we offer unique technologies and content experiences that align with the objectives of our platform clients, allowing us to meet their specific needs effectively. Competition We operate in a highly competitive industry, where competitors are continuously expanding their product offerings to capture a larger share of the advertising market.

We compete, both directly and indirectly, with companies offering demand-side platforms (DSPs), direct marketing platforms, data suppliers and aggregators, media planners, and a range of measurement, attribution and analytics companies.

To mitigate the risk of service interruptions caused by third-party technology vendors, we incorporate engineering controls into our critical components to ensure consistent service delivery.

In the event of an issue, engineers are promptly notified, and corrective actions are swiftly implemented to minimize disruptions and ensure continuous service availability. 6 Table of Contents Intellectual Property Rights We own intellectual property (IP) and related IP rights that relate to our products, services and assets. Our IP portfolio includes patents, trade secrets and trademarks.

The origins of the AI technology behind the IntentKey is the machine learning labs of the University of California Los Angeles (UCLA) where a professor and his doctorate students were tasked to develop a form of artificial intelligence that was a first of a kind of an unstructured data graph representing the world's knowledge.

The project was eventually funded by a Silicon Valley venture firm before being acquired by Inuvo. Since 2017, Inuvo has invested millions of dollars in developing and enhancing the technology. More Information Our website address is www.inuvo.com.

We rely on one customer for a significant portion of our revenues. A significant portion of our revenue is derived from one customer. During 2024 this customer accounted for 75.0% of our revenues. In 2023, the same customer accounted for 60.4% of our revenues.

The amount of revenue we receive from this customer is dependent on a number of factors outside of our control; this includes the amount the customer charges for advertisements, the depth of its available advertisements, and its ability to display relevant ads in response to end user queries and changes in advertising budgets resulting from their own business circumstances.

Historically, we have been able to replace lost clients with new clients or by expanding our relationship with existing clients, however, we would likely experience a significant decline in revenue and our business operations could be significantly harmed if we lose material customers or are unable to replace lost clients.

The loss of material customers or a material change in the revenue or gross profit they generate would have a material adverse impact on our business, results of operations and financial condition in future periods. 8 Table of Contents We are exposed to credit risk on our accounts receivable and this risk is heightened during periods when economic conditions worsen .

We sell some of our solutions directly to advertisers and advertising agencies on credit. Our outstanding accounts receivables to advertisers and advertising agencies are not covered by collateral, third-party financing arrangements or credit insurance. Our exposure to credit and collectability risk on our accounts receivables is higher with some customers and our ability to mitigate such risks may be limited.

As we continue to add new customers and expand our direct relationships with advertisers and advertising agencies our credit risk increases. Additionally, our credit risk increases during periods when economic conditions worsen.

While we have procedures to monitor and limit exposure to credit risk on our accounts receivables there can be no assurance such procedures will effectively limit our credit risk and avoid losses. Our success is dependent upon our ability to establish and maintain direct relationships with advertisers and advertising agencies.

Some of our solutions generate revenue directly from advertisers and advertising agencies. Accordingly, our ability to generate revenue for our solutions is dependent upon our ability to attract new advertisers, maintain relationships with existing advertisers and fulfill our advertisers’ orders. Our programs to attract advertisers include direct sales, agency sales, online promotions, referral agreements and participation in tradeshows.

We attempt to maintain relationships with our advertisers through providing quality customer service and delivering on campaign goals. Our advertisers and advertising agency clients can generally terminate their contracts with us at any time and with limited or no advance notice.

We believe that advertisers and advertising agencies will not continue to do business with us if their investment in advertising with us does not generate sales leads, and ultimately customers, or if we do not deliver their advertisements in an appropriate and effective manner.

If we are unable to remain competitive and provide value to our advertisers, they may stop placing ads with us, which would have a material adverse effect on our business, prospects, financial condition and results of operations. We are dependent upon relationships with and the success of our supply partners. Our supply partners remain a critical component of our success.

Throughout 2024, we have successfully onboarded a significant number of new supply partners, strengthening our ability to deliver high-quality traffic and engagement for our advertisers. While turnover within our supply partner network still occurs, it has decreased compared to prior periods.

To sustain growth, we must continue to recruit and retain partners who can drive traffic effectively to their websites and mobile applications, resulting in clicks on advertisements we have delivered. However, supply partners may face challenges in attracting and maintaining users due to competition, rapidly evolving market dynamics, technological advancements, industry consolidation, and shifting consumer preferences.

Although our supply partner base has expanded, maintaining strong relationships remains a priority. Some partners may explore direct relationships with advertisers, consider us as competitors, or find competing solutions more attractive.

Additionally, while we have made progress in stabilizing and expanding our supply network, there can be no assurance that traffic levels will continue to increase or that all departing partners will be replaced. Any disruptions in our ability to sustain and enhance our supply partnerships could have a material adverse effect on our business, financial position, and results of operations.

The success of our owned sites is dependent on our ability to acquire traffic in a profitable manner. Our ALOT-branded websites are dependent on our ability to attract traffic in a profitable manner. We use a predictive model to calculate the rate of return for marketing campaigns, which includes estimates and assumptions.

If these estimates and assumptions are not accurate, we may not be able to effectively manage our marketing decisions and could acquire traffic in an unprofitable manner.

In addition, we may not be able to maintain and grow our traffic for a number of reasons, including, but not limited to, acceptance of our websites by consumers, the availability of advertising to promote our websites, competition, and sufficiency of capital to purchase advertising. We advertise on search engine websites to drive traffic to our owned and operated websites.

Our keyword advertising is done primarily with Google and Facebook, but also with Yahoo!. If we are unable to maintain and grow traffic to our sites in a profitable manner, it could have a material adverse effect on our business, financial condition, and results of operations.

Because competition for our target employees is intense, we may not be able to attract and retain the highly skilled employees we need to support our operations and increasing customer base.

In the technology industry, there is substantial and continuous competition for engineers with high levels of experience in designing, developing and managing software and Internet-related services, as well as competition for executives and sales and operations personnel.

Many of our competitors have substantially more resources than we do and have the ability to compensate highly skilled personnel at higher levels than we can. We may not be successful in attracting and retaining qualified highly skilled personnel.

We have from time to time experienced, and we expect to continue to experience, difficulty in hiring and retaining highly skilled employees with appropriate qualifications. In addition, job candidates and existing employees often consider the value of the stock awards they receive in connection with their employment.

If our stock price performs poorly, it may adversely affect our ability to retain highly skilled employees.

If we fail to attract new personnel or fail to retain and motivate our current personnel, our business and future growth prospects could be severely harmed. 9 Table of Contents Technological Risks Our business must keep pace with rapid technological change to remain competitive.

Our business operates in a rapidly changing technological landscape, evident with the introduction of AI tools like ChatGPT in 2022 along with the deprecation of third-party cookies. To stay competitive, we must swiftly adapt to evolving industry standards, new product releases, and changing customer preferences. Continual improvement of our services' speed, performance, and compatibility across diverse platforms is crucial.

Failure to keep pace with these technological shifts could adversely affect our financial position and results of operations. Our services may be interrupted if we experience problems with our network infrastructure . The performance of our network infrastructure is critical to our business and reputation.

Because our services are delivered solely through the Internet, our network infrastructure could be disrupted by a number of factors, including, but not limited to: · unexpected increases in usage of our services; · computer viruses and other security issues; · interruption or other loss of connectivity provided by third-party Internet service providers; · natural disasters or other catastrophic events; and · server failures or other hardware problems.

While we have data centers in multiple, geographically dispersed locations and active back-up and disaster recovery plans, we cannot assure you that serious interruptions will not occur in the future.

If our services were to be interrupted, it could cause loss of users, customers and business partners, which could have a material adverse effect on our results of operations and financial position. We employ information including operational technology systems to support our business and to collect, store and/or use proprietary and confidential information.

Security and data breaches, cyberattacks and other cybersecurity incidents involving our information technology systems, networks and infrastructure could disrupt or interfere with our operations; result in the compromise and misappropriation of proprietary and confidential information belonging to us or our customers, suppliers and employees; and expose us to numerous expenses, liabilities and other negative consequences, any or all of which could adversely impact our business, reputation and results of operations.

In the ordinary course of business, we rely on information technology networks and systems, some of which are provided, hosted or managed by vendors and other third parties, to process, transmit and store electronic information, and to manage or support a variety of businesses.

Additionally, we collect and store certain data, including proprietary business information, and have access to confidential or personal information in certain of our businesses that is subject to privacy and cybersecurity laws, regulations and customer-imposed controls.

Third parties and threat actors, including organized criminals, nation-state entities, and/or nation-state supported actors, may attempt to gain unauthorized access to our information and operational technology networks and infrastructure, data and other information.

Despite our cybersecurity and business continuity counter measures (including employee and third-party training, monitoring of networks and systems, patching, maintenance, and backup of systems and data), our information and operational technology systems, networks and infrastructure are still potentially susceptible to cyber-attack, insider threat, compromise, damage, disruption or shutdown, including as a result of the exploitation of known or unknown hardware or software vulnerabilities in our systems or the systems of our vendors and third-party service providers, the introduction of computer viruses, malware or ransomware, service or cloud provider disruptions or security breaches, phishing attempts, employee error or malfeasance, power outages, telecommunication or utility failures, systems failures, natural disasters or other catastrophic events.

Despite our cybersecurity counter measures, it is possible for security vulnerabilities or a cyberattack to remain undetected for an extended time period and the prioritization of decisions with respect to security measures and remediation of known vulnerabilities that we and the vendors and other third parties upon which we rely make may prove inadequate to protect against these attacks.

Any cybersecurity incident or information or operational technology network disruption could result in numerous negative consequences, including the risk of legal claims or proceedings, investigations or enforcement actions by U.S., state, or foreign regulators; liabilities or penalties under applicable laws and regulations, including privacy laws and regulations in the U.S. and other jurisdictions; interference with our operations; the incurrence of remediation costs; loss of intellectual property protection; the loss of customer, supplier or employee relationships; and damage to our reputation, any of which could adversely affect our business.

Although we maintain insurance coverage for various cybersecurity and business continuity risks, there can be no guarantee that all costs, damages, expenses or losses incurred will be fully insured. 10 Table of Contents We are subject to risks from publishers who could fabricate clicks either manually or technologically. Our business involves the establishment of relationships with website owners and publishers.

In exchange for their consumer traffic, we provide an advertising placement service and share a portion of the revenue we collect with that website publisher. Although we have click fraud detection software in place, we cannot guarantee that we will identify all fraudulent clicks or be able to recover funds distributed for fabricated clicks.

This risk could materially impact our ability to borrow, our revenue, cash flow and the stability of our business. Regulatory Risks Regulatory and legal uncertainties could harm our business.

While there are currently relatively few laws or regulations directly applicable to Internet-based commerce or commercial search activity, there is increasing awareness of such activity and interest from state and federal lawmakers in regulating these services.

New regulation of activities in which we are involved or the extension of existing laws and regulations to Internet-based services could have a material adverse effect on our business, results of operations and financial position.

Failure to comply with federal, state and international privacy and data security laws and regulations, or the expansion of current or the enactment of new privacy and data security laws or regulations, could adversely affect our business. A variety of federal, state and international laws and regulations govern the collection, use, retention, sharing and security of consumer data.

In addition, various federal, state and foreign legislative and regulatory bodies may expand current or enact new laws regarding privacy matters.

For example, recently there have been Congressional hearings and increased attention to the capture and use of location-based information relating to users of smartphones and other mobile devices, and internationally the European Union’s General Data Protection Regulation (GDPR) went into effect in May 2018.

Additionally, multiple legislative proposals concerning privacy and the protection of user information are being considered by the U.S. Congress and various U.S. state legislatures. Certain U.S. state legislatures have already enacted privacy legislation, one of the strictest and most comprehensive of which is the California Consumer Privacy Act of 2018, which became effective on January 1, 2020 (the “CCPA”).

The CCPA provides data privacy rights for California consumers, and restricts the ability to use personal California user. The CCPA also provides consumers with a private right of action for security breaches, as well as provides for statutory damages. We have posted privacy policies and practices concerning the collection, use and disclosure of subscriber data on our websites and applications.

The existing and soon to be enacted privacy and data security related laws and regulations are evolving and subject to potentially differing interpretations. Several Internet companies have incurred penalties for failing to abide by the representations made in their privacy policies and practices.

In addition, several states have adopted legislation that requires businesses to implement and maintain reasonable security procedures and practices to protect sensitive personal information and to provide notice to consumers in the event of a security breach.

Any failure, or perceived failure, by us to comply with our posted privacy policies or with any data-related consent orders, Federal Trade Commission requirements or orders or other federal, state or international privacy or consumer protection-related laws, including the GDPR and CCPA, regulations or industry self-regulatory principles could result in claims, proceedings or actions against us by governmental entities or others or other liabilities, which could adversely affect our business.

We are subject to the continued listing standards of the NYSE American and our failure to satisfy these criteria may result in delisting of our common stock . Our common stock is listed on the NYSE American.

In order to maintain this listing, we must maintain a certain share price, financial and share distribution targets, including maintaining a minimum amount of shareholders’ equity and a minimum number of public shareholders.

In addition to these objective standards, the NYSE American may delist the securities of any issuer (i) if, in its opinion, the issuer’s financial condition and/or operating results appear unsatisfactory; (ii) if it appears that the extent of public distribution or the aggregate market value of the security has become so reduced as to make continued listing on the NYSE American inadvisable; (iii) if the issuer sells or disposes of principal operating assets or ceases to be an operating company; (iv) if an issuer fails to comply with the NYSE American’s listing requirements; (v) if an issuer’s securities sell at what the NYSE American considers a “low selling price” which the exchange generally considers $0.20 per share and the issuer fails to correct this via a reverse split of shares after notification by the NYSE American; or (vi) if any other event occurs or any condition exists which makes continued listing on the NYSE American, in its opinion, inadvisable.

There are no assurances how the market price of our common stock will be impacted in future periods as a result of the general uncertainties in the capital markets.

If the NYSE American delists our common stock, investors may face material adverse consequences, including, but not limited to, a lack of trading market for our common stock, reduced liquidity, decreased analyst coverage of our common stock, and an inability for us to obtain any additional financing to fund our operations that we may need. 11 Table of Contents Financial Risks Our business is seasonal and our financial results may vary significantly from period to period.

Our future results of operations may vary significantly from quarter to quarter and year to year because of numerous factors, including seasonality.

Historically, in the later part of the fourth quarter and the earlier part of the first quarter we experience lower Revenue Per Click (“RPC”) due to a decline in demand for inventory on website and app space and the recalibrating of advertiser’s marketing budgets after the holiday selling season.

If we are not able to appropriately adjust to seasonal or other factors, it could have a material adverse effect on our financial results. Our quarterly operating results can be difficult to predict and can fluctuate substantially, which could result in volatility in the price of our common stock.

Our quarterly revenues and other operating results have varied in the past and are likely to continue to vary significantly from quarter to quarter.

Our agreements with distribution partners and key customers do not require minimum levels of usage or payments, and our revenues therefore fluctuate based on the actual usage of our service each quarter by existing and new distribution partners.

Quarterly fluctuations in our operating results also might be due to numerous other factors, including: · our ability to attract new distribution partners, including the length of our sales cycles, or to sell increased usage of our service to existing distribution partners; · technical difficulties or interruptions in our services; · changes in privacy protection and other governmental regulations applicable to our industry; · changes in our pricing policies or the pricing policies of our competitors; · the financial condition and business success of our distribution partners; · purchasing and budgeting cycles of our distribution partners; · acquisitions of businesses and products by us or our competitors; · competition, including entry into the market by new competitors or new offerings by existing competitors; · discounts offered to advertisers by upstream advertising networks; · our ability to hire, train and retain sufficient sales, client management and other personnel; · timing of development, introduction and market acceptance of new services or service enhancements by us or our competitors; · concentration of marketing expenses for activities such as trade shows and advertising campaigns; · expenses related to any new or expanded data centers; and · general economic and financial market conditions.

Ability to maintain our credit facility could impact our ability to access capital in the future. On July 30, 2024, we entered into a Financing and Security Agreement and Collateral Documents (“Financing Agreement”) with SLR Digital Finance LLC (“SLR”). Under the terms of the Financing Agreement, SLR has provided us with a $10,000,000 line of credit commitment.

We are permitted to borrow against eligible accounts receivable and unbilled receivables. The Financing Agreement has a three year term and contains certain affirmative and negative covenants to which we are also subject. As of December 31, 2024, we were in compliance with these covenants. There are no assurances that we will be able to comply with all the covenants.

In the event we violate a covenant, SLR may limit or demand all amounts due under the credit facility at any time, including upon an event of default outstanding, if any, to be due and payable.

If this occurs and if we have outstanding obligations and are not able to repay, SLR could require us to apply all of our available cash to repay the debt amounts and could then proceed against the underlying collateral.

Should this occur, we cannot assure you that our assets would be sufficient to repay our debt in full, we would be able to borrow sufficient funds to refinance the debt.

In such an event, our ability to conduct our business as it is currently conducted would be in jeopardy. 12 Table of Contents Significant dilution will occur when outstanding restricted stock unit grants vest. As of December 31, 2024, we had 13,216,020 restricted stock units outstanding.

If the restricted stock units vest, dilution will occur to our stockholders, which may be significant. Our financial condition may be adversely affected if we are unable to identify and complete future acquisitions, fail to successfully integrate acquired assets or businesses, or are unable to obtain financing for acquisitions on acceptable terms.

The acquisition of assets or businesses that we believe to be complementary to our business is an important component of our strategy. We believe that acquisition opportunities may arise from time to time, and that any such acquisitions could be significant. At any given time, discussions with one or more potential sellers may be at different stages.

However, any such discussions may not result in the consummation of an acquisition transaction, and we may not be able to identify or complete any acquisitions. We cannot predict the effect, if any, that any announcement or consummation of an acquisition would have on the trading price of our ordinary shares.

Our business is capital intensive and any such transactions could involve the payment by us of a substantial amount of cash and/or equity securities. We may need to raise additional capital through public or private debt or equity financings to execute our growth strategy and to fund acquisitions.

Adequate sources of capital may not be available when needed on favorable terms. If we raise additional capital by issuing additional equity securities or use equity securities for acquisitions, existing shareholders may be diluted.

If our capital resources are insufficient at any time in the future, we may be unable to fund acquisitions, take advantage of business opportunities or respond to competitive pressures, any of which could harm our business. Any usage of capital to fund an acquisition could lead to a decrease in liquidity.

Any future acquisitions could present a number of risks, including: · the risk of using management time and resources to pursue acquisitions that are not successfully completed; · the risk of incorrect assumptions regarding the future results of acquired operations; · the risk that the amount and timing of the expected benefits of any acquisition, including potential synergies, are subject to uncertainties; · the risk of unexpected losses of key employees, customers and suppliers of the acquired business; · the risk of increasing the scope, geographic diversity, and complexity of our business; · the risk of unfavorable accounting treatment and unexpected increases in taxes; · the risk of difficulty in conforming standards, controls, procedures, policies, business cultures, and compensation structures; · the risk of failing to integrate the operations or management of any acquired operations or assets successfully and in a timely manner; and · the risk of diversion of management’s attention from existing operations or other priorities.