Inuvo, Inc. - Quarter Report: 2023 March (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2023

☐ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______________________ to ______________________

Commission file number: 001-32442


Inuvo, Inc.
(Exact name of registrant as specified in its charter)


Nevada			87-0450450
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)

500 President Clinton Ave., Suite 300 Little Rock, AR			72201
(Address of principal executive offices)			(Zip Code)

(501) 205-8508

Registrant's telephone number, including area code

not applicable

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock	INUV	NYSE American

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to the filing requirements for at least the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
Emerging growth company	☐

If an emerging growth company, indicate by checkmark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards pursuant to Section 13(a) of the Exchange Act: ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.


Title of Class						April 28, 2023
Common Stock						121,641,455

TABLE OF CONTENTS


		Page No.
Part I

Item 1.	Financial Statements.	5
	Consolidated Balance Sheets	5
	Consolidated Statements of Operations and Comprehensive Loss	6
	Consolidated Statements of Cash Flows	7
	Consolidated Statements of Stockholders' Equity	8
	Notes to Consolidated Financial Statements	9
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations.	18
Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	22
Item 4.	Controls and Procedures.	22

Part II

Item 1.	Legal Proceedings.	23
Item 1A.	Risk Factors.	23
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	23
Item 3.	Defaults upon Senior Securities.	23
Item 4.	Mine Safety and Disclosures.	23
Item 5.	Other Information.	23
Item 6.	Exhibits.	24
Signatures		25

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements are subject to known and unknown risks, uncertainties and other factors which may cause actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “will,” “should,” “intend,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” or “continue,” or the negative of such terms or other comparable terminology. This report includes, among others, statements regarding our risks associated with:

•a decline in general economic conditions;

•decreased market demand for our products and services;

•customer revenue concentration;

•risks associated with customer collections;

•seasonality impacts on financial results and cash availability;

•dependence on advertising suppliers;

•the ability to acquire traffic in a profitable manner;

•failure to keep pace with technological changes;

•interruptions within our information technology infrastructure;

•dependence on key personnel;

•regulatory and legal uncertainties;

•failure to comply with privacy and data security laws and regulations;

•third party infringement claims;

•publishers who could fabricate fraudulent clicks;

•the ability to continue to meet the NYSE American listing standards;

•the impact of quarterly results on our common stock price;

•dilution to our stockholders upon the exercise of outstanding restricted stock unit grants and warrants;

•the on-going impact of the COVID-19 pandemic on our Company; and

•our ability to identify, finance, complete and successfully integrate future acquisitions.

These forward-looking statements were based on various factors and were derived utilizing numerous assumptions and other factors that could cause our actual results to differ materially from those in the forward-looking statements. Most of these factors are difficult to predict accurately and are generally beyond our control. You should consider the areas of risk described in connection with any forward-looking statements that may be made herein. Readers are cautioned not to place undue reliance on these forward-looking statements and readers should carefully review this report in its entirety, including the risks described in Part II, Item 1A. Risk Factors appearing in this report, together with those appearing in Item 1A. Risk Factors, in our Annual Report on Form 10-K for the year ended December 31, 2022 as filed with the Securities and Exchange Commission ("SEC") on March 9, 2023 and our subsequent filings with the SEC.

Except for our ongoing obligations to disclose material information under the Federal securities laws, we undertake no obligation to release publicly any revisions to any forward-looking statements, to report events or to report the occurrence of unanticipated events. These forward-looking statements speak only as of the date of this report, and you should not rely on these statements without also considering the risks and uncertainties associated with these statements and our business.

OTHER PERTINENT INFORMATION

Unless specifically set forth to the contrary, when used in this report the terms “Inuvo,” the “Company,” “we,” “us,” “our” and similar terms refer to Inuvo, Inc., a Nevada corporation, and its subsidiaries. When used in this report, “first quarter 2023” means for the three months ended March 31, 2023, “first quarter 2022” means for the three months ended March 31, 2022, “2022” means the fiscal year ended December 31, 2022 and “2023” means the fiscal year ending December 31, 2023. The information which appears on our corporate web site at www.inuvo.com and our various social media platforms are not part of this report.

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

INUVO, INC.

CONSOLIDATED BALANCE SHEETS

March 31, 2023 (Unaudited) and December 31, 2022


	March 31, 2023		December 31, 2022
Assets
Current assets
Cash and cash equivalents	$	1,969,583	$	2,931,415
Marketable securities - short term	—		1,529,464
Accounts receivable, net of allowance for doubtful accounts of $1,401,803 and $1,440,678, respectively.	9,120,826		11,119,892
Prepaid expenses and other current assets	970,411		798,977
Total current assets	12,060,820		16,379,748

Property and equipment, net	1,687,309		1,668,972
Other assets
Goodwill	9,853,342		9,853,342
Intangible assets, net of accumulated amortization	5,403,166		5,649,291
Referral and support services agreement advance	725,000		800,000
Marketable securities - long term	—		660,126
Right of use assets - operating lease	220,740		310,162
Right of use assets - finance lease	138,108		168,750
Other assets	66,919		66,919
Total other assets	16,407,275		17,508,590

Total assets	$	30,155,404	$	35,557,310

Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable	$	5,506,837	$	8,044,802
Accrued expenses and other current liabilities	4,932,916		5,162,458
Line of credit	592,868		—
Lease liability - operating lease	209,658		287,523
Lease liability - finance lease	86,276		101,003




Total current liabilities	11,328,555		13,595,786

Long-term liabilities
Deferred tax liability	107,000		107,000

Lease liability - operating lease	12,322		23,878
Lease liability - finance lease	50,857		70,597
Other long-term liabilities	7,253		10,733
Total long-term liabilities	177,432		212,208

Stockholders’ equity
Preferred stock, $0.001 par value:
Authorized shares 500,000, none issued and outstanding	—		—
Common stock, $0.001 par value:
Authorized shares 200,000,000; issued and outstanding shares 121,640,362 and 120,137,124, respectively.	121,641		120,138
Additional paid-in capital	179,025,439		178,771,604
Accumulated other comprehensive loss	—		(84,868)
Accumulated deficit	(160,497,663)		(157,057,558)

Total stockholders' equity	18,649,417		21,749,316
Total liabilities and stockholders' equity	$	30,155,404	$	35,557,310

See accompanying notes to the consolidated financial statements.

INUVO, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(Unaudited)


	For the Three Months Ended March 31,
	2023		2022
Net revenue	$	11,847,440	$	18,609,367
Cost of revenue	3,190,563		8,661,506
Gross profit	8,656,877		9,947,861
Operating expenses
Marketing costs	7,087,550		7,169,449
Compensation	3,422,841		3,157,706
General and administrative	1,581,889		1,726,672
Total operating expenses	12,092,280		12,053,827
Operating loss	(3,435,403)		(2,105,966)


Financing expense, net	(19,120)		(999)
Other income, net	14,418		17,702



Net loss	(3,440,105)		(2,089,263)
Other comprehensive income
Unrealized gain (loss) on marketable securities	84,868		(98,156)
Comprehensive loss	$	(3,355,237)	$	(2,187,419)

Per common share data
Basic and diluted:


Net loss	$	(0.03)	$	(0.02)

Weighted average shares
Basic	120,970,597		119,282,114
Diluted	120,970,597		119,282,114

See accompanying notes to the consolidated financial statements.

INUVO, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	For the Three Months Ended March 31,
	2023		2022
Operating activities:
Net loss	$	(3,440,105)	$	(2,089,263)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	639,026		689,712
Depreciation-Right of Use Assets - Financing	30,642		24,259
Stock based compensation	432,084		671,158
Grant expense	5,000		(10,000)
Amortization of financing fees	2,083		2,500
Recovery of doubtful accounts	(38,875)		(81,753)
Gain on marketable securities	(14,418)		(17,702)
Stock warrant expense	(9,874)		12,483

Change in operating assets and liabilities:

Accounts receivable	2,037,941		(702,421)
Referral and support services agreement advance	75,000		75,000
Prepaid expenses, unbilled revenue and other current assets	(171,434)		(849,218)
Accrued expenses and other liabilities	(240,104)		(977,599)
Accounts payable	(2,537,965)		(327,918)

Net cash used in operating activities	(3,230,999)		(3,580,762)
Investing activities:
Purchases of equipment and capitalized development costs	(411,238)		(466,634)
Purchase of marketable securities	—		(1,081,080)
Proceeds from the sale of marketable securities	2,288,876		548,589
Net cash provided by (used in) investing activities	1,877,638		(999,125)
Financing activities:




Net proceeds from line of credit	592,868		—
Payments on finance lease obligations	(34,467)		(24,407)



Net taxes paid on restricted stock unit grants exercised	(166,872)		(128,521)
Net cash provided by/(used in) financing activities	391,529		(152,928)

Net change – cash	(961,832)		(4,732,815)
Cash and cash equivalent, beginning of year	2,931,415		10,475,964
Cash and cash equivalent, end of period	$	1,969,583	$	5,743,149
Supplemental information:
Interest paid	$	29,953	$	7,782

See accompanying notes to the consolidated financial statements.

INUVO, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(unaudited)

For the Three Months Ended March 31,


2023
	Common Stock			Additional Paid in Capital		Accumulated Deficit		Accumulated Other Comprehensive Income (Loss)		Total
	Shares	Stock
Balance as of December 31, 2022	120,137,124	$	120,138	$	178,771,604	$	(157,057,558)	$	(84,868)	21,749,316
Net loss						(3,440,105)				(3,440,105)
Unrealized gain on debt securities								84,868		84,868
Stock-based compensation				432,084						432,084
Stock issued for vested restricted stock awards	1,503,238	1,503		(1,503)						—
Shares withheld for taxes on vested restricted stock				(166,872)						(166,872)
Reversal of expense related to a change in warrant vesting				(9,874)						(9,874)
Balance as of March 31, 2023	121,640,362	$	121,641	$	179,025,439	$	(160,497,663)	$	—	$	18,649,417


2022
	Common Stock			Additional Paid in Capital		Accumulated Deficit		Accumulated Other Comprehensive Income (Loss)		Total
	Shares	Stock
Balance as of December 31, 2021	118,747,447	$	118,748	$	176,586,529	$	(143,951,019)	$	53,737	$	32,807,995
Net loss						(2,089,263)				(2,089,263)
Unrealized loss on debt securities								(98,156)		(98,156)
Stock-based compensation				671,158						671,158
Stock issued for vested restricted stock awards	1,059,755	1,060		(1,060)						—
Shares withheld for taxes on vested restricted stock				(128,520)						(128,520)
Stock warrants issued for referral agreement				12,483						12,483
Balance as of March 31, 2022	119,807,202	$	119,808	$	177,140,590	$	(146,040,282)	$	(44,419)	$	31,175,697

Inuvo, Inc.

Notes to Consolidated Financial Statements

(Unaudited)

Note 1 – Organization and Business

Company Overview

Inuvo is a technology company that develops and sells information technology solutions for marketing and advertising. These

solutions predictively identify and message online audiences for any product, service or brand across devices, formats, and

channels including video, mobile, connected TV, linear TV, display, social, search and native. These solutions allow Inuvo’s

clients to engage with their audiences in a manner that drives responsiveness. Inuvo facilitates the delivery of hundreds of

millions of marketing messages to consumers every single month and counts among its 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 to who those

consumers are. In this regard, the technology is designed for a privacy conscious future and is 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 proprietary 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. Further, Inuvo also provides Search and Social advertising services through a proprietary set of technologies

branded as CampSight.

There are many barriers to entry associated with the Inuvo business model, including a proficiency in large scale information processing, predictive software development, marketing data products, analytics, artificial intelligence, integration to the internet of things ("IOT"), and the relationships required to execute within the IOT. Inuvo’s intellectual property is protected by 19 issued and eight pending patents.

Liquidity

Our principal sources of liquidity are the sale of our common stock and our credit facility discussed in Note 6 - Bank Debt.

On May 28, 2021, we entered into a Sales Agreement (the “Sales Agreement”) with A.G.P./Alliance Global Partners, as sales agent (the “Sales Agent”), pursuant to which we may offer and sell through or to the Sales Agent shares of our common stock (the “ATM Program”) up to an aggregate amount of gross proceeds of $14,611,900. During the year ended December 31, 2021 and through March 31, 2023, we did not issue any shares of common stock or receive any aggregate proceeds under the ATM Program, and we did not pay any commissions to the Sales Agent. 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 market our collective multi-channel advertising capabilities differentiated by our AI technology, the IntentKey, where we have a technology advantage and higher margins. If we are successful in implementing our plan, we expect to return to a positive cash flow from operations. However, there is no assurance that we will be able to achieve this objective.

As of March 31, 2023, we have approximately $2 million in cash and cash equivalents. Our net working capital was $732 thousand. 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 March 31, 2023, our accumulated deficit was $160.5 million.

Management plans to support the Company’s future operations and capital expenditures primarily through borrowings from the

credit facility until reaching profitability. The credit facility is due upon demand and therefore there can be no assurances that sufficient borrowings will be available to support future operations until profitability is reached. We believe our current cash position and credit facility will be sufficient to sustain operations for at least the next twelve months from the date of this filing. If our plan to grow the IntentKey product is unsuccessful, we may need to fund operations through private or public sales of securities, debt financings or partnering/licensing transactions over the long term.

Customer concentration

For the three-month period ending March 31, 2023, three customers accounted for 66.3% of our overall revenue at 26.4%, 25.3% and 14.6%. Those same three customers accounted for 24.0% of our gross accounts receivable balance as of March 31, 2023. For the three-month period ending March 31, 2022, four customers accounted for 67.0% of our overall revenue at 22.0%, 18.2%, 14.5% and 12.3%, respectively. As of March 31, 2022, the same customers accounted for 64.1% of our gross accounts receivable balance.

Note 2 – Summary of Significant Accounting Policies

Basis of presentation

The consolidated financial statements presented are for Inuvo and its subsidiaries. The accompanying unaudited consolidated financial statements have been prepared based upon SEC rules that permit reduced disclosure for interim periods. Certain information and footnote disclosures have been condensed or omitted in accordance with those rules and regulations. The accompanying consolidated balance sheet as of December 31, 2022, was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States ("GAAP"). In our opinion, these consolidated financial statements reflect all adjustments that are necessary for a fair presentation of results of operations and financial condition for the interim periods shown including normal recurring accruals and other items. The results for the interim periods are not necessarily indicative of results for the full year. For a more complete discussion of significant accounting policies and certain other information, this report should be read in conjunction with the consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the year ended December 31, 2022, which was filed with the SEC on March 9, 2023.

Use of estimates

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

Revenue Recognition

Revenue recognition - We generate revenue by identifying audiences and presenting advertisements on behalf of our customers.

We may contract directly with a brand, a Direct Customer or we may serve a brand through a contract with an agency, an

Indirect Customer. Revenue is recognized when services are provided to a customer in an amount that reflects the consideration

the Company expects to receive in exchange for those services. We charge our customers on a cents per thousand (CPM) basis,

cost per click ("CPC") basis, or as a specific dollar charge. Revenue billed as CPM is generally programmatic digital advertising and is performed under a contract known as an Insertion Order (“IO”). Programmatic digital advertising revenue is recognized in part or fully in the period the IO is partially or fully executed. Revenue earned from placing an ad or an impression on websites, some of which we own, may be on a CPM or CPC basis. We recognize revenue from ad placement and serving impressions in the period in which they occur. The Company settles ad placement and CPC transactions with its customers net of any adjustments for poor traffic quality. Payments to advertising exchanges that provide access to digital inventory and to a lesser extent, payments to website publishers and app developers that host advertisements we serve are recognized as cost of revenue.

The following table provides revenues for Direct Customers, Indirect Customers and Consulting during the periods presented.


	For the Three Months Ended March 31,
		2023	2022
Direct Customers			$	3,919,774	33.1%	$	10,725,569	57.6%
Indirect Customers			7,913,190		66.8%	7,839,110		42.2%
Consulting			14,476		0.1%	44,688		0.2%
Total			$	11,847,440	100%	$	18,609,367	100%

Recently Adopted Accounting Pronouncements

On January 1, 2023, we adopted Accounting Standards Code (ASC) No. 326, Financial Instruments-Credit Losses. ASC 326 requires a financial asset (loans, debt securities, trade receivables, net investments in leases, off-balance sheet credit exposures, reinsurance receivables, and any other financials assets not excluded from scope) measured at amortized cost basis to be

presented at the net amount expected to be collected. The adoption of this new standard did not have a material impact on our consolidated financial statements.

Note 3 – Fair Value Measurements

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

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

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

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

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

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

securities consist of investments in debt and equity securities. We classify our cash equivalents and marketable securities within Level 1 because we use observable inputs that reflect quoted market prices for identical assets in active markets to determine their fair value. We have classified debt securities as available for sale securities with unrealized gains and losses recorded as other comprehensive income. We have classified equity securities as trading and are marked to market with changes recorded as other income on the income statement. Any interest income or dividends are recorded within financing expense, net on the income statement.


	Investment Assets at Fair Value				Investment Assets at Fair Value
	As of March 31, 2023				As of December 31, 2022
	Level 1		Total		Level 1		Total

Debt securities	$	—	$	—	$	936,563	$	936,563
Equity securities	$	—	$	—	$	1,253,027	$	1,253,027
Cash equivalents	$	462,338	$	462,338	$	801	$	801
Total Investments at Fair Value	$	462,338	$	462,338	$	2,190,391	$	2,190,391

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


	As of December 31, 2022
		Cost		Unrealized Gain (Loss)		Fair Value

Marketable securities
Debt securities		$	1,021,431	$	(84,868)	$	936,563
Equity securities		1,776,773		(523,746)		1,253,027
Total marketable securities						$	2,189,590

Note 4 – Property and Equipment

The net carrying value of property and equipment was as follows as of:


	March 31, 2023		December 31, 2022
Furniture and fixtures	$	293,152	$	293,152
Equipment	1,268,434		1,265,752
Capitalized internal use and purchased software	14,912,164		14,503,608
Leasehold improvements	458,885		458,885
Subtotal	16,932,635		16,521,397
Less: accumulated depreciation and amortization	(15,245,326)		(14,852,425)
Total	$	1,687,309	$	1,668,972

During the three months ended March 31, 2023 and March 31, 2022, depreciation expense was $392,901 and $356,793, respectively.

Note 5 – Other Intangible Assets and Goodwill

The following is a schedule of intangible assets and goodwill as of March 31, 2023:


	Term	Carrying Value		Accumulated Amortization and Impairment		Net Carrying Value		Year-to-date Amortization

Customer list, Google	20 years	$	8,820,000	$	(4,887,750)	$	3,932,250	$	110,250
Technology	5 years	3,600,000		(3,600,000)		—		—
Customer list, ReTargeter	5 years	1,931,250		(1,416,250)		515,000		96,562
Customer list, all other	10 years	1,610,000		(1,610,000)		—		—
Brand name, ReTargeter	5 years	643,750		(472,084)		171,666		32,188
Customer relationships	20 years	570,000		(175,750)		394,250		7,125
Trade names, web properties (1)	-	390,000		—		390,000		—
Intangible assets classified as long-term		$	17,565,000	$	(12,161,834)	$	5,403,166	$	246,125

Goodwill, total	-	$	9,853,342	$	—	$	9,853,342	$	—

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

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


2023 (remainder of year)	$	738,375
2024	769,917
2025	469,500
2026	469,500
2027	469,500
Thereafter	2,096,374
Total	$	5,013,166

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


	Term	Carrying Value		Accumulated Amortization and Impairment		Net Carrying Value		2022 Amortization

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

Goodwill, total		$	9,853,342	$	—	$	9,853,342	$	—

Note 6 – Bank Debt

On March 1, 2023, we entered into Amendment No. 1 to Loan and Security Agreement and Collateral Documents (“Agreement”) with Mitsubishi HC Capital America, Inc., f/k/a/ Hitachi Capital America Corp. (“MHCA”). Under the terms of the Agreement, MHCA has provided us with a $5,000,000 line of credit commitment. We are permitted to borrow up to 80% of the aggregate Eligible Accounts Receivable (which may increase to 85% if certain conditions are met), up to the maximum credit commitment of $5,000,000. We will pay MHCA monthly interest at the rate of 1.75% in excess of the Wall Street Journal Prime Rate. The principal and all accrued but unpaid interest are due on demand. In the event of a default under the terms of the Loan and Security Agreement, the interest rate increases to 6% greater than the interest rate in effect from time to time prior to a default. The Agreement contains certain affirmative and negative covenants to which we are also subject. We agreed to pay MHCA an amendment fee of $10,000 on issuance of the Agreement, and thereafter an annual commitment fee of $10,000. We are also obligated to pay MHCA a quarterly service fee of 0.20% on the monthly unused amount of the maximum credit line. If we should repay the amounts due under the Agreement (i) before February 28, 2024, we are obligated to pay MHCA an exit fee of $50,000, or (ii) after February 28, 2024 but before February 28, 2025, we are obligated to pay MHCA an exit fee of $25,000. The Loan and Security Agreement continues for an indefinite term. At March 31, 2023, the outstanding balances due under the Loan and Security Agreement was $592,868.

Note 7 – Accrued Expenses and Other Current Liabilities

The accrued expenses and other current liabilities consist of the following as of:


	March 31, 2023		December 31, 2022
Accrued marketing costs	$	2,840,364	$	3,321,598
Accrued payroll and commission liabilities	1,150,815		782,441
Accrued expenses and other	925,428		1,044,664
Arkansas grant contingency	15,000		10,000
Accrued taxes, current portion	1,309		3,755

Total	$	4,932,916	$	5,162,458

Note 8 – Commitments

On September 17, 2021, we signed a multi-year agreement with a business development partner to provide referral and support services to us. The agreement required an advance fee of $1.5 million with $300,000 recorded in other current assets. The advance is being amortized as marketing expenses over five years. As of March 31, 2023, $475,000 has been amortized and the

balance is $725,000. As part of the agreement, we granted a warrant exercisable into 300,000 shares of our common stock, which vests over two years upon achieving certain performance metrics (see Note 11 - Stockholders' Equity). Additionally, we agreed to pay quarterly support fees upon reaching certain levels of operational activity. In April 2022, we agreed to

Amendment No. 2 ("amendment") to the agreement. The amendment replaced the quarterly support fees with a commission on quarterly cumulative programmatic revenue. The amendment also revised the cumulative target media spend and the associated

commission. The total amount of commission recognized as of March 31, 2023 and 2022 was approximately $26,000 and $158,000, respectively.

Note 9 – Income Taxes

We have no current income tax expense and incur only the minimum state taxes which are included in operating expenses. We have deferred tax assets of $39,109,118. We believe it is more likely than not that essentially none of our deferred tax assets will be realized, and we have recorded a valuation allowance of $37,976,018 for the deferred tax assets that may not be realized as of March 31, 2023 and December 31, 2022. We also have deferred tax liabilities totaling $1,240,100 as of March 31, 2023, related to intangible assets acquired in March 2012 and February 2017. These balances are presented as a net deferred tax liability of $107,000 composed of indefinite lived intangible assets.

Note 10 – Stock-Based Compensation

We maintain a stock-based compensation program intended to attract, retain and provide incentives for talented employees and directors and align stockholder and employee interests. During the 2023 and 2022 periods, we granted restricted stock units ("RSUs") from the 2017 Equity Compensation Plan, as amended (“2017 ECP”). RSU vesting periods are generally up to three years and/or based upon achieving certain financial targets.

On January 1, 2022, in accordance with the plan provisions, the number of shares available for issuance under the 2017 ECP was increased by 150,000 shares. On June 16, 2022, our stockholders approved an amendment to the 2017 ECP increasing the number of shares of our common stock reserved for issuance by 15,000,000 shares. As of March 31, 2023, the total number of authorized shares of our common stock under the 2017 ECP was 24,550,000.

Compensation Expense

For the three months ended March 31, 2023 and March 31, 2022, we recorded stock-based compensation expense for all equity incentive plans of $432,084 and $671,158, respectively. Total compensation cost not yet recognized at March 31, 2023 was $1,881,713, which will be recognized over a weighted-average recognition period of approximately one year.

The following table summarizes the stock grants outstanding under 2017 ECP for the three months ended March 31, 2023:


	Options Outstanding	RSUs Outstanding	Options and RSUs Exercised	Available Shares	Total Awards Authorized
Total	—	3,130,015	6,464,123	14,955,862	24,550,000

The fair value of restricted stock units is determined using market value of the common stock on the date of the grant. The fair

value of stock options is determined using the Black-Scholes-Merton valuation model. The use of this valuation model

involves assumptions that are judgmental and highly sensitive in the determination of compensation expense and include the

expected life of the option, stock price volatility, risk-free interest rate, dividend yield, exercise price, and forfeiture rate.

Forfeitures are estimated at the time of valuation and reduce expense ratably over the vesting period. The forfeiture rate, which

is estimated at a weighted average of 0% of unvested options outstanding, is adjusted periodically based on the extent to which

actual forfeitures differ, or are expected to differ, from the previous estimate.

The following table summarizes the activity of stock option awards for the three months ended March 31, 2023:


	Shares Subject to Options Outstanding
	Number of Shares	Weighted Average Exercise Price
Outstanding, beginning of period	100,000	$	0.52


Stock options canceled	(100,000)	$	0.52
Outstanding, end of period	—	—

The following table summarizes the activities for our RSUs for the three months ended March 31, 2023:


	RSUs
	Number of Shares	Weighted Average Grant Date Fair Value
Outstanding, beginning of period	4,913,339	$	0.79
Granted	120,000	$	0.27
Vested	(1,903,324)	$	0.87

Outstanding, end of period	3,130,015	$	0.71

Note 11 – Stockholders' Equity

Warrants

On September 17, 2021, we signed an agreement with a marketing platform and consulting company to provide referral and support services to us for a period of five years (see Note 8 - Commitments). As part of that agreement, we granted a warrant exercisable into 300,000 shares of our common stock, at $0.72 per share, which vests in two tranches when certain performance metrics are achieved. The warrant was valued using the Black Scholes option pricing model at a total of $149,551 based on a seven-year term, an implied volatility of 100%, a risk-free equivalent yield of 1.17%, and a stock price of $0.71. The warrant is classified as equity and will be expensed over the vesting period of each tranche if the performance criteria are achieved. On August 31, 2022, 85,862 shares vested in accordance with the contracted performance criteria. For the second tranche, we recognized a credit of approximately $10 thousand for three month period ended March 31, 2023 relating to a change in the probability of performance criteria being achieved.

Earnings per Share

For the three-month period ended March 31, 2023 and 2022, we generated a net loss from continuing operations and as a result, any potential common shares are anti-dilutive.

Note 12 – Leases

We have entered into operating and finance leases primarily for real estate and equipment rental. These leases have terms which range from three years to five years, and often include one or more options to renew or in the case of equipment rental, to purchase the equipment. These operating and finance leases are listed as separate line items on our consolidated balance sheets and represent our right to use the underlying asset for the lease term. Our obligation to make lease payments is also listed as separate line items on our consolidated balance sheets. As of March 31, 2023 and December 31, 2022, total operating and financed right-of-use assets were $220,740 and $138,108, and $310,162 and $168,750, respectively.

As of March 31, 2023 and 2022, we recorded $30,642 and $24,259, respectively, 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 are as follows:


	For the Three Months Ended March 31,
Cash paid for operating lease liabilities	$	85,650
Weighted-average remaining lease term	2.0 years
Weighted-average discount rate	6.25		%


Minimum future lease payments ended March 31, 2023
2023 (remainder of year)	207,955
2024	16,236
2025	5,251
2026	1,590
	231,032
Less imputed interest	(9,052)
Total lease liabilities	$	221,980

Information related to our financed lease liabilities are as follows:


	For the Three Months Ended March 31,
Cash paid for finance lease liabilities	$	37,073
Weighted-average remaining lease term	1.8 years
Weighted-average discount rate	6.25		%


Minimum future lease payments ended March 31, 2023
2023 (remainder of the year)	68,397
2024	56,180
2025	18,491
	143,068
Less imputed interest	(5,935)
Total lease liabilities	$	137,133

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS