Inuvo, Inc.

Previous wording

Cost of revenue is primarily composed of payments to website publishers and app developers that host advertisements. To a lesser extent, cost of revenue includes payments to advertising exchanges that provide access to digital inventory where we serve advertisements. The increase in cost of revenue for the three-and-nine-months period ended September 30, 2025, compared to the same periods in 2024 were primarily related to the change in mix within Platform revenue associated with a new product introduced in the fourth quarter of 2024, mentioned above. The change in gross margin in the current year quarter, 73.4% compared to 88.4% in the same quarter last year was primarily due to a change in the revenue mix.

Current wording

Cost of revenue is composed of payments to website publishers and app developers that host advertisement as well as payments to advertising exchanges that provide access to digital inventory where we serve advertisements. The decrease in cost of revenue for the period ended March 31, 2026, compared to the same time period in 2025 was driven by a decrease in revenue from our Legacy Search clients. The resulting change in revenue mix drove gross margin lower to 46.2% compared to 79.0% in the same quarter last year. Our Legacy Search business historically carries higher gross margins as a lower proportion of its costs are recorded in cost of revenue, with a greater portion reflected in marketing and other operating expenses.

Previous wording

Marketing costs consist mostly of traffic acquisition (i.e., media) costs and include those expenses required to attract an audience to various web properties. Marketing costs for the three months ended September 30, 2025 were 21.4% lower than the same quarter last year primarily due to lower revenue with a Platform client that provides advertising inventory to owned websites in addition to fully amortizing the remaining balance of $600,000 of the referral and support services asset (see Note 7 - Commitments of our Consolidated Financial Statements) in the third quarter of 2024. Marketing costs for the nine months ended September 30, 2025 were 5.8% higher compared to the same period in 2024 due primarily to higher revenue from Platform advertisers in the comparable periods.

Current wording

Marketing costs consist mostly of traffic acquisition (i.e., media) costs and include those expenses required to attract audiences

Previous wording

Compensation expense was $39,000 higher for the three months ended September 30, 2025 compared to the same time period in 2024 primarily due to the accrual of separation expense of $150,000. Compensation expense for the nine months ended September 30, 2025 was $583,000 higher than the same period in 2024 primarily due to an increase in accrued incentive expense of $633,000 and to accruals of employment and separation agreements of $485,000. Our total employment, both full- and part-time, was 80 at September 30, 2025 compared to 82 at September 30, 2024.

Current wording

Compensation expense was higher for the three-month period ended March 31, 2026, compared to the same time period in 2025, due primarily to a one-time severance accrual of $914,000 substantially of which relates to the separation agreement of a former executive officer, partially offset by lower salary expense resulting from reduced headcount. Compensation expense for the three-month period ended March 31, 2025 included a one-time accrual of an employee benefit of $335,000. Our total employment, both full- and part-time, was 64 at March 31, 2026 compared to 81 at March 31, 2025.

Previous wording

General and administrative costs for the three and nine months ended September 30, 2025 increased 6.9% and 37.2%, respectively, compared to the same periods in 2024 due to a $1.4 million adjustment last year reducing the allowance for expected credit losses primarily for a balance due from a former client in 2022. The client has since paid off its full outstanding balance and no longer has any obligation to us.

Current wording

General and administrative costs for the three months ended March 31, 2026, increased 1% compared to the same period in 2025.

Previous wording

In March 2025, we received a payment from the Internal Revenue Service of $610,352, and in June 2025 we received an additional payment from the Internal Revenue Service of $606,156. These amounts were recorded as other income and interest income, in connection with an amended form filed in May 2023 for the Employee Retention Credit related to the first and second quarters of 2021.

Current wording

Other income was approximately $6.2 million and $540,571 for the three months ended March 31, 2026 and 2025, respectively. In January 2026, we received gross proceeds of approximately $6.2 million in connection with a class action settlement. The settlement proceeds represent a one-time, non-recurring cash inflow. During March 2025, we received a payment from the Internal Revenue Service totaling $610,352 in connection with an amended form filed in May 2023 for the Employee Retention Credit related to the first quarter of 2021. Of the total payment, $533,093 was recognized in Other income, while $77,259 of interest was recorded in Financing expense, net.

Previous wording

Our principal sources of liquidity are the sale of our common stock and our credit facility discussed in Note 5 - Bank Debt.

Current wording

Our principal sources of liquidity are the sale of our common stock and our Financing Agreement with SLR (the “Financing Agreement”), which is discussed in Note 5 – Debt.

Previous wording

As of September 30, 2025, we have approximately $3.4 million in cash and cash equivalents and our net working capital deficit was $4.9 million. For the nine months ended September 30, 2025, we used $1.8 million in cash from operations Additionally, cash used in our investing activities totaled $1,240,992 for the nine months ended September 30, 2025. This amount primarily consists of internally developed software costs, which are largely comprised of fixed labor costs, along with other capitalized expenditures. We have encountered recurring losses and cash outflows from operations, which historically we have funded through equity offerings and debt facilities. Through September 30, 2025, our accumulated deficit was $177.7 million. During the three months ended September 30, 2025 we experienced lower revenue from Platform clients as a result of changes to policies and procedures required by a Platform client. We expect revenue to increase as a result of making the necessary changes to comply with these requirements.

Current wording

As of March 31, 2026, we have approximately $2.9 million in cash and cash equivalents. Our net working capital deficit was approximately $2.7 million. Our investing activities totaled $358,944 for the three-month period ended March 31, 2026. This amount primarily consists of internally developed software costs, which are largely comprised of fixed labor costs, along with other capitalized expenditures. We have encountered recurring losses and cash outflows from operations, which historically we have funded through equity offerings and debt facilities. Through March 31, 2026, our accumulated deficit was $176.4 million.

Previous wording

On July 31, 2024, we entered into a Financing and Security Agreement (the "Financing Agreement”) with SLR Digital Finance LLC ("SLR”), effective July 30, 2024. Pursuant to the terms of the Financing Agreement, SLR will finance up to $10 million subject to availability based on the amount of eligible accounts receivable. Eligibility is determined by criteria such as geographic location of the customer and aging of receivables. As of September 30, 2025, our accounts receivable, net of allowance for credit losses, was $9,930,168, of which a substantial portion qualified as eligible under the agreement. At September 30, 2025, the outstanding balance due under the Financing Agreement was $3,383,293. See Note 5 - Bank Debt.

Current wording

On July 31, 2024, we entered into the Financing Agreement with SLR, effective July 30, 2024. Pursuant to the terms of the Financing Agreement, SLR will finance up to $10 million subject to availability based on the amount of eligible accounts receivable. Eligibility is determined by criteria such as geographic location of the customer and aging of receivables. As of March 31, 2026, our accounts receivable, net of allowance for credit losses, were $4.3 million, of which a substantial portion qualified as eligible under the Financing Agreement. As of March 31, 2026, the outstanding balance due under the Financing Agreement was $0. See Note 5 – Debt to our Condensed Consolidated Financial Statements.

Previous wording

On May 7, 2024, we entered into an At The Market Offering Agreement (the “ATM Agreement”) with H.C. Wainwright & Co. LLC (“Wainwright”), to sell shares of our common stock, par value $0.001 per share, (the “Shares”), having an aggregate sales price of up to $15,000,000, from time to time, through an “at the market offering” program under which Wainwright will act as sales agent. The sales of the Shares made under the ATM Agreement will be made by any method permitted by law deemed to be an “at the market offering” as defined in Rule 415 promulgated under the Securities Act of 1933, as amended. We will pay Wainwright a commission rate of up to 3.0% of the aggregate gross proceeds from each sale of Shares. For the year ended December 31, 2024, we have not sold any shares of common stock under the ATM Agreement. We utilized the ATM Agreement and sold 165,641 shares of common stock for gross proceeds of $1,184,740 during 2025.

Current wording

On May 7, 2024, we entered into an At The Market Offering Agreement (the “ATM Agreement”) with H.C. Wainwright & Co. LLC (“Wainwright”), to sell shares of our common stock, par value $0.001 per share, (the “Shares”), having an aggregate sales price of up to $15 million, from time to time, through an “at the market offering” program under which Wainwright will act as sales agent. The sales of the Shares made under the ATM Agreement will be made by any method permitted by law deemed to be an “at the market offering” as defined in Rule 415 promulgated under the Securities Act of 1933, as amended. We will pay Wainwright a commission rate of up to 3.0% of the aggregate gross proceeds from each sale of Shares. For the three-month period ended March 31, 2026, the Company has not sold any additional shares of common stock under the ATM Agreement. During the three-month period ended March 31, 2025, we utilized the ATM Agreement and sold 159,431 shares of common stock for gross proceeds of $1.2 million. As of March 31, 2026, approximately $13.8 million remained available for issuance under the ATM Agreement, based on cumulative gross sales of shares under the program to date.

Previous wording

its credit facility until such time as we reach profitability. Any repayments of the financing agreement will be made through collections from eligible accounts receivable. We believe that our current cash position, credit facility, and the equity raised through our ATM program during 2025 will be sufficient liquidity 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 or revenue from Platforms does not increase, we may need to fund operations through private or public sales of securities, debt financings or partnering/licensing transactions over the long term. Funding from sales of securities, debt financings or other sources may not be available on terms acceptable to us, if at all. These uncertainties could adversely impact our future liquidity.

Current wording

Management plans to support the Company’s future operations and capital expenditures through cash generated from operations and availability under its Financing Agreement and other available financing sources until such time as we reach 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, together with expected cash flows from operations, 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.

Previous wording

The table below sets forth a summary of our cash flows for the nine months ended September 30, 2025 and 2024:

Current wording

The table below sets forth a summary of our cash flows for the three months ended March 31, 2026 and 2025:

Previous wording

Net cash used in operating activities was $1,807,308 during the nine months ended September 30, 2025. We reported a net loss of $4,501,648, which included non-cash expenses of depreciation and amortization expense of $1,685,756, depreciation of right of use assets of $17,287, and stock-based compensation expense of $842,887. The change in operating assets and liabilities during the nine months ended September 30, 2025 was a net provision of cash of $48,874 primarily due to a decrease of $2,611,148 in accounts receivable partially offset by a decrease of other liabilities of $1,636,113. Our terms are such that we generally collect receivables prior to paying trade payables. However, our Media sales arrangements typically have slower payment terms than the terms of related payables.

Current wording

Net cash provided by operating activities was $1,589,931 during the three months ended March 31, 2026. We reported net income of $1,895,655, which included the receipt of approximately $6.2 million in non-recurring settlement proceeds during the current period, non-cash expenses of depreciation and amortization expense of $538,786 and stock-based compensation expense of $302,719. The change in operating assets and liabilities during the three months ended March 31, 2026 was a net use of cash of $1,134,034 primarily due to a decrease in the accounts payable balance of $2,988,808, partially offset by the decrease in accounts receivable balance of $1,625,443 and an increase in accrued expenses and other current liabilities of $431,591. Our terms are such that we generally collect receivables prior to paying trade payables; however, our Media sales arrangements typically have slower payment terms than the terms of related payables.

Previous wording

During the comparable nine-month period in 2024, cash used in operating activities was $100,345 from a net loss of $5,903,142 and included several non-cash expenses of depreciation and amortization expense of $1,951,196 and stock-based compensation expense of $1,087,533. The change in operating assets and liabilities during the nine months ended September 30, 2024, was a net provision of cash of $3,210,679.

Current wording

During the comparable three-month period in 2025, cash used in operating activities was $366,912 from a net loss of $1,259,821 that included several non-cash expenses of depreciation and amortization expense of $568,042 depreciation of right of use assets of $6,090, and stock-based compensation expense of $304,284. The change in operating assets and liabilities during the three months ended March 31, 2025, was a net use of cash of $79,752.

Previous wording

Net cash provided by investing activities was $1,409,762 for the nine months ended September 30, 2024, and consisted primarily of capitalized internal development costs.

Current wording

Net cash used by investing activities was $358,944 for the three months ended March 31, 2026, and consisted primarily of capitalized internal development costs.

Previous wording

Net cash used in investing activities was $1,240,992 for the nine months ended September 30, 2025, and consisted primarily of capitalized internal development costs.

Current wording

Net cash used in investing activities was $451,729 for the three months ended March 31, 2025, and consisted primarily of capitalized internal development costs.

Previous wording

Net cash provided by financing activities was $3,968,636 during the nine months ended September 30, 2025, and was primarily due to the utilization of our Financing Agreement as discussed in Note 5 - Bank Debt.

Current wording

Net cash provided by financing activities was $921,389 during the three months ended March 31, 2025, and was primarily from the proceeds from the ATM Agreement as discussed in Note 1 – Organization and Business.

Previous wording

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 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. Our significant accounting policies related to Revenue Recognition, Equity-Based Compensation, Capitalized Software Costs, Goodwill, Long-lived Assets and others are described in Note 2 – Summary of Significant Accounting Policies of our Consolidated Financial Statements included elsewhere in this Report.

Current wording

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 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 condensed consolidated financial statements. Actual results may differ from the estimates and assumptions used in preparing the accompanying condensed consolidated financial statements, and such differences could be material. Our significant accounting policies related to Revenue Recognition, Equity-Based Compensation, Capitalized Software Costs, Goodwill, Long-lived Assets and others are described in Note 2 – Summary of Significant Accounting Policies of our Condensed Consolidated Financial Statements included elsewhere in this Report.