Annual Report for Fiscal Year Ending 12-31, 2025 (Form 10-K)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion of our financial condition and results of operations for 2025 and 2024 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 market leader in generative artificial intelligence for modeling media audiences. As a leading provider of AI-driven data and advertising technology solutions, we have successfully commercialized a proprietary, patented large language model ("LLM") that identifies and actions the reasons why consumers are interested in products, services, or brands - rather than who they are - offering a high-performance, privacy-by-design solution for the modern advertising landscape.

Intelligence for the Agentic Era. As the industry moves toward "agentic" systems - where autonomous AI agents increasingly handle the planning and execution of media tasks - Inuvo is uniquely positioned as a critical intelligence layer. Unlike legacy systems that rely on static historical data or consumer IDs (cookies), Inuvo's technology provides the real-time, intent-based reasoning required for autonomous media planning and activation. By serving as the neural network for these adaptive systems, Inuvo enables brands to move from traditional audience targeting to dynamic model planning.

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Inuvo's core competitive advantage lies in Intent Discovery. While the programmatic industry has traditionally relied on reaching known users based on past behavior, Inuvo's AI discovers new, high-value audiences as their motivations form.

This intelligence is delivered through a suite of advanced visualization and compliance tools:

	·	The Company's flagship proprietary AI, IntentKey®, analyzes live content consumption across the open web, mapping human motivation to a concept graph of over 25 million ideas. This allows Inuvo to predict purchase intent with precision, often identifying emerging audience shifts 24 hours before they become competitive in the open market. This, in turn, delivers targeting leverage that translates to superior supply/demand yields within bid streams.
	·	IntentPath: A first-of-its-kind visualization that allows marketers to see "intent-in-motion," mapping the real-time journey from initial discovery to final purchasing decision.
	·	Ranger: An AI-powered quality assurance feature within our Campsight system that ensures ad creatives remain consistent, accurate and compliant across digital networks.

Inuvo delivers these capabilities through two primary business channels:

	·	Agencies & Brands: Managed and self-service offerings that utilize Inuvo's intelligence layer for precision audience discovery and brand-safe activation across CTV, Video, Audio, Native, and Display channels.
	·	Platform: Inuvo provides strategic integrations for large consolidators of advertising demand. This business is optimized to prioritize advertising quality, scalability, and compliance, leveraging AI to align merchant messaging with online content in a durable, defensible manner.

Inuvo's competitive moat and intellectual property are protected by 18 issued and three pending patents issued by the United States Patent and Trademark Office. Our IP portfolio includes patents, trade secrets and trademarks. We actively seek to protect our IP rights and to deter unauthorized use of our IP and other assets. While our IP rights are important to our success, our business is not significantly dependent on any single patent, trademark, or other IP right.

Credit Agreement

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 up to 90% of eligible accounts receivable under the Financing Agreement, up to the maximum credit commitment of $10,000,000. We will pay SLR monthly interest at the rate of 1.0% in excess of the Prime Rate but not less than 7%. The Financing Agreement has a three year term. The Financing Agreement contains certain affirmative and negative covenants to which we are also subject. We agreed to pay SLR an annual facility fee of 0.80% of the maximum credit commitment. We also agreed to pay a minimum utilization amount of the interest rate multiplied by difference between $500,000 and the average daily outstanding loan during a month. We are obligated to pay SLR a monthly service fee of 0.15% on of the average net amount of outstanding loans during each month. If we terminate the Financing Agreement prior to the second anniversary of the effective date, an amount equal to 1.0% of the maximum credit commitment will be due as an early termination payment and if we terminate after the second anniversary of the effective date but prior to the end of the term, an amount equal to 0.25% of the maximum credit commitment will be due. Repayment of the Financing Agreement will be made through collections from eligible accounts receivable. At December 31, 2025 the outstanding balance under the Financing Agreement at that date was $3,288,100.

2025 Overview

We reported net revenue of $86.2 million in 2025, a 2.9% increase over the prior year. The highlights of 2025, include:

	·	Inuvo introduced IntentPath for next-level audience visualization capability that predicts how audiences move from awareness to engagement to conversion.
	·	The Company launched Ranger, an advanced quality assurance and compliance capability within its Campsight system, designed to strengthen responsible monetization and improve creative verification and message consistency.
	·	The Company appointed Rob Buchner as Chief Operating Officer in a newly created role to support operational scale and accelerate go-to-market execution for IntentKey, and he was subsequently appointed Chairman and Chief Executive Officer in January 2026.
	·	15 new Agencies/Brands were signed up.

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Results of Operations

		For the Years Ended December 31,
		2025				2024				Change				% Change
Net Revenue		$	86,209,305			$	83,793,859			$	2,415,446				2.9	%
Cost of Revenue			21,995,153				12,033,777				9,961,376				82.8	%
Gross Profit		$	64,214,152			$	71,760,082			$	(7,545,930	)			(10.5	)%

Net Revenue

We reported $86.2 million in net revenue for the year ended December 31, 2025, a 2.9% increase compared to $83.8 million during the same period in 2024. Platform clients represented 83.8% of the overall revenue for the year ended December 31, 2025 compared to 82.8% in the same period of 2024. For the year ended December 31, 2025, our two largest clients, both Platform clients, accounted for 64.2% and 19.3% of our overall revenue, respectively. During 2024 our largest client, also a Platform client, accounted for 75.0% of our revenues. Revenue from one of our largest Platform clients increased significantly in 2025 compared to the prior year due to the introduction of a new product in the fourth quarter of 2024. However, this increase was offset by a decline in revenue from our largest Platform client, as advertising activity was reduced during the second half of 2025 to comply with our client's new requirements.

Cost of Revenue

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 year ended December 31, 2025, compared to the same time period in 2024 was primarily related to the change in mix within Platform revenue. As mentioned above, revenue from a new product introduced in the fourth quarter of 2024 accounted for the increase in cost of revenue. The change in gross margin in the current year ended December 31, 2025, 74.5% compared to 85.6% in the same period of 2024 was primarily due to a change in the revenue mix.

Operating Expenses

		For the Year Ended December 31,
		2025				2024				Change				% Change
Marketing costs		$	51,890,162			$	59,663,061			$	(7,772,899	)		(13.0		)%
Compensation			12,086,350				12,065,783				20,567				0.2	%
General and administrative			6,933,684				5,545,049				1,388,635				25.0	%
Operating expenses		$	70,910,196			$	77,273,893			$	(6,363,697	)		(8.2		)%

Marketing costs consist primarily of traffic acquisition, or media, costs and include expenses incurred to attract and direct audience traffic to various web properties. Marketing costs for the year ended December 31, 2025 compared to the same period in 2024 was 13.0% lower due primarily to lower revenue in 2025 from the Platform client mentioned in Net Revenue section above and to fully amortizing the remaining balance of $600,000 of the referral and support services asset in the third quarter of 2024 (see Note 8 - Business Development Agreement to our Consolidated Financial Statements).

Compensation expense was flat for the year ended December 31, 2025, compared to the same time period in 2024. Our total employment, both full and part-time, was 79 at December 31, 2025 compared to 81 at December 31, 2024.

General and administrative expenses increased for the year ended December 31, 2025 compared to the same period in 2024 primarily due to a $1.4 million reduction in the allowance for expected credit losses recorded in 2024 related to a balance due from a former client. That client subsequently paid its outstanding balance in full and had no remaining obligations to the Company as of December 31, 2025.

Financing expense, net

Finance expense, net of interest income, for the year ended December 31, 2025 was approximately $259,000 expense and was primarily due to interest and financing expenses of approximately $400,000 and commitment fee expense of approximately $80,000 offset by interest income of approximately $218,000. During 2025, the Company received a delayed refund from the Internal Revenue Service (IRS) of which $158,000 was recorded as interest income.

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Finance expense, net of interest income, for the year ended December 31, 2024 was approximately $266,000 expense and was primarily due to interest expense of approximately $221,000 and commitment fee expense of approximately $66,000 offset by interest income of approximately $71,000.

Other income, net

Other income, net, for the year ended December 31, 2025 was income of approximately $1.9 million.

During the year ended December 31, 2025, the Company received a payment from the IRS totaling $610,352 in connection with an amended form filed in May 2023 for the Employee Retention Credit (ERC) related to the first quarter of 2021. Of this amount, $533,093 was recognized in Other Income, and $77,259 of interest was recorded in Financing expense, net. The Company received an additional ERC payment from the IRS related to the second quarter of 2021, totaling $606,156. Of this amount, $525,085 was recognized in Other Income, and $81,071 of interest was recorded in Financing expense, net.

During the year ended December 31, 2025, the Company received a refund of approximately $700,000 from a partner related to amounts previously paid in 2022. The refund was recognized in other income during 2025 and represents a non-recurring item.

Other income, net, for the year ended December 31, 2024 was income of approximately $26,000 for setup charges to new Platform partners.

Liquidity and Capital Resources

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

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 did not sell any shares of common stock under the ATM Agreement. During the year ended December 31, 2025, we utilized the ATM Agreement and sold 165,641 shares of common stock for gross proceeds of $1,184,740, before deducting commissions and other offering-related costs.

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 December 31, 2025, our accounts receivable, net of allowance for credit losses, were $5,887,884, of which a substantial portion qualified as eligible under the Financing Agreement. At December 31, 2025, the outstanding balance due under the Financing Agreement was $3,288,100. See Note 6 - Bank Debt to our Consolidated Financial Statements.

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 technological advantage and higher margins. If we are successful in implementing our plan, we expect to return to and maintain positive cash flows from operations. However, there is no assurance that we will be able to achieve this objective.

As of December 31, 2025, we have approximately $2.8 million in cash and cash equivalents. Our net working capital deficit was $5.1 million. We have encountered recurring losses and cash outflows from operations, which historically we have funded through equity offerings and debt facilities. For the year ended December 31, 2025 we had a net loss of $5.1 million and the net cash used in operations was $1.8 million. Additionally, our investment in investing activities totaled approximately $1.6 million for the year ended December 31, 2025. This amount primarily consists of internally developed software costs, which are largely comprised of fixed labor costs, along with other capitalized expenditures. Through December 31, 2025, our accumulated deficit was $178.3 million.

Subsequent to December 31, 2025, on January 14, 2026, the Company entered into a securities purchase agreement with a certain investor pursuant to which the Company authorized the issuance of subordinated convertible notes in the aggregate principal amount of approximately $3.33 million, subject to a 10% original issue discount. The subordinated convertible note is convertible into shares of the Company's common stock at a conversion price of $3.10 per share, subject to applicable NYSE American ownership limits and certain registration rights obligations. In connection with the convertible note financing, the Company also entered into a debt subordination agreement with its senior lender and a registration rights agreement with the investor. This financing provided incremental liquidity subsequent to year-end and is included as a subsequent event. Management expects the additional capital to enhance the Company's liquidity position and support operations and strategic initiatives in 2026.

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Subsequent to December 31, 2025, the Company received approximately $6.2 million in connection with a previously disclosed class action settlement. The settlement proceeds represent a one-time, non-recurring cash inflow and enhanced the Company's liquidity position after year-end. Management considered the receipt of these proceeds, along with subsequent financing activity, in its assessment of the Company's liquidity and capital resources.

Management plans to support the Company's future operations and capital expenditures primarily through cash generated from its credit facility 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, together with availability under our credit facility and proceeds received subsequent to December 31, 2025 from the $6.2 million class action settlement and the subordinated convertible note issued in January 2026, 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.

Cash Flows

The table below sets forth a summary of our cash flows for the years ended 2025 and 2024:

		2025				2024
Net cash provided by/(used) in operating activities		$	(1,786,301	)		$	229,554
Net cash provided by/(used in) investing activities		$	(1,601,903	)		$	(1,857,375	)
Net cash provided by/(used in) financing activities		$	3,768,880			$	(353,388	)

Cash Flows - Operating

Net cash used in operating activities was $1,786,301 during 2025. We reported a net loss of $5,095,518, which included non-cash expenses: depreciation and amortization of $2,234,749 and stock-based compensation of $1,144,773. The change in operating assets and liabilities was a net use of cash of $303,348 primarily due to a decrease in the accounts receivable balance of $6,703,509, offset by decreases in accrued expenses and other liabilities of $5,565,487 and accounts payable of $1,331,567. 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.

During 2024, cash provided by operating activities was $229,554. We reported a net loss of $5,761,801 which included the non-cash expenses of depreciation and amortization of $2,515,177, stock-based compensation expenses of $1,501,444, $800,000 for the impairment and amortization of a referral and support services agreement, and amortization of right of use assets of $54,356. The change in operating assets and liabilities was a net provision of cash of $2,342,255.

Cash Flows - Investing

Net cash used in investing activities was $1,601,903 for 2025 and consisted primarily of capitalized internal development costs. Net cash used in investing activities in 2024 was $1,857,375 and consisted primarily of capitalized internal development costs.

Cash Flows - Financing

Net cash provided by financing activities was $3,768,880 during 2025, primarily due to the utilization of our Financing Agreement as discussed in Note 6 - Bank Debt to our Consolidated Financial Statements and sales of common stock through the ATM as discussed in Note 11 - Stockholders' Equity to our Consolidated Financial Statements.

Net cash used in financing was $353,388 during 2024, primarily due to the election of certain participants to have the Company withhold the issuance of shares pursuant to vesting restricted stock units in consideration of the Company's payment of taxes on behalf of such participants.

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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 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. We believe the following accounting policies are those most critical to the judgments and estimates used in the preparation of our financial statements: Revenue Recognition, Capitalized Software costs, Intangible Assets, and Goodwill. These policies and others are described in Note 2 - Summary of Significant Accounting Policies, of the Consolidated Financial Statements included elsewhere in this Report.

Revenue recognition - We generate revenue by identifying audiences and presenting advertisements on behalf of our customers. Our revenue is derived from the placements of advertisements across advertising channels, browsers, applications and devices. Pricing for those advertisement placements is typically either on a cost-per-click or cost per thousand impressions basis.

Our revenue is a function of the number of advertisements placed combined with the price we obtain (using our technologies) for the placements made on behalf of our clients. We assume the risk associated of finding placements at a cost below that for which it had been sold.

We recognize revenue when control of the contracted services or product is transferred to our customer, in an amount that reflects the consideration we expect to be entitled to in exchange for those services or products. We determine revenue recognition through (i) identification of a contract with a customer, (ii) identification of the performance obligations in the contract, (iii) determination of the transaction price, (iv) allocation of the transaction price to the performance obligations in the contract, and (v) recognition of revenue when or as the performance obligations are satisfied.

Customer contracts are typically captured in an Insertion Order ("IO") where revenue is recognized upon delivery of services during the period covered by the IO, or in multi-year master service agreements where revenue is recognized based on the number of advertisements placed or clicked on in the period they occur. We settle advertisement placement prices with our customers net of any adjustments for quality. Judgment is required to identify a contract with a customer, identify its performance obligations, determine the transaction price, allocate the transaction price to the performance obligations, and determine whether the performance obligations are satisfied.

Capitalized software costs - We capitalize the cost of internally developed software that has a useful life in excess of one year. These costs consist of the salaries and benefits of employees working on such software development to customize, enhance or develop new product. We assess whether development work creates additional functionality to the software or is a new software product, and qualifies the costs incurred for capitalization.

We annually assess whether triggering events are present to review internal-use software for impairment. The estimated useful life of our software development costs is two years and is amortized using the straight-line method. There is judgment involved in determining the validity of capitalization, estimating the useful life and evaluating whether any impairment occurred. Capitalized software development costs were $1.5 million and $1.8 million, respectively, for the years ended December 31, 2025 and 2024.

Intangible assets, net - 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. We also acquire intangible assets outside of acquisitions and record them at their fair value and amortize them over their estimated useful lives. Judgment is required to determine fair value and the useful life.

Goodwill - We utilize the purchase method of accounting in accordance with ASC 805, Business Combinations. This standard requires that the total cost of an acquisition be allocated to the tangible and intangible assets acquired and liabilities assumed based on the fair value of the tangible and intangible assets acquired and liabilities assumed at the acquisition date. Our estimates and assumptions used in assessing fair value are inherently uncertain and subject to refinement. During the measurement period, which may be up to one year from the acquisition date, we may record adjustments to the fair value of these tangible and intangible assets acquired and liabilities assumed, with the corresponding offset to goodwill. In addition, uncertain tax positions and tax-related valuation allowances are initially recorded in connection with a business combination as of the acquisition date.

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We periodically conduct a review of long-lived assets to assess potential triggering events for impairment within the Inuvo reporting unit. We perform an impairment test annually by comparing the fair value of our reporting unit with its carrying amount. We have only one reporting unit and generally determine the fair value of this 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. There is judgment involved in estimating the fair value, useful life and in the evaluation of any impairment.