Quarterly Report for Quarter Ending September 30, 2025 (Form 10-Q)

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

Company Overview

Inuvo is an advertising technology and services business selling information technology solutions to brands, agencies and large consolidators of advertising demand ("Platforms"). Inuvo's revenue is derived from the placement of digital advertising throughout devices, websites, applications and browsers across 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's primary mission is to disrupt the advertising industry with its proprietary and patented generative large language artificial intelligence (AI), a technology capable of identifying and targeting audiences without using a consumer's identity or data. The AI was designed to replace the consumer data, analytics, segmentation and lookalike modeling technologies that have traditionally served the advertising industry as it transitions to a new paradigm where a consumer's identity and data are no longer available for advertising decisions due to legislative and technological changes. Rather than targeting people, the AI targets the reasons behind why people are interested in products, services and brands.

Inuvo's AI technology solves this challenge and can be consumed by Agency & Brands clients both as a managed service and software-as-a-service. For certain clients, Inuvo has also developed various proprietary technology and assets that include digital content, websites, automated campaigns, ad fraud detection, performance reporting and predictive media mix modeling.

The Inuvo products and services use analytics, data and artificial intelligence in a manner that optimizes the purchase and placement of advertising in real time. These capabilities are typically sold with services both individually and in combination with each other based on client needs. These products and services include:

	·	IntentKey: An artificial intelligence-based consumer intent recognition system designed to reach highly targeted mobile and desktop In-Market audiences with precision; and
	·	Bonfire: A marketing and advertising solution where a collection of data, analytics, software and publishing is used to align advertising messages with consumers across websites online.

There are many barriers to entry associated with the Inuvo business model, including a proficiency in large language model based artificial intelligence, large scale information processing, software development, consumer data products, analytics, IOT (internet of things) integration and the relationships required to execute within the IOT. Inuvo's intellectual property is protected by 18 issued and three pending patents.

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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. 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.

Results of Operations

		For the Three Months Ended September 30,																For the Nine Months Ended September 30,
		2025				2024				Change				% Change				2025				2024				Change				% Change
Net Revenue		$	22,570,572			$	22,371,153			$	199,419				0.9	%		$	71,949,937			$	57,603,935			$	14,346,002				24.9	%
Cost of Revenue			6,002,423				2,594,642				3,407,781				131.3	%			17,199,909				7,599,872				9,600,037				126.3	%
Gross Profit		$	16,568,149			$	19,776,511			$	(3,208,362	)			(16.2	)%		$	54,750,028			$	50,004,063			$	4,745,965				9.5	%

Net Revenue

Revenue for the three-month period ended September 30, 2025, increased approximately $199,000 and revenue for the nine-month period ended September 30, 2025, increased by approximately $14.3 million compared to the same periods in 2024, respectively. Platform clients represented 82.8% of the overall revenue in the third quarter of 2025 compared to 83.8% in the same quarter of 2024. Platform clients represented 86.2% of the overall revenue in the nine-month period ended September 30, 2025 compared to 83.6% in the same period of 2024. In the third quarter of 2025, our two largest Platform clients accounted for 62.8% and 19.6% of our overall revenue, respectively. In the nine-month period ended September 30, 2025, our two largest Platform clients accounted for 66.9% and 18.8% of our overall revenue, respectively. Revenue from both Platform clients grew significantly in 2025-one following the launch of a new product in 2023 that we have continued to expand, and the other after we introduced a new product in the fourth quarter of 2024. Agencies & Brands revenue increased 7% for the three-month period ended September 30, 2025 compared to the same period last year and it was up 29% compared to the sequential quarter. Through the first nine-months, both Platform and Agency & Brands revenues were up year-over-year.

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 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.

Operating Expenses

		For the Three Months Ended September 30,																For the Nine Months Ended September 30,
		2025				2024				Change				% Change				2025				2024				Change				% Change
Marketing costs		$	13,375,136			$	17,006,131			$	(3,630,995	)		(21.4		%)		$	45,026,458			$	42,540,355			$	2,486,103				5.8	%
Compensation			3,145,125				3,106,384				38,741				1.2	%			9,945,452				9,362,474				582,978				6.2	%
General and administrative			1,717,591				1,607,258				110,333				6.9	%			5,261,165				3,835,162				1,426,003				37.2	%
Operating expenses		$	18,237,852			$	21,719,773			$	(3,481,921	)		(16.0		%)		$	60,233,075			$	55,737,991			$	4,495,084				8.1	%

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.

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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.

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.

Financing expense, net

Financing expense, net of interest income, for the three and nine months ended September 30, 2025, was approximately $113,633 and $159,259, respectively.

Financing expense, net of interest income, for the three and nine months ended September 30, 2024, was approximately $101,000 and $163,000, respectively.

Liquidity and Capital Resources

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

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.

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.

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.

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.

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. 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.

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Cash Flows

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

		For the Nine Months Ended September 30,
		2025				2024
Net cash used in operating activities		$	(1,807,308	)		$	(100,345	)
Net cash provided by/(used in) investing activities		$	(1,240,992	)		$	(1,409,762	)
Net cash provided by/(used in) financing activities		$	3,968,636			$	(343,526	)

Cash Flows - Operating

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.

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.

Cash Flows - Investing

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.

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.

Cash Flows - Financing

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.

Net cash used in financing activities during the nine months ended September 30, 2024 was $343,526 and was primarily due to taxes paid on restricted stock unit grants exercised.

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Off Balance Sheet Arrangements

As of September 30, 2025, we do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors. The term "off-balance sheet arrangement" generally means any transaction, agreement or other contractual arrangement to which an entity unconsolidated with us is a party, under which we have any obligation arising under a guarantee contract, derivative instrument or variable interest or a retained or contingent interest in assets transferred to such entity or similar arrangement that serves as credit, liquidity or market risk support for such assets.