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PART I
ITEM 1. 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 or service 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 customers and prospects 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 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.
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 17 issued and eight pending patents.
Products and Services
The Inuvo platforms use analytics, data and artificial intelligence in a manner that optimizes the purchase and placement of advertising in real time. These products and services include:
•ValidClick: A marketing and advertising service provided directly to brands and large consolidators of advertising demand where a collection of data, analytics, software and publishing gets used to align merchant advertising messages with anonymous consumers across various websites online. The service includes Think Relevant, a wholly owned marketing agency and Bonfire publishing, a wholly owned collection of websites; and
•IntentKey: An artificial intelligence-based consumer intent recognition system designed to reach highly targeted mobile and desktop In- Market audiences with precision. The platform can serve multiple creative formats including display, video, audio and native across multiple device types including desktop, mobile, tablet, connected/smart TV and game consoles. The product is sold as both a fully managed service and/or a Software as a Service ("SaaS") solution.
Key Relationships
The company maintains long-standing relationships with Yahoo! and Google who provide access to hundreds of thousands of advertisers from which a majority of the ValidClick revenue originates. When an advertisement is clicked, the ValidClick platform effectively sells that click to these partners who then sell it to their advertisers. We maintain multi-year service contracts with these companies. In 2021, these customers accounted for 48.6% of our total revenue as compared to 60.5% in 2020. We also have major contracts with Xandr, Inc. who, in exchange for a fee, provides access to publishers' advertising inventory for the IntentKey.
In addition to our key customer relationships, we maintain important distribution relationships with owners and publishers of websites and mobile applications. We provide these partners with advertisements which they use to monetize their websites and mobile applications. We continuously monitor consumer traffic with a variety of proprietary and patent protected software tools that can determine the quality of the traffic viewing and clicking on Inuvo served advertisements as a part of our service to our biggest clients.
Strategy
Our business strategy has been to develop data processing and advertising technologies that can displace intermediaries within the online advertising ecosystem, while cultivating relationships that can provide access to media spend (advertisers) and media inventory (websites). In this regard, we have proprietary demand (media spend) and supply (media inventory) technologies, targeting technologies, on-page or in-app ad-unit technologies, proprietary data and data management technologies, and advertising fraud detection technologies. We have both direct and indirect relationships at some of the largest media buyers and/or consolidators in the industry. For the ValidClick platform, where the focus is search and social advertising channels, the immediate strategy is to maintain relationships with existing partners and expand the business by supporting IntentKey customers. For the IntentKey platform, where the focus is programmatic advertising channels, the immediate strategy is to scale through the hiring of additional sales professionals and partnerships, growing existing accounts and expanding our market footprint. In an increasingly privacy conscious world, we are focused on replacing the current technologies used by advertisers with our artificial intelligence solution, which does not rely on the use of consumer data.
Our business strategy is focused on providing differentiation through the AI analytics and data products we own and protect through patents. For the marketing and advertising industries we serve, this strategy aligns with the components of the value chain that are the principal drivers of value to our clients. As part of our growth strategy, we evaluate acquisition candidates from time to time as opportunities arise with a focus on companies that have either advertisers or advertising relationships we do not possess or publishers or publishing partners who have content we do not possess.
Sales and Marketing
We drive general awareness of our brands through various marketing channels including our websites, social media, blogs, public relations, trade shows and conferences. Sales and marketing for our products differs based on whether they are demand or supply facing.
The demand side of our business includes sales executives who create interest from agencies, trading desks and brands directly. Leveraging our IntentKey and ValidClick technology to highlight our differentiation, our sales executives explain how we identify the most relevant audiences so we can, on behalf of our clients, target those audiences at a time when they are most prone to engage / respond / subscribe / tune-in or watch our clients' message.
The supply side of our business includes relationships with and integrations to platforms that make available for auction, advertising inventory the IntentKey can use to identify advertising placements for Inuvo clients. We pay a fee to the platform for this service. Within ValidClick, a series of web properties and content have been developed within the wholly owned Bonfire publishing where unique technology and content experiences can be created in a manner that aligns with the objectives of our advertising clients.
Competition
We face significant competition in our industry. Competitors continue to increase their suite of offerings across marketing channels to better compete for total advertising dollars. There are many barriers to entry to Inuvo’s business that would require proficiency in large scale data center management, software development, data products, analytics, artificial intelligence, integration to the internet of things, or IOT, the relationships required to execute within the IOT and the ability to process tens of billions of transactions daily.
We compete, both directly and indirectly with companies who offer demand side platforms (DSP’s), direct marketing platforms (DMP’s), Data Suppliers and Aggregators, Media Planners and various Measurement and Analytics companies. The companies within these categories are defined by LUMA @ https://lumapartners.com/content/lumascapes/display-ad-tech-lumascape.
Our primary competitive advantages include: patented, proprietary technology for the categorization and storage of consumer intent (data used to discover and match online audiences to product or service); real time visibility of a marketing event (recognizing that there is currently a transaction where a match exists between our advertising clients and an interested party for their product on a website) where our technology is capable of responding to over 200,000 events per second; and patented advertising fraud prevention. Many competitors have greater name recognition and are better capitalized than we are. Our ability to remain competitive in our market segment depends upon our ability to be innovative and to efficiently provide unique solutions to our demand and supply customers. There are no assurances we will be able to remain competitive in our markets in the future.
Technology Platforms
Our proprietary applications are constructed from established, readily available technologies. Some of the basic elements of our products are built on components from leading software and hardware providers such as Oracle, Microsoft, Sun, Dell, EMC, and Cisco, while some components are constructed from leading open-source software projects such as Apache Web Server, Apache Spark, HAProxy, MySQL, Java, Perl, and Linux. By seeking to strike the proper balance between using commercially available software and open-source software, our technology expenditures are directed toward maintaining our technology platforms while minimizing third-party technology supplier costs.
We strive to build high-performance, availability and reliability into our product offerings. We safeguard against the potential for service interruptions at our third-party technology vendors by engineering controls into our critical components. We deliver our hosted solutions from facilities, geographically disbursed throughout the United States and maintain ready, on-demand services through third-party cloud providers Microsoft Azure and Amazon Web Services to enhance our business continuity. Our applications are monitored 24 hours a day, 365 days a year by specialized monitoring systems that aggregate alarms to a human-staffed network operations center. If a problem occurs, appropriate engineers are notified, and corrective action is taken.
Intellectual Property Rights
We own intellectual property (IP) and related IP rights that relate to our products, services and assets. Our IP portfolio includes patents, trade secrets and trademarks. 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.
Our trademarks include the U.S. Federal Registration for our consumer facing brand ALOT® in the United States. Our intellectual property portfolio includes 17 patents issued by the United States Patent and Trademark Office (“USPTO”) and eight pending patent applications.
To distinguish our products and services from our competitors’ products, we have obtained trademarks and trade names for our products. We also protect details about our processes, products, and strategies as trade secrets, keeping confidential the information that we believe provides us with a competitive advantage.
Employees and Human Capital Resources
As of January 31, 2022, we had 81 full-time employees, none of which are covered by a collective bargaining agreement.
Human capital management is critical to Inuvo’s ongoing business success, which requires investing in our people. Our aim is to create a highly engaged and motivated workforce where employees are inspired by leadership, engaged in purpose-driven, meaningful work and have opportunities for growth and development. We are an equal opportunity employer and we are fundamentally committed to creating and maintaining a work environment in which employees are treated with respect and dignity. All human resources policies, practices and actions related to hiring, promotion, compensation, benefits and termination are administered in accordance with the principles of equal employment opportunity and other legitimate criteria without regard to race, color, religion, sex, sexual orientation, gender expression or identity, ethnicity, national origin, ancestry, age, mental or physical disability, genetic information, any veteran status, any military status or application for military service, or membership in any other category protected under applicable laws.
An effective approach to human capital management requires that we invest in talent, development, culture and employee engagement. We aim to create an environment where our employees are encouraged to make positive contributions and fulfill their potential. We instill our core values of innovation, encouragement, motivation, and curiosity with our employees to instill culture and create this environment of growth and positivity.
Our Board of Directors is also actively involved in reviewing and approving executive compensation, selections and succession plans so that we have leadership in place with the requisite skills and experience to deliver results the right way.
Seasonality
Our future results of operations may be subject to fluctuation because of seasonality. Historically, the second half of the year is typically stronger than the first half because of the changes in demand for marketing placements leading into the holiday season. If we are not able to appropriately adjust to seasonal or other factors, it could have a material adverse effect on our financial results.
History
The Company was incorporated under the laws of the state of Nevada in October 1987 and originally operated within the oil and gas industry. This endeavor was not profitable, and as a result from 1993 to 1997 the Company had essentially no operations. In 1997, the business was reorganized and through 2006 a number of companies were acquired from within the advertising and internet marketing industry. In 2009, following the weakness in the economy, a new team was called in to assess the array of businesses that had been acquired in the preceding years and as a result between 2009 and 2011, that team sold and/or retired eleven businesses as a part of the restructure.
In March 2012, as part of a longer-term strategy, the Company acquired Vertro, Inc., which owned and operated the ALOT product portfolio. That acquisition included the ALOT brand, as well as a long-standing relationship with Google. In 2013, with a grant funded by the State of Arkansas, the Company moved its headquarters to Arkansas where we have remained.
In February 2017, the Company entered into an asset purchase agreement with NetSeer, Inc. which advanced the Company's technology strategy while also increasing the number of advertiser and publisher relationships. We exchanged 3,529,000 shares of Inuvo common stock and assumed approximately $6.8 million of specified liabilities in this business combination.
More Information
Our website address is www.inuvo.com. We file with, or furnish to, the Securities and Exchange Commission (the "SEC") annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, and amendments to those reports, as well as various other information. This information can be found on the SEC website at www.sec.gov. In addition, we make available free of charge through the Investor Relations page of our website our annual reports, quarterly reports, and current reports, and all amendments to any of those reports, as soon as reasonably practicable after providing such reports to the SEC.
ITEM 1A. RISK FACTORS.
An investment in our common stock involves a significant degree of risk. Many of the risk factors are, and will continue to be, exacerbated by the COVID-19 pandemic and any worsening of the economic environment. You should not invest in our common stock unless you can afford to lose your entire investment. You should consider carefully the following risk factors and other information in this report before deciding to invest in our common stock. If any of the following risks and uncertainties develops into actual events, our business, financial condition or results of operations could be materially adversely affected and you could lose your entire investment in our Company.
Business Risks
We have a history of losses. We cannot anticipate with any degree of certainty what our revenues will be in future periods. While our revenues increased approximately 34% in 2021 as compared to 2020, our gross profit margin decreased to 73.4% in 2021 from 81.4% in 2020. We reported an operating loss of approximately $7.8 million in 2021 as compared to an operating loss of approximately $8.1 million in 2020. The lower gross margin in 2021 was primarily due to the change of revenue mix. Though we have a credit facility dependent upon receivables, the negative cash flows generated from operating activities introduces potential risk of an interruption to operating activities.
The COVID-19 pandemic could have a material adverse impact on our business, results of operations and financial condition. In December 2019, a novel strain of coronavirus disease (“COVID-19”) was first reported in Wuhan, China. Less than four months later, on March 11, 2020, the World Health Organization declared COVID-19 a pandemic—the first pandemic caused by a coronavirus. The outbreak has resulted in the implementation of significant governmental measures, including lockdowns, closures, quarantines and travel bans, intended to control the spread of the virus. The COVID-19 outbreak has already caused severe global disruptions. Beginning in late April 2020, we experienced a significant reduction in demand (marketing budgets) within the ValidClick platform and a modest decline in demand within the IntentKey platform, the combination of which resulted in a significant reduction in our revenue run rate. Generally, marketing budgets tend to decline in times of a recession. During 2020, we curtailed expenses, including compensation and travel and issued a work from home policy to protect our employees and their families from virus transmission associated with co-workers and we began to experience interruptions in our daily operations, as a result of these policies. During 2021, we changed our policies and reopened our offices on a limited basis and our revenue has returned to growth on a year over year basis. We maintain long-standing relationships with Yahoo! and Google that provide access to hundreds of thousands of advertisers from which most of our ValidClick and digital publishing revenue originates. Any adverse impact on the operations of those companies would have a correspondingly adverse impact on our revenues in future periods. We will continue to assess the impact of the COVID-19 pandemic on our Company, however, at this time we are unable to predict all possible impacts on our Company, operations and
revenues. Should revenues turn downwards or fail to return to historical levels on a consistent basis, we may not be able to offset expenses quickly enough which could have a material adverse effect on our business, results of operations, financial condition and cash flows and adversely impact the trading price of our common stock.
We rely on three customers for a significant portion of our revenues. We are reliant upon Google, Yahoo! and Sovrn for a significant portion of our revenue. During 2021 these customers accounted for 33.0%, 15.6% and 14.3% of our revenues, respectively. In 2020, Yahoo! and Google accounted for 33.3% and 27.2% of our revenues, respectively. The amount of revenue we receive from these customers is dependent on a number of factors outside of our control, including the amount they charge for advertisements, the depth of advertisements available from them, and their ability to display relevant ads in response to end-user queries. We would likely experience a significant decline in revenue and our business operations could be significantly harmed if these customers do not approve our new websites and applications, or if we violate their guidelines or they change their guidelines. In addition, if any of these preceding circumstances were to occur, we may not be able to find a suitable alternate paid search results provider or otherwise replace the lost revenues. The loss of any of these customers or a material change in the revenue or gross profit they generate would have a material adverse impact on our business, results of operations and financial condition in future periods.
We are exposed to credit risk on our accounts receivable and this risk is heightened during periods when economic conditions worsen. We sell some of our solutions directly to advertisers and advertising agencies on credit. Our outstanding accounts receivables to advertisers and advertising agencies are not covered by collateral, third-party financing arrangements or credit insurance. Our exposure to credit and collectability risk on our accounts receivables is higher with some customers and our ability to mitigate such risks may be limited. As we continue to add new customers and expand our direct relationships with advertisers and advertising agencies our credit risk increases. Additionally, our credit risk increases during periods when economic conditions worsen. While we have procedures to monitor and limit exposure to credit risk on our accounts receivables there can be no assurance such procedures will effectively limit our credit risk and avoid losses.
Our success is dependent upon our ability to establish and maintain direct relationships with advertisers and advertising agencies. Some of our solutions generate revenue directly from advertisers and advertising agencies. Accordingly, our ability to generate revenue for our solutions is dependent upon our ability to attract new advertisers, maintain relationships with existing advertisers and fulfill our advertisers’ orders. Our programs to attract advertisers include direct sales, agency sales, online promotions, referral agreements and participation in tradeshows. We attempt to maintain relationships with our advertisers through providing quality customer service and delivering on campaign goals. Our advertisers and advertising agency clients can generally terminate their contracts with us at any time and with limited or no advance notice. We believe that advertisers and advertising agencies will not continue to do business with us if their investment in advertising with us does not generate sales leads, and ultimately customers, or if we do not deliver their advertisements in an appropriate and effective manner. If we are unable to remain competitive and provide value to our advertisers, they may stop placing ads with us, which would have a material adverse effect on our business, prospects, financial condition and results of operations.
We are dependent upon relationships with and the success of our supply partners. Our supply partners are very important to our success. We must recruit and maintain partners who are able to drive traffic successfully to their websites and mobile applications, resulting in clicks on advertisements we have delivered. These partners may experience difficulty in attracting and maintaining users for a number of reasons, including competition, rapidly changing markets and technology, industry consolidation and changing consumer preferences. We have experienced a decrease in the number of supply partners and quantity of Internet traffic from supply partners within ValidClick beginning in late April 2020. Additionally, we are experiencing turnover in our supply partner network and there can be no assurance traffic levels will increase to prior levels or that we will be able to replace supply partners that have left our network. Further, we may not be able to further develop and maintain relationships with distribution partners. They may be able to make their own deals directly with advertisers, may view us as competitors or may find our competitors offerings more desirable. Any of these potential events could have a material adverse effect on our business, financial position and results of operations.
The success of our owned sites is dependent on our ability to acquire traffic in a profitable manner. Our ALOT-branded websites are dependent on our ability to attract traffic in a profitable manner. We use a predictive model to calculate the rate of return for marketing campaigns, which includes estimates and assumptions. If these estimates and assumptions are not accurate, we may not be able to effectively manage our marketing decisions and could acquire traffic in an unprofitable manner. In addition, we may not be able to maintain and grow our traffic for a number of reasons, including, but not limited to, acceptance of our websites by consumers, the availability of advertising to promote our websites, competition, and sufficiency of capital to purchase advertising. We advertise on search engine websites to drive traffic to our owned and operated websites. Our keyword advertising is done primarily with Google and Facebook, but also with Yahoo!. If we are unable to maintain and grow traffic to our sites in a profitable manner, it could have a material adverse effect on our business, financial condition, and results of operations.
Because competition for our target employees is intense, we may not be able to attract and retain the highly skilled employees we need to support our operations and increasing customer base. In the technology industry, there is substantial and continuous competition for engineers with high levels of experience in designing, developing and managing software and Internet-related services, as well as competition for executives and sales and operations personnel. Many of our competitors have substantially more resources than we do and have the ability to compensate highly skilled personnel at higher levels than we can. We may not be successful in attracting and retaining qualified highly skilled personnel. We have from time to time experienced, and we expect to continue to experience, difficulty in hiring and retaining highly skilled employees with appropriate qualifications. In addition, job candidates and existing employees often consider the value of the stock awards they receive in connection with their employment. If our stock price performs poorly, it may adversely affect our ability to retain highly skilled employees. If we fail to attract new personnel or fail to retain and motivate our current personnel, our business and future growth prospects could be severely harmed.
Technological Risks
Our business must keep pace with rapid technological change to remain competitive. Our business operates in a market characterized by rapidly changing technology, evolving industry standards, frequent new product and service announcements, enhancements, and changing customer demands. We must adapt to rapidly changing technologies and industry standards and continually improve the speed, performance, features, ease of use and reliability of our services. This includes making our products and services compatible and maintaining compatibility with multiple operating systems, desktop and mobile devices, and evolving network infrastructure. If we fail to do this, our results of operations and financial position could be adversely affected.
Our services may be interrupted if we experience problems with our network infrastructure. The performance of our network infrastructure is critical to our business and reputation. Because our services are delivered solely through the Internet, our network infrastructure could be disrupted by a number of factors, including, but not limited to:
•unexpected increases in usage of our services;
•computer viruses and other security issues;
•interruption or other loss of connectivity provided by third-party Internet service providers;
•natural disasters or other catastrophic events; and
•server failures or other hardware problems.
While we have data centers in multiple, geographically dispersed locations and active back-up and disaster recovery plans, we cannot assure you that serious interruptions will not occur in the future. If our services were to be interrupted, it could cause loss of users, customers and business partners, which could have a material adverse effect on our results of operations and financial position.
We are subject to risks from publishers who could fabricate clicks either manually or technologically.
Our business involves the establishment of relationships with website owners and publishers. In exchange for their consumer traffic, we provide an advertising placement service and share a portion of the revenue we collect with that website publisher. Although we have click fraud detection software in place, we cannot guarantee that we will identify all fraudulent clicks or be able to recover funds distributed for fabricated clicks. This risk could materially impact our ability to borrow, our cash flow and the stability of our business.
Regulatory Risks
Regulatory and legal uncertainties could harm our business. While there are currently relatively few laws or regulations directly applicable to Internet-based commerce or commercial search activity, there is increasing awareness of such activity and interest from state and federal lawmakers in regulating these services. New regulation of activities in which we are involved or the extension of existing laws and regulations to Internet-based services could have a material adverse effect on our business, results of operations and financial position.
Failure to comply with federal, state and international privacy and data security laws and regulations, or the expansion of current or the enactment of new privacy and data security laws or regulations, could adversely affect our business. A variety of federal, state and international laws and regulations govern the collection, use, retention, sharing and security of consumer data. In addition, various federal, state and foreign legislative and regulatory bodies may expand current or enact new laws regarding privacy matters. For example, recently there have been Congressional hearings and increased attention to the capture and use of location-based information relating to users of smartphones and other mobile devices, and internationally the European Union’s General Data Protection Regulation (GDPR) went into effect in May 2018. We have posted privacy policies and practices concerning the collection, use and disclosure of subscriber data on our websites and applications. The existing and soon to be enacted privacy and data security related laws and regulations are evolving and subject to potentially differing
interpretations. Several Internet companies have incurred penalties for failing to abide by the representations made in their privacy policies and practices. In addition, several states have adopted legislation that requires businesses to implement and maintain reasonable security procedures and practices to protect sensitive personal information and to provide notice to consumers in the event of a security breach. Any failure, or perceived failure, by us to comply with our posted privacy policies or with any data-related consent orders, Federal Trade Commission requirements or orders or other federal, state or international privacy or consumer protection-related laws, including the GDPR, regulations or industry self-regulatory principles could result in claims, proceedings or actions against us by governmental entities or others or other liabilities, which could adversely affect our business.
We are subject to the continued listing standards of the NYSE American and our failure to satisfy these criteria may result in delisting of our common stock. Our common stock is listed on the NYSE American. In order to maintain this listing, we must maintain a certain share price, financial and share distribution targets, including maintaining a minimum amount of shareholders’ equity and a minimum number of public shareholders. In addition to these objective standards, the NYSE American may delist the securities of any issuer (i) if, in its opinion, the issuer’s financial condition and/or operating results appear unsatisfactory; (ii) if it appears that the extent of public distribution or the aggregate market value of the security has become so reduced as to make continued listing on the NYSE American inadvisable; (iii) if the issuer sells or disposes of principal operating assets or ceases to be an operating company; (iv) if an issuer fails to comply with the NYSE American’s listing requirements; (v) if an issuer’s securities sell at what the NYSE American considers a “low selling price” which the exchange generally considers $0.20 per share and the issuer fails to correct this via a reverse split of shares after notification by the NYSE American; or (vi) if any other event occurs or any condition exists which makes continued listing on the NYSE American, in its opinion, inadvisable. There are no assurances how the market price of our common stock will be impacted in future periods as a result of the general uncertainties in the capital markets and any specific impact on our Company as a result of the coronavirus. If the NYSE American delists our common stock, investors may face material adverse consequences, including, but not limited to, a lack of trading market for our common stock, reduced liquidity, decreased analyst coverage of our common stock, and an inability for us to obtain any additional financing to fund our operations that we may need.
Failure to comply with the covenants and restrictions in our grant agreement with the State of Arkansas could result in the repayment of a portion of the grant, which we may not be able to repay or finance on favorable terms. In January 2013, we entered into an agreement with the State of Arkansas whereby we were granted $1,750,000 for the relocation of the Company to Arkansas and for the purchase of equipment. The grant was contingent upon us having at least 50 full-time equivalent permanent positions within four years, maintaining at least 50 full-time equivalent permanent positions for the following six years and paying those positions an average total compensation of $90,000 per year. In March 2021, we received an amendment to the agreement that revised the position maintenance requirement for the reporting period of March 31, 2022 to 43 full-time equivalent permanent positions. The agreement also extended the reporting period and position maintenance period an additional year to a total of six years ending on March 31, 2024. As of December 31, 2021, we had 41 full-time employees located in Arkansas. Failure to meet the requirements of the grant after the initial four-year period, may require us to repay a portion of the grant, up to but not to exceed the full amount of the grant. At December 31, 2021, we accrued a contingent liability of $10,000 for the lower than required employment.
Financial Risks
Our business is seasonal and our financial results may vary significantly from period to period. Our future results of operations may vary significantly from quarter to quarter and year to year because of numerous factors, including seasonality. Historically, in the later part of the fourth quarter and the earlier part of the first quarter we experience lower Revenue Per Click (“RPC”) due to a decline in demand for inventory on website and app space and the recalibrating of advertiser’s marketing budgets after the holiday selling season. If we are not able to appropriately adjust to seasonal or other factors, it could have a material adverse effect on our financial results
.
Our quarterly operating results can be difficult to predict and can fluctuate substantially, which could result in volatility in the price of our common stock. Our quarterly revenues and other operating results have varied in the past and are likely to continue to vary significantly from quarter to quarter. Our agreements with distribution partners and key customers do not require minimum levels of usage or payments, and our revenues therefore fluctuate based on the actual usage of our service each quarter by existing and new distribution partners. In addition to the impact of the COVID-19 pandemic on our revenues, quarterly fluctuations in our operating results also might be due to numerous other factors, including:
•our ability to attract new distribution partners, including the length of our sales cycles, or to sell increased usage of our service to existing distribution partners;
•technical difficulties or interruptions in our services;
•changes in privacy protection and other governmental regulations applicable to our industry;
•changes in our pricing policies or the pricing policies of our competitors;
•the financial condition and business success of our distribution partners;
•purchasing and budgeting cycles of our distribution partners;
•acquisitions of businesses and products by us or our competitors;
•competition, including entry into the market by new competitors or new offerings by existing competitors;
•discounts offered to advertisers by upstream advertising networks;
•our history of litigation;
•our ability to hire, train and retain sufficient sales, client management and other personnel;
•timing of development, introduction and market acceptance of new services or service enhancements by us or our competitors;
•concentration of marketing expenses for activities such as trade shows and advertising campaigns;
•expenses related to any new or expanded data centers; and
•general economic and financial market conditions.
Ability to maintain our credit facility could impact our ability to access capital in the future. On March 12, 2020 we closed a Loan and Security Agreement with Hitachi Capital America Corp. ("Hitachi") the terms of which are described in this report which replaced our credit facility with Western Alliance Bank. Under the terms of the Loan and Security Agreement, Hitachi has provided us with a $5,000,000 line of credit commitment which permits us to borrow against eligible accounts receivable and unbilled receivables. The Hitachi Loan and Security Agreement contains certain affirmative and negative covenants to which we are subject. As of December 31, 2021, we were in compliance with these covenants. There are no assurances that we will be able to comply with all the covenants. In the event we violate a covenant, Hitachi may limit or demand all amounts due under the credit facility at any time, including upon an event of default outstanding, if any, to be due and payable. If this occurs and if we have outstanding obligations and are not able to repay, Hitachi could require us to apply all of our available cash to repay the debt amounts and could then proceed against the underlying collateral. Should this occur, we cannot assure you that our assets would be sufficient to repay our debt in full, we would be able to borrow sufficient funds to refinance the debt. In such an event, our ability to conduct our business as it is currently conducted would be in jeopardy.
Significant dilution will occur when outstanding restricted stock unit grants vest. As of December 31, 2021, we had 3,960,001 restricted stock units outstanding. If the restricted stock units vest, dilution will occur to our stockholders, which may be significant.
Our financial condition may be adversely affected if we are unable to identify and complete future acquisitions, fail to successfully integrate acquired assets or businesses, or are unable to obtain financing for acquisitions on acceptable terms. The acquisition of assets or businesses that we believe to be complementary to our business is an important component of our strategy. We believe that acquisition opportunities may arise from time to time, and that any such acquisitions could be significant. At any given time, discussions with one or more potential sellers may be at different stages. However, any such discussions may not result in the consummation of an acquisition transaction, and we may not be able to identify or complete any acquisitions. We cannot predict the effect, if any, that any announcement or consummation of an acquisition would have on the trading price of our ordinary shares. Our business is capital intensive and any such transactions could involve the payment by us of a substantial amount of cash and/or equity securities. We may need to raise additional capital through public or private debt or equity financings to execute our growth strategy and to fund acquisitions. Adequate sources of capital may not be available when needed on favorable terms. If we raise additional capital by issuing additional equity securities or use equity securities for acquisitions, existing shareholders may be diluted. If our capital resources are insufficient at any time in the future, we may be unable to fund acquisitions, take advantage of business opportunities or respond to competitive pressures, any of which could harm our business. Any usage of capital to fund an acquisition could lead to a decrease in liquidity.
Any future acquisitions could present a number of risks, including:
•the risk of using management time and resources to pursue acquisitions that are not successfully completed;
•the risk of incorrect assumptions regarding the future results of acquired operations;
•the risk that the amount and timing of the expected benefits of any acquisition, including potential synergies, are subject to uncertainties;
•the risk of unexpected losses of key employees, customers and suppliers of the acquired business;
•the risk of increasing the scope, geographic diversity, and complexity of our business;
•the risk of unfavorable accounting treatment and unexpected increases in taxes;
•the risk of difficulty in conforming standards, controls, procedures, policies, business cultures, and compensation structures;
•the risk of failing to integrate the operations or management of any acquired operations or assets successfully and in a timely manner; and
•the risk of diversion of management’s attention from existing operations or other priorities.
If we are unsuccessful in completing acquisitions of other operations or assets, our financial condition could be adversely affected and we may be unable to implement an important component of our business strategy successfully. In addition, if we
are unsuccessful in integrating our acquisitions in a timely and cost-effective manner, our financial condition and results of operations could be adversely affected.
ITEM 1B. UNRESOLVED STAFF COMMENTS.
Not applicable to a smaller reporting company.
ITEM 2. PROPERTIES.
Our corporate headquarters are located in Little Rock, AR where we entered into a five-year agreement to lease office space on October 1, 2015 and amended the lease as of July 2020 and February 1, 2021. In July 2020, the lease was amended and renewed for an additional three years. On February 1, 2021, the lease was amended to expire on January 31, 2024. The amended lease is for 7,831 square feet. We also have office space in San Jose, CA where in June 2017, we entered into a five-year agreement to lease 4,801 square feet of office space.
In addition to our office space, we maintain data center operations in third-party collocation facilities in Los Angeles, CA and Secaucus, NJ.
ITEM 3. LEGAL PROCEEDINGS.
We may be subject to legal proceedings, investigations and claims incidental to the conduct of our business from time to time. We are not currently a party to any material litigation or other legal proceedings brought against us. We are also not aware of any legal proceeding, investigation or claim, or other legal exposure that has a more than remote possibility of having a material adverse effect on our business, financial condition or results of operations.
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2021 and 2020
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 or service 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 customers and prospects 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 who those consumers are. In this regard, the technology is designed for a privacy conscious future and 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 propriety 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.
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 17 issued and eight pending patents.
Liquidity
As of December 31, 2021, we have approximately $13.3 million in cash, cash equivalents and marketable securities. Our net working capital was $12.4 million. 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 December 31, 2021, our accumulated deficit was $144.0 million.
Our principal sources of liquidity are the sale of our common stock and our credit facility with Hitachi described in Note 7 to
our Consolidated Financial Statements. During March 2020 and April 2020, we raised approximately $1.5 million in gross
proceeds, before expenses, through sales of our common stock and in April 2020 we received a $1.1 million PPP Loan. On June
8, 2020, we raised an additional $5.5 million in gross proceeds, before expenses, through the sale of our common stock and on
July 27, 2020, we raised an additional $10.75 million in gross proceeds, before expenses, through sales of our common stock.
On January 19, 2021, we raised an additional $8 million in gross proceeds, before expenses, through the sale of our common
stock, and on January 22, 2021, we raised an additional $6.25 million in gross proceeds, before expenses, through sales of our
common stock.
In March 2021, we contracted with an investment management company to manage our cash in excess of current operating
needs. We placed $2 million in cash equivalent accounts and $10 million in an interest-bearing account. At December 31, 2021,
our funds with the investment management company were approximately $8 million and were invested in cash equivalent accounts and marketable debt and equity securities. A detail of the activity is described in Note 3 to our Consolidated Financial Statements.
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 $35,000,000. During the year ended December 31, 2021, 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 grow 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.
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.
COVID-19
In April 2020, the Company experienced a significant reduction in advertiser marketing budgets across both the ValidClick and
IntentKey platforms as a direct consequence of COVID-19. These reductions adversely impacted our overall revenue
throughout 2020. As a result, in May 2020 and June 2020 we implemented a temporary compensation change for senior
officers and employees. Certain employees with salaries in excess of $100,000 per year had forgone a percentage of the cash portion of their salary and instead received an equivalent restricted stock grant. We curtailed expenses, including compensation and travel and issued a work from home policy to protect our employees and their families from virus transmission associated with co-workers. Though we continue to monitor the pandemic and related government guidelines and regulations, we have returned to a hybrid working model where employees are working partially from the office and partially from home.
Note 2 – Summary of Significant Accounting Policies
Basis of presentation - The consolidated financial statements include our accounts and those of our wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.
Cash and cash equivalents - Cash and cash equivalents consist of highly liquid investments with original maturities of three months or less.
Investments - We have classified debt securities as available for sale securities with unrealized gains and losses recorded as other comprehensive income. Equity securities are marked to market with changes recorded as other income on the income statement. Any interest income or dividends are recorded as interest income on the income statement.
Revenue recognition - Both of our platforms generate revenue from ad placements and clicks on advertisements on websites, some of which we own. We recognize revenue from ad placements and clicks in the period in which they occur. We also recognize revenue from serving impressions when we complete all or a part of an order from an advertiser. The revenue is recognized in the period that the impression is served. The Company subsequently settles these transactions with it business partners at which time adjustments for invalid traffic may impact the amount collected. Payments to publishers who display advertisements on our behalf and payments to ad exchanges are recognized as cost of revenue.
The below table shows the revenue and the proportion of revenue that is generated through advertisements on our ValidClick and IntentKey platforms:
| | | | | | | | | | | | | | | | | | | | |
| | For the Years Ended December 31, |
| | 2021 | | 2020 |
| ValidClick Platform | | $ | 41,648,730 | | 69.6% | | $ | 34,233,638 | | 76.7% |
| IntentKey Platform | | 18,181,958 | | 30.4% | | 10,406,369 | | 23.3% |
| Total | | $ | 59,830,688 | | 100.0% | | $ | 44,640,007 | | 100.0% |
Accounts receivable - Accounts receivable consists of trade receivables from customers. We record accounts receivable at its net realizable value, recognizing an allowance for doubtful accounts based on our best estimate of probable credit losses on our existing accounts receivable. Balances are written off against the allowance after all means of collection have been exhausted and the possibility of recovery is considered remote.
Marketing costs - Marketing costs are predominately traffic acquisition costs and include those expenses required to attract an audience to our owned and operated applications and websites. We expense these costs as incurred and present them as a separate line item in operating expenses in the consolidated statements of operations.
Property and equipment - Property and equipment are stated at cost, net of accumulated depreciation and amortization. Major renewals and improvements are capitalized while maintenance and repairs which do not improve or extend the life of the respective assets are expensed as incurred. Costs of assets sold or retired and the related accumulated depreciation are eliminated from accounts and the net gain or loss is reflected as an operating expense in the consolidated statements of operations.
Property and equipment are depreciated on a straight-line basis over three years for equipment, five to seven years for furniture and fixtures and two to three years for software. Leasehold improvements are amortized over the lesser of the estimated useful life of the asset or the remaining term of the lease. Depreciation expense was $1,277,664 and $1,372,426, respectively, for the years ended December 31, 2021 and 2020.
Capitalized Software Costs - We capitalize certain labor costs related to internally developed software and amortize these costs using the straight-line method over the estimated useful life of the software, generally two years. We do not sell internally developed software. Certain development costs not meeting the criteria for capitalization, in accordance with ASC 350-40 Internal-Use Software, are expensed as incurred.
Goodwill - Goodwill is recorded as the difference, if any, between the aggregate consideration paid for an acquisition and the fair value of the net tangible and intangible assets acquired. We perform an impairment test annually as of December 31, 2021. As a result, we perform our annual goodwill impairment test by comparing the fair value of our reporting unit with its carrying amount.
We generally determine the fair value of our 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.
We determined there was no impairment of goodwill during 2021 and 2020.
See Note 6, Intangible Assets and Goodwill, for more information.
Intangible Assets - 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 under ASC 350. We also acquire intangible assets outside of acquisitions and record them at their fair value and amortize them over their estimated useful lives.
We recorded no impairment of intangible assets during 2021 or 2020.
See Note 6, Intangible Assets and Goodwill, for more information.
Income taxes - We utilize the liability method of accounting for income taxes as set forth in ASC 740, Income Taxes (“ASC 740”). Under the liability method, deferred taxes are determined based on the temporary differences between the financial statement and tax bases of assets and liabilities. A valuation allowance is recorded when it is more likely than not that some of the deferred tax assets will not be realized. In assessing the need for a valuation allowance, we must project future levels of taxable income. We examine evidence related to the history of taxable losses or income, the economic conditions in which we operate, organizational characteristics, our forecasts and projections, as well as factors affecting liquidity. All our deferred tax assets and liabilities are recorded as long-term assets and liabilities in the consolidated balance sheets. 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 for a significant portion of the net deferred tax assets as of December 31, 2021 and 2020.
We have adopted certain provisions of ASC 740. This statement clarifies the criteria that an individual tax position must satisfy for some or all of the benefits of that position to be recognized in a company’s financial statements. ASC 740 prescribes a recognition threshold of more likely than not, and a measurement attribute for all tax positions taken or expected to be taken on a tax return, in order to be recognized in the financial statements.
We recognize interest and penalties related to income taxes in income tax expense. We have incurred no penalties and interest for the years ended December 31, 2021 and 2020
Impairment of long-lived assets - In accordance with ASC 360, Property, Plant and Equipment, long-lived assets, such as property and equipment, and purchased intangibles subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of the asset is measured by comparison of the carrying amount to future undiscounted cash flows the asset is expected to generate. If such assets are considered to be impaired, the impairment to be recognized is measured as the amount by which the carrying amount of the asset exceeds the fair value.
Stock-based compensation - We recognize stock compensation based on the recognition provisions ASC 718, Compensation – Stock Compensation, which establishes accounting for stock-based awards exchanged for employee and non-employee services and requires companies to expense the estimated grant date fair value of stock awards over the requisite employee service period.
The fair value of restricted stock awards is based on the market price of our common stock on the date of the grant. To value stock option awards, we use the Black-Scholes-Merton option pricing model. This model involves assumptions including the expected life of the option, stock price volatility, risk-free interest rate, dividend yield and exercise price. We recognize compensation expense in earnings over the requisite service period, applying a forfeiture rate to account for expected forfeitures of awards.
See Note 13, Stock-Based Compensation, for further details on our stock awards.
Government Grant- During the first quarter of 2013, we received a grant from the state of Arkansas to relocate our corporate headquarters to Conway, AR. We recognized the grant funds into income as a reduction of the related expense in the period in which those expenses were recognized. We deferred grant funds related to capitalized costs and classified them as current or long-term liabilities on the balance sheet according to the classification of the associated asset.
As of December 31, 2021, there were 41 employees in Arkansas, two employees under the required 43. As such, we recorded a contingent liability $10,000.
As of December 31, 2020, there were 38 employees in Arkansas, twelve employees under the required 50. As such, we recorded a contingent liability $60,000.
Treasury Stock - The cost method was used in recording the purchase of the treasury stock. Treasury stock changes as a result of common stock we acquire in the market. On July 14, 2020, our Board of Directors authorized the cancellation of 376,527 shares of treasury stock.
Earnings per share - During the periods presented, we had securities that could potentially dilute basic earnings per share in the future, but were excluded from the computation of diluted net loss per share, as their effect would have been anti-dilutive. We reported a net loss for 2021 and 2020 and therefore, shares associated with stock options, restricted stock and convertible debt are not included because they are anti-dilutive. Basic and diluted net loss per share is the same for all periods presented.
Operating segments - In accordance with ASC 280 - Segment reporting, segment information reported is built on the basis of internal management data used for performance analysis of businesses and for the allocation of resources. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision making group, in deciding how to allocate resources and in assessing performance. Our chief operating decision maker, our chief executive officer, reviews financial information presented on a consolidated basis and no expense or operating income is evaluated at a segment level. Given the consolidated level of review by the our chief executive officer, we operate as one reportable segment.
Concentration of credit risk - We are exposed to concentrations of risk primarily in cash and accounts receivable, which are generally not collateralized. Our policy is to place our cash with high credit, quality financial institutions in order to limit the amount of credit exposure. Our cash deposits exceed FDIC limits. We do not require collateral from our customers, but our credit extension and collection policies include monitoring payments and aggressively pursuing delinquent accounts. We maintain allowances for potential credit losses.
Customer concentrations - At December 31, 2021, we had three individual customers with revenue concentration greater than 10% of the our total revenue. These customers combined accounted for 62.9% of our total revenue as of December 31, 2021.
In 2020, we had two individual customers with revenue concentration greater than 10% of our total revenue. These customers combined accounted for 60.5% of our revenue for the year ended and December 31, 2020.
Use of estimates - The preparation of financial statements, in accordance with accounting principles generally accepted in the United States ("U.S. 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 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.
Litigation and settlement costs - From time to time, we are involved in disputes, litigation and other legal actions. In accordance with ASC 450, Contingencies, we record a charge equal to at least the minimum estimated liability for a loss contingency when both of the following conditions are met: (i) information available prior to issuance of the consolidated financial statements indicates that it is probable that an asset had been impaired or a liability had been incurred as of the date of the consolidated financial statements and (ii) the range of loss can be reasonably estimated.
Recent Accounting Pronouncements Not Yet Adopted
In June 2016, (FASB) issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (ASU 2016-13), which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. ASU 2016-13 replaces the existing incurred loss impairment model with a forward- looking expected credit loss model which will result in earlier recognition of credit losses. On November 15, 2019, the FASB delayed the effective date certain small public companies and other private companies. As amended, the effective date of ASC Topic 326 was delayed until fiscal years beginning after December 15, 2022 for SEC filers that are eligible to be smaller reporting companies under the SEC’s definition, as well as private companies and not-for-profit entities.
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. Debt securities are classified as available for sale securities. We classify our cash equivalents and marketable securities within Level 1 because we use quoted market prices models utilizing market observable inputs to determine their fair value.
The cost, gross unrealized gains (losses) and fair value of marketable securities by major security type as of December 31, 2021 were as follows:
| | | | | | | | | | | | | | | | | |
| Cost | | Unrealized Gain (Loss) | | Fair Value |
| Cash and cash equivalents: | | | | | |
| Cash | $ | 5,253,205 | | | $ | — | | | $ | 5,253,205 | |
| Cash equivalents | 5,222,759 | | | — | | | 5,222,759 | |
| Total cash and cash equivalents | $ | 10,475,964 | | | $ | — | | | $ | 10,475,964 | |
| | | | | |
| Marketable securities | | | | | |
| Debt securities | $ | 905,470 | | | $ | 53,737 | | | $ | 959,207 | |
| Equity securities | 2,100,305 | | | (272,021) | | | 1,828,284 | |
| Total marketable securities | | | | | 2,787,491 |
| Total cash and cash equivalents and marketable securities | | | | | $ | 13,263,455 | |
The gross unrealized losses and realized gains on our marketable securities were approximately $272 thousand and $5 thousand, respectively, for the twelve months ended December 31, 2021.
Note 4 – Allowance for Doubtful Accounts
The activity in the allowance for doubtful accounts was as follows during the years ended December 31, 2021 and 2020:
| | | | | | | | | | | |
| | 2021 | | 2020 |
| Balance at the beginning of the year | $ | 209,667 | | | $ | 225,000 | |
| Provision for bad debts | 7,487 | | | 135,000 | |
| Charge-offs | (16,154) | | | (150,333) | |
| Recoveries | 1,904 | | | — | |
| Balance at the end of the year | $ | 202,904 | | | $ | 209,667 | |
Note 5– Property and Equipment
The net carrying value of property and equipment at December 31, 2021 and 2020 was as follows: | | | | | | | | | | | |
| | 2021 | | 2020 |
| Furniture and fixtures | $ | 293,152 | | | $ | 293,152 | |
| Equipment | 1,164,671 | | | 1,052,199 | |
| Capitalized labor | 12,914,820 | | | 11,475,683 | |
| Leasehold improvements | 458,885 | | | 421,016 | |
| Subtotal | 14,831,528 | | | 13,242,050 | |
| Less: accumulated depreciation and amortization | (13,324,762) | | | (12,054,989) | |
| Total | $ | 1,506,766 | | | $ | 1,187,061 | |
Depreciation expense was $1,277,664 and $1,372,426, respectively, for the years ended December 31, 2021 and 2020.
Note 6 – Intangible Assets and Goodwill
The following is a schedule of intangible assets and goodwill as of December 31, 2021: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Term | | Carrying
Value | | Accumulated Amortization and Impairment | | Net Carrying Value | | 2021
Amortization |
| | | | | | | | | |
| Customer list, Google | 20 years | | $ | 8,820,000 | | | $ | (4,336,500) | | | $ | 4,483,500 | | | $ | 441,000 | |
| Technology | 5 years | | 3,600,000 | | | (3,540,000) | | | 60,000 | | | 720,000 | |
| Customer list, ReTargeter | 5 years | | 1,931,250 | | | (933,438) | | | 997,812 | | | 386,250 | |
| Customer list, all other | 10 years | | 1,610,000 | | | (1,583,206) | | | 26,794 | | | 161,004 | |
| Brand name, ReTargeter | 5 years | | 643,750 | | | (311,146) | | | 332,604 | | | 128,750 | |
| Customer relationships | 20 years | | 570,000 | | | (140,125) | | | 429,875 | | | 28,500 | |
| Trade names, web properties | - | | 390,000 | | | — | | | 390,000 | | | — | |
| Intangible assets classified as long-term | | | $ | 17,565,000 | | | $ | (10,844,415) | | | $ | 6,720,585 | | | $ | 1,865,504 | |
| | | | | | | | | |
| Goodwill, total | | | $ | 9,853,342 | | | $ | — | | | $ | 9,853,342 | | | $ | — | |
The following is a schedule of intangible assets and goodwill as of December 31, 2020:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Term | | Carrying
Value | | Accumulated Amortization | | Net Carrying Value | | 2020
Amortization |
| Customer list, Google | 20 years | | $ | 8,820,000 | | | $ | (3,895,500) | | | $ | 4,924,500 | | | $ | 441,000 | |
| Technology | 5 years | | 3,600,000 | | | (2,820,000) | | | 780,000 | | | 720,000 | |
| Customer list, ReTargeter | 5 years | | 1,931,250 | | | (547,188) | | | 1,384,062 | | | 386,250 | |
| Customer list, all other | 10 years | | 1,610,000 | | | (1,422,202) | | | 187,798 | | | 161,004 | |
| Brand name, ReTargeter | 5 years | | 643,750 | | | (182,396) | | | 461,354 | | | 128,750 | |
| Customer relationships | 20 years | | 570,000 | | | (111,625) | | | 458,375 | | | 28,500 | |
| Tradenames, web properties (1) | - | | 390,000 | | | — | | | 390,000 | | | — | |
| Intangible assets classified as long-term | | | $ | 17,565,000 | | | $ | (8,978,911) | | | $ | 8,586,089 | | | $ | 1,865,504 | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| 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.
Our amortization expense over the next five years and thereafter is as follows:
| | | | | |
| 2022 | $ | 1,071,294 | |
| 2023 | 984,500 | |
| 2024 | 769,917 | |
| 2025 | 469,500 | |
| 2026 | 469,500 | |
| Thereafter | 2,565,875 | |
| Total | $ | 6,330,586 | |
Note 7 - Bank Debt
On March 12, 2020, we closed on the Loan and Security Agreement dated February 28, 2020 with Hitachi. Under the terms of the Loan and Security Agreement, Hitachi has provided us with a $5,000,000 line of credit commitment. We are permitted to borrow (i) 90% of the aggregate Eligible Accounts Receivable, plus (i) the lesser of 75% of the aggregate Unbilled Accounts Receivable or 50% of the amount available to borrow under (i), up to the maximum credit commitment. The interest rate of 2% in excess of the Wall Street Journal Prime Rate, with a minimum rate of 6.75% per annum, on outstanding amounts. The principal and all accrued but unpaid interest are due on demand.
We agreed to pay Hitachi a commitment fee of $50,000, with one half due upon the execution of the agreement and the balance due six months thereafter. Thereafter, we are obligated to pay Hitachi a commitment fee of $15,000 annually. We are also obligated to pay Hitachi a quarterly service fee of 0.30% on the monthly unused amount of the maximum credit line. In addition to a $2,000 document fee we have paid to Hitachi, if we exit our relationship with Hitachi before March 1, 2022, we are obligated to pay Hitachi an exit fee of $50,000. On March 12, 2020, we drew $5,000,000 under this agreement, using $2,959,573 of these proceeds to satisfy existing debt obligations and the balance was used for working capital. At December 31, 2021 and 2020, there were no outstanding balances due under the Loan and Security Agreement.
Note 8 - Convertible Promissory Note
On March 1, 2019, Inuvo entered into a Securities Purchase Agreement with three accredited investors for the purchase and sale
of an aggregate of $1,440,000 of principal of Original Issue Discount Unsecured Subordinated Convertible Notes due
September 1, 2020 (the "Calvary Notes") to fund working capital and additional expenses resulting from the delay in closing of
certain planned, and since terminated, mergers with ConversionPoint Technologies Inc. and ConversionPoint Holdings Inc. The
initial conversion price of the Calvary Notes was $1.08 per share which would have made the Calvary Notes then convertible
into 1,333,333 unregistered shares of Inuvo’s common stock upon conversion. The Calvary Notes were issued in a private
placement and the shares of common stock issuable upon conversion are restricted, subject to resale under Rule 144. The
proceeds to Inuvo from the offering were $1,200,000. Inuvo did not pay any commissions or finders fees in connection with
the sale of the Calvary Notes and Inuvo utilized the proceeds for working capital.
On November 11, 2019, we entered into Note Modification and Release Agreements with the holders of $1,080,000 principal
amount of the Calvary Notes. Under the terms of the Note Modification and Release Agreement, the parties agreed that in
consideration of such noteholder’s agreement to convert a minimum of 50% of the outstanding amount of the note (the "First
Conversion Amount") that the conversion price for the First Conversion Amount would be $0.265 per share and that the
conversion price for any remaining amount due under the note would be $0.30 per share, subject to future adjustments under the
terms of the note including dilutive issuances at a price below $0.30 per share, subject to a floor of $0.23 per share. The
agreement contains mutual general releases. These holders converted an aggregate of $765,000 due under the Calvary Notes
into 2,886,792 shares of our common stock.
In January 2020, a noteholder of a $360,000 principal amount Calvary note converted the note into 1,200,000 shares of our
common stock. On April 21, 2020, a noteholder converted $200,000 principal amount due under the Calvary Notes into
1,142,857 shares of our common stock. On May 5, 2020, a noteholder converted the final $115,000 principal amount due under
the Calvary Notes into 657,143 shares of our common stock, thereby satisfying the Calvary Notes in full and completing the
extinguishment of the Calvary Notes.
Note 9 – Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consist of the following at December 31, 2021 and 2020: | | | | | | | | | | | |
| | 2021 | | 2020 |
| Accrued marketing costs | $ | 4,267,980 | | | $ | 3,234,192 | |
| Accrued expenses and other | 956,998 | | | 440,578 | |
| Accrued commissions and payroll | 121,533 | | | 423,373 | |
| Arkansas grant contingency | 10,000 | | | 60,000 | |
| Accrued taxes, current portion | 17,880 | | | 8,305 | |
| Accrued sales allowance | — | | | 50,000 | |
| Total | $ | 5,374,391 | | | $ | 4,216,448 | |
Note 10 – Other Long-Term Liabilities
Other long-term liabilities consist of the following at December 31, 2021 and 2020: | | | | | | | | | | | |
| | 2021 | | 2020 |
| Deferred rent | 13,302 | | | 4,057 | |
| Deferred revenue | — | | | 420,000 | |
| SBA loan | — | | | 149,900 | |
| Total | $ | 13,302 | | | $ | 573,957 | |
In April 2020, we obtained the $1.1 million PPP Loan which we used primarily for payroll costs. The PPP Loan was fully forgiven by the SBA on November 2, 2020. On May 15, 2020, we received a COVID-19 Economic Injury Disaster Loan ("EIDL") from the SBA for $149,900. We repaid the EIDL in full on January 28, 2021.
Note 11 - 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 and was recorded as an asset to be amortized as marketing expenses over five years. As of December 31, 2021, $100,000 has been amortized. As part of the agreement, we granted a warrant exercisable into 300,000 shares of our common stock, which vest over two years upon achieving certain performance metrics (see Note 14 - Stockholders' Equity). Additionally, we agreed to pay quarterly support fees upon reaching certain levels of operational activity.
In March 2020, we entered into an agreement to allow a third party to license and use ValidClick technology. The agreement required a nonrefundable fee of $500,000 in March with subsequent fees as earned in later quarters. The $500,000 fee was recorded as deferred revenue in March 2020. Effective March 1, 2021, the agreement was canceled and the remaining deferred revenue balance of $420,000 was recognized as other income.
Note 12 - Income Taxes
The provision for income taxes consists of the following at December 31, 2021 and 2020: | | | | | | | | | | | |
| | 2021 | | 2020 |
| Current tax provision | $ | — | | | $ | — | |
| Deferred tax benefit | — | | | — | |
| Total tax benefit | $ | — | | | $ | — | |
A reconciliation of the expected Federal statutory rate to our actual rate as reported for each of the periods presented is as follows: | | | | | | | | | | | |
| | 2021 | | 2020 |
| Federal statutory rate | 21 | % | | 21 | % |
| State income tax rate, net of federal benefit | 2 | % | | — | % |
| Permanent differences | 2 | % | | 3 | % |
| Change in valuation allowance | (25 | %) | | (25 | %) |
| | — | % | | — | % |
Deferred Income Taxes
Deferred income taxes are the result of temporary differences between book and tax basis of certain assets and liabilities, timing of income and expense recognition of certain items and net operating loss carry-forwards.
When required, we record a liability for unrecognized tax positions, defined as the aggregate tax effect of differences between positions taken on tax returns and the benefits recognized in the financial statements. Tax positions are measured at the largest
amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement. No tax benefits are recognized for positions that do not meet this threshold. We have no uncertain tax positions that require the us to record a liability. Our federal income tax returns are subject to examination by the IRS, generally for three years after they are filed.
We assess temporary differences resulting from different treatments of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are recorded in the consolidated balance sheets. We evaluate the realizability of our deferred tax assets on a regular basis, an exercise that requires significant judgment. In the course of this evaluation we considered our recent history of tax losses, the economic conditions in which we operate, recent organizational changes and our forecasts and projections. 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 for a significant portion of the net deferred tax assets that may not be realized as of December 31, 2021 and 2020.
The following is a schedule of the deferred tax assets and liabilities as of December 31, 2021 and 2020: | | | | | | | | | | | |
| | 2021 | | 2020 |
| Deferred tax assets: | | | |
| Net operating loss carry forward | $ | 33,727,960 | | | $ | 36,484,500 | |
| Intangible assets | 585,500 | | | 447,700 | |
| Accrued expense | 239,800 | | | 211,600 | |
| Deferred rent | 3,800 | | | 18,000 | |
| Allowance for doubtful accounts | 56,900 | | | 58,800 | |
| Stock compensation expense | 610,900 | | | — | |
| Other | 351,500 | | | 472,500 | |
| Subtotal | 35,576,360 | | | 37,693,100 | |
| Less valuation allowance | (33,988,760) | | | (35,848,400) | |
| Total | 1,587,600 | | | 1,844,700 | |
| Deferred tax liabilities: | | | |
| Intangible assets and property and equipment | 1,373,300 | | | 1,449,900 | |
| Other | 321,300 | | | 501,800 | |
| Total | 1,694,600 | | | 1,951,700 | |
| Total deferred tax liabilities | $ | (107,000) | | | $ | (107,000) | |
The net operating losses amounted to approximately $99,454,160 and expire beginning 2022 through 2037. Included in the federal net operating loss carryforwards are $23.1 million generated from 2018 to 2021 that will not expire and are limited to offset 80% of our taxable income for years beginning after December 31, 2020.
As of December 31, 2021, the Company has a net deferred tax liability of $107,000, due to having goodwill that is amortized for tax purposes but not for financial reporting.
The deferred tax liability relating to goodwill can only be offset up to 80% by NOLs generated in tax years ending December 31, 2018 and beyond, as well as NOLs available after consideration of IRC Section 382 limitation. The remaining portion that cannot be used remains as a liability. In future years, if the deferred tax assets are determined by management to be “more likely than not” to be realized, the recognized tax benefits relating to the reversal of the valuation allowance as of December 31, 2021 will be recorded.
Under the provisions of the Internal Revenue Code, the net operating loss carryforwards are subject to review and possible adjustment by the Internal Revenue Service and state tax authorities. Net operating loss carryforwards may become subject to an annual limitation in the event of certain cumulative changes in the ownership interest of significant shareholders over a three-year period in excess of 50%, as defined under Sections 382 and 383 of the Internal Revenue Code, respectively, as well as similar state provisions. This could limit the amount of tax attributes that can be utilized annually to offset future taxable income or tax liabilities. The amount of the annual limitation is determined based on the value of the Company immediately prior to the ownership change. Subsequent ownership changes may further affect the limitation in future years. The Company has not conducted a study to assess whether a change of control has occurred or whether there have been multiple changes of control since inception due to the significant complexity and cost associated with such a study. If the Company has experienced a change of control, as defined by Section 382, at any time since inception, utilization of the net operating loss carryforwards would be subject to an annual limitation under Section 382, which is determined by first multiplying the value of the
Company’s stock at the time of the ownership change by the applicable long-term tax-exempt rate, and then could be subject to additional adjustments, as required. Any limitation may result in expiration of a portion of the net operating loss carryforwards before utilization. Further, until a study is completed by the Company and any limitation is known, no amounts are being presented as an uncertain tax position.
The Company remains open to examination by the Internal Revenue Service for the years ending December 31, 2018 through 2021. Carryforward attributes generated in all years since inception remain subject to adjustment. Our state income tax returns are open to audit under the statute of limitations for the same periods.
Note 13 - 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 2021 and 2020 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 achieving certain financial targets.
On January 4, 2021, in accordance with the plan provisions, the number of shares available for issuance under the 2017 ECP plan was increased by 150,000 shares.
Compensation Expense
We recorded stock-based compensation expense for all equity incentive plans of $2,179,254 and $858,683 for the years ended December 31, 2021 and 2020, respectively. Total compensation cost not yet recognized at December 31, 2021 was $3,595,258 to be recognized over a weighted-average recognition period of one year.
The following table summarizes the stock grants outstanding under our 2010 Employee Compensation Plan ("2010 ECP") and 2017 ECP plans as of December 31, 2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Options Outstanding | | RSUs Outstanding | | Options and RSUs Exercised | | Available Shares | | Total |
| 2017 ECP | — | | | 3,960,001 | | | 2,734,138 | | | 2,705,861 | | | 9,400,000 | |
| 2010 ECP (*) | 1,500 | | | — | | | 5,011,511 | | | — | | | 5,013,011 | |
| Total | 1,500 | | | 3,960,001 | | | 7,745,649 | | | 2,705,861 | | | 14,413,011 | |
(*) 2010 ECP Expired April 2020
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. At December 31, 2021, the 2010 ECP plan had 1,500 outstanding options and all were exercisable with an aggregate intrinsic value of $0, a weighted average exercise price of $0.56 and a weighted average remaining contractual term of less than a year.
The following table summarizes our stock option activity under the 2010 ECP plan during 2021: | | | | | | | | | | | |
| | Options | | Weighted Average Exercise Price |
| Outstanding, beginning of year | 9,500 | | | $ | 0.56 | |
| Stock options exercised | 4,750 | | | $ | 0.56 | |
| Stock options canceled | 3,250 | | | $ | 0.56 | |
| Outstanding, end of year | 1,500 | | | $ | 0.56 | |
| Exercisable, end of year | 1,500 | | | $ | 0.56 | |
No options were granted during 2021 or 2020.
Expected volatility is based on the historical volatility of our common stock over the period commensurate with or longer than the expected life of the options. The expected life of the options is based on the vesting schedule of the option in relation to the overall term of the option. The risk free interest rate is based on the market yield of the U.S. Treasury Bill with a term equal to the expected term of the option awarded. We do not anticipate paying any dividends so the dividend yield in the model is zero.
The following table summarizes our restricted stock unit activity for 2021: | | | | | | | | | | | |
| | Restricted Stock Unit | | Weighted Average Fair Value |
| Outstanding, beginning of year | 1,930,526 | | | $ | 0.28 | |
| Granted | 4,610,000 | | | $ | 1.36 | |
| Vested | (2,171,331) | | | $ | 0.47 | |
| Forfeited | (409,194) | | | $ | 1.23 | |
| Outstanding, end of year | 3,960,001 | | | $ | 1.33 | |
Note 14 – Stockholders Equity
Common Stock
On March 20, 2020, we sold an aggregate of 3,931,428 shares of our common stock to the five members of our Board of
Directors in a private placement exempt from registration under Section 4(a)(2) and Rule 506(b) of Regulation D under the
Securities Act of 1933, as amended. We received proceeds of $688,000 in this offering. On March 27, 2020, we closed on the
first tranche of a registered direct offering in which we sold 3,115,001 shares of our common stock for gross proceeds of
$545,125. On April 2, 2020, we closed on a second tranche of the registered direct offering in which we sold 1,400,285 shares
of our common stock for gross proceeds of $245,050. On June 8, 2020, we raised $5.5 million in gross proceeds, before expenses, through the sale of our common stock and on July 27, 2020, we raised $10.75 million in gross proceeds, before expenses, through sales of our common stock. On January 19, 2021, we raised $8 million in gross proceeds, before expenses, through the sale of our common stock, and on January 22, 2021, we raised $6.25 million in gross proceeds, before expenses, through sales of our common stock.
In 2020, our convertible promissory notes were converted into $3 million of common stock. See Note 8 - Convertible Promissory Note for details.
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 11 - Commitments). As part of that agreement, we granted a warrant exercisable into 300,000 shares of our common stock, 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 on a ratable basis over the vesting period of each tranche. For the twelve months ended December 31, 2021, we recognized approximately $20 thousand in expense and $130 thousand is unrealized.
Earnings per Share
During the 2021 and 2020, we generated a net loss from continuing operations and as a result, all of our shares are anti-dilutive.
Treasury Stock
On July 14, 2020, our Board of Directors authorized the cancellation of the 376,527 shares of treasury stock.
Note 15 – Retirement Plan Costs
We provide a 401(k) plan to help our employees prepare for retirement where we matched each employee's contributions to the plan up to the first four of the employee's annual salary. The matching contribution for the years ended 2021 and 2020 was $260,540 and $186,483, respectively.
Note 16 – Leases
We have entered into operating and finance leases primarily for real estate and equipment rental. These leases have terms which
range from two years to four 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 obligations to make lease payments are also listed as
separate line items on our consolidated balance sheets. As of December 31, 2021 and December 31, 2020, total operating and financed right-of-use assets were $641,306 and $201,902, and $606,573 and $395,910, respectively.
For the years-ended December 31, 2021 and 2020, we recorded $322,747 and $367,981 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 for are as follows:
| | | | | |
| December 31, 2021 |
| Cash paid for operating lease liabilities | $ | 532,585 | |
| Weighted-average remaining lease term | 2.45 years |
| Weighted-average discount rate | 6.25 | % |
| | | | | |
| |
Minimum future lease payments ended December 31, 2021 | |
| 2022 | $ | 114,865 | |
| 2023 | 84,127 | |
| 2024 | 31,021 | |
| 230,013 | |
| Less imputed interest | (21,648) | |
| Total lease liabilities | $ | 208,365 | |
Information related to our financed lease liabilities are as follows:
| | | | | |
| December 31, 2021 |
| Cash paid for finance lease liabilities | $ | 248,035 | |
| Weighted-average remaining lease term | 2.3 years |
| Weighted-average discount rate | 6.25 | % |
| |
| | | | | |
| |
Minimum future lease payments ended December 31, 2021 | |
| 2022 | $ | 380,482 | |
| 2023 | 297,921 | |
| 2024 | 13,128 | |
| 2025 | 2,143 | |
| 2026 | 1,072 | |
| 694,746 | |
| Less imputed interest | (53,441) | |
| Total lease liabilities | $ | 641,305 | |
Note 17 – Related Party Transactions
On March 20, 2020, we sold an aggregate of 3,931,428 shares of our common stock at a purchase price of $0.175 per share to the five members of our Board of Directors in a private placement exempt from registration under Section 4(a)(2) and Rule 506(b) of Regulation D under the Securities Act of 1933, as amended. We received proceeds of $688,000 in this offering. The purchase price of the shares of our common stock sold in the offering exceeded the closing market price of our common stock on March 19, 2020, the trading day immediately preceding the day the binding Insider Subscription Agreements were executed by the purchasers. The purchasers were all accredited investors. We did not pay any commissions or finder’s fees, and we used the proceeds for general working capital.