After calling off its $75 million merger with California-based ConversionPoint Technologies earlier this summer, Inuvo Corp.’s board of directors is now asking its shareholders to approve a request to amend the company articles of incorporation and to increase the number of authorized shares in the thinly-traded Arkansas tech firm.
According to a proxy filing with the federal Securities and Exchange Commission (SEC) on Friday (Aug. 23), the Little Rock artificial intelligence (AI) product marketing platform said it has no plans on how it will use the extra proceeds raised through the public offering to push out another 40 million shares on the public market.
In the proxy proposal to Inuvo shareholders, the Little Rock data marketer said the increase in the number of authorized shares will be available for use “by our board of directors as it deems appropriate or necessary.”
“The additional shares could be used, among other things, for potential conversion of the convertible note, for public or private financings to raise additional capital, for the declaration of stock splits or stock dividends, for acquisitions of other companies, for the expansion of business operations, or for the issuance of stock under warrants granted or to be granted in the future,” the filing states. “However, we have no specific plans or agreements at this time with respect to any additional acquisitions or financing transactions and no assurances can be given that an acquisition or financing transaction or transactions will take place or will be available on terms that are favorable to us.”
In the proxy filing, Inuvo also acknowledged that the issuance of new shares in a company’s stock could have a “dilutive effect” on the earnings per share, market price, equity and voting power of current stockholders.
“The increase in the authorized number of shares of our common stock could also have an anti-takeover effect as the availability for issuance of additional shares of common stock could discourage, or make more difficult, efforts to obtain control of Inuvo,” the SEC filing states. “For example, without further stockholder approval, our board of directors could strategically sell common stock in a private transaction to purchasers who would oppose a takeover.”
The shareholder proposal comes as the Arkansas data marketing firm seeks to remain viable following the June 21 termination of privately held ConversionPoint’s previously announced agreement to acquire Inuvo in a stock-and-cash deal valued at $75.5 million. The stock offering is one of five proposals before shareholders at the company’s Oct. 4 annual meeting.
Inuvo stockholders will also vote on the re-election of board director G. Ken Burnett, a former Dillard’s executive and the hiring of an independent accounting firm. Two other proposals deal with executive compensation, including the approval to increase the amount of company stock that can be granted to key executives under the firm’s executive compensation plan.
Under the terms of the failed deal, ConversionPoint would have issued 0.18877 shares of its common stock for each one share of Inuvo common stock, or approximately 6.4 million shares altogether for nearly $60 million. The West Coast tech firm would then make a cash payment in the amount of 45 cents for each one share of Inuvo common stock, which amounted to nearly $15.3 million in total.
ConversionPoint and Inuvo also structured the deal so that a newly-created holding company, ConversionPoint Holdings Inc., would become the parent company of two wholly-owned subsidiaries of the same names. ConversionPoint was also required to raise a minimum of $36 million of gross proceeds from the issuance of equity and/or debt, a portion of which would be used to fund the cash portion of the transaction.
However, a week before Christmas, ConversionPoint surprisingly announced that it had filed publicly a registration statement with the SEC for a proposed initial public offering (IPO) of its common stock. At the time, the venture-backed California tech firm said it was working with the SEC to complete the review of its application to go public.
After several updates and setbacks concerning the IPO, along with an unusual explanation that the IPO application process had been delayed by the “government shutdown,” ConversionPoint finally announced on April 15 that it had completed its Form S-4 for its IPO with the SEC. The California tech firm also said it had applied to list its common stock on the tech-focused NASDAQ Capital Market.
Two months later, however, Inuvo quietly announced that the deal had fallen apart due to ConversionPoint’s inability to secure financing for the deal. The Little Rock tech firm said then that it planned to refocus resources from its integration planning business model and seek new opportunities through its emerging AI-based technology that allow branding agencies, advertisers and partner companies to better market online products to consumers.
“While we firmly believed in the strategic merits of the combination with ConversionPoint Technologies, the difficult market conditions faced by ConversionPoint while attempting to secure the required financing for the transaction led us jointly to the conclusion that the transaction was unlikely to be funded by the pending July 12, 2019 deadline,” Inuvo CEO Rich Howe said on June 12. “We have already started the process of fulfilling ReTargeter accounts from the IntentKeyTM platform. We see all of these accounts as upsell opportunities.”
As for ConversionPoint, the Newport Beach, Calif.-based marketing and ecommerce services firm, postponed its long-awaited IPO that would have raised $40 million and allowed it to meld its operations with Inuvo.
At the end of 2018, Inuvo reported a yearly loss of $5.9 million on revenue of $73 million. On Aug. 14, the Little Rock tech firm reported another quarterly loss of $1.95 million, or six cents per share, for the period ended June 30, compared to a net loss of $832,000 or three cents per share, in the same period a year ago.
According to SEC filings, Inuvo was expected to receive a $2.8 million breakup fee and certain other reimbursements related to the failed deal. However, Inuvo said on June 20 that it came to an agreement with ConversionPoint for the forgiveness of a $1.1 million loan, a payment of $125,000 in cash from the transfer of assets, and the transfer of clients associated with the AI-related business that had a revenue run rate of nearly $50,000 per month.
As of today, about 16% of Inuvo shares are owned by company insiders and the tech firm’s largest shareholders include Howe and former Acxiom Chairman and CEO Charles Morgan. Howe, who also held several executive roles at Acxiom, held 1,112,300 shares as of Aug. 18, according to the latest Form 4 filing with the SEC. In his role as Inuvo’s lead independent director, Morgan held 2,061,200 shares of Inuvo stock as of March 28.
Inuvo, which has about 60 employees at its headquarters in Little Rock’s River Market district, also has several other company executives and board directors that are major holders of the company’s stock, which closed at only 25 cents per share in Monday’s session on the New York Stock Exchange.