Organization and Business Overview

9 Months Ended

Sep. 30, 2013

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Organization and Business Overview

Organization and Business Overview

Business Overview

Inuvo®, Inc. and subsidiaries ("we", "us" or "our") is an Internet marketing and technology company that delivers targeted advertisements to websites and applications reaching both desktop and mobile devices.

We deliver content and advertisements over the Internet and generate revenue when an end user clicks on advertisements we have delivered. We manage our business as two segments, Partner Network and Owned and Operated Network. In the third quarter of 2013 we reorganized our segments and have retrospectively applied the current presentation to prior periods.

The Partner Network facilitates transactions between advertisers and our partners' websites and applications, reaching both desktop and mobile devices. The majority of revenue generated by this segment is derived from clicks on advertisements. The proprietary technology platform that supports this segment provides advertisers and publishers numerous benefits, including performance reporting, targeting and fraud detection, all of which we believe differentiates us in the marketplace.

The Owned and Operated Network designs, builds and markets consumer websites and applications. This segment includes our mobile-ready ALOT websites, the ALOT Appbar (the "Appbar") and the BargainMatch CashBack application. The majority of revenue generated by this segment is derived from clicks on advertisements and sales commissions.

On March 1, 2012 we acquired Vertro, Inc. (the "March 2012 Acquisition" or "Vertro"), an Internet company that owns and operates the ALOT product portfolio, discussed in Note 13.

Relocation of corporate headquarters

During 2012, our leadership team began to explore opportunities for consolidation of our offices in New York City and Clearwater, FL. In the fourth quarter of 2012, the state of Arkansas offered us a grant to relocate our offices and operations to their state.

On January 25, 2013, we reached an agreement with the state of Arkansas and received a grant of up to $1.75 million for costs related to the relocation and the purchase of equipment necessary to begin operations in Arkansas. The grant is contingent upon us having at least fifty full-time equivalent permanent positions within four years, maintaining at least fifty full-time equivalent permanent positions for the following six years and paying those positions an average total compensation of $90,000 per year. If we fail to meet the requirements of the grant after the initial four year period, we may be required to repay a portion of the grant, up to but not to exceed the full amount of the grant. Based on our hiring and financial forecasts, we believe we will meet all grant requirements. As of September 30, 2013, we had 28 employees located in Arkansas.

During 2013, we terminated our Clearwater, FL lease, subleased our New York City office and completed the relocation of our New York City data centers to a single location in Arkansas. As a result, our compensation and selling, general and administrative expenses together are now less than $1 million per month.

Liquidity

During 2012, our liquidity was unfavorably affected by significant investments in search costs to increase consumer downloads of our Appbar product. Although we realized operating efficiencies from the March 2012 Acquisition, we took additional steps to reduce our operating costs and improve our liquidity situation, most notably the relocation to Arkansas. As a result, cash flow from operations has increased and our net working capital deficit and outstanding bank debt have declined in 2013.

Despite our improving liquidity, we may from time to time delay payments to the Partner Network publishers and other vendors to conserve cash or manage risk, which may affect their decisions to do business with us.

We have access to a revolving line of credit with Bridge Bank, N.A. ("Bridge Bank") which had approximately $1.2 million in availability as of September 30, 2013.

We believe the revolving line of credit and cash generated by operations will provide sufficient cash for operations over the next 12 months.

Customer concentration

We generate the majority of our revenue from two customers, Yahoo! and Google. At September 30, 2013 and December 31, 2012 these two customers accounted for 92.2 percent and 71.0 percent of our gross accounts receivable balance, respectively. For the three and nine months ended September 30, 2013 they accounted for 95.6 percent and 93.2 percent of net revenue, respectively. For the three and nine months ended September 30, 2012 they accounted for 91.6 percent and 86.5 percent of net revenue, respectively.

On February 1, 2013 we agreed to a new two year services agreement with Google. We agreed to a contract renewal with Yahoo! on October 10, 2013 which extends our relationship through April 2015.

NYSE MKT

Our common stock is listed on the NYSE MKT, LLC (the "Exchange"). In November 2012 we were notified by the Exchange that we were out of compliance with certain aspects of their listing requirements; specifically, due to losses from continuing operations and/or net losses in our five most recent fiscal years, the Exchange's minimum requirement for continued listing is stockholders' equity of not less than $6,000,000. We were afforded the opportunity to submit a plan of compliance to the Exchange by December 31, 2012 to demonstrate our ability to regain compliance with their listing standards. We submitted our plan and were notified on February 15, 2013 that it was accepted. We are able to continue our listing during the plan period, which the Exchange recently extended to April 24, 2014, though subject to periodic review to determine whether we are making progress consistent with the plan. As of September 30, 2013 our stockholders' equity was $5,460,836.