Organization and Business Overview

6 Months Ended

Jun. 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 into websites reaching desktop and mobile devices.

At its core, our business is built on the delivery of Internet advertisements to consumers. Most of our revenue is generated when a consumer clicks on an advertisement we have delivered, although we also generate revenue through sales commissions and sponsored advertisements. We manage our business as two segments, Network and Applications.

The Network segment facilitates transactions between advertisers and partners' websites and applications, as well as our own websites and applications. We deliver targeted advertisements to 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 the Network segment provides advertisers and publishers numerous benefits, including performance reporting, targeting and fraud detection, all of which we believe differentiates us in our marketplace.

The Applications segment designs, builds and markets consumer applications, including our ALOT Appbar (the "Appbar") and its product portfolio and our BargainMatch CashBack application. The majority of revenue generated by this segment is derived from clicks on advertisements, sales commissions and sponsored advertisements within applications.

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.

During 2013, we have terminated our Clearwater, FL lease and subleased our New York City office. These activities will significantly reduce future cash outlays for rent. See Note 12 - Leases for further discussion.

Liquidity

During 2012, our liquidity was unfavorably affected by significant investments in search costs to increase consumer downloads of our Appbar product. Though we benefited from cost synergies from the March 2012 Acquisition, in response we took additional steps to reduce operating costs to improve our operating results and cash position. Further, we project the move to Arkansas will save us approximately $2.5 million in annual rent, payroll and other operating costs.

To conserve cash, we may from time to time delay payments to our website publishers and other vendors, which may affect their decisions to do business with us.

We also have access to a revolving line of credit with Bridge Bank, N.A. ("Bridge Bank"), which allows for up to $10 million in borrowings and had approximately $1.2 million in availability as of June 30, 2013.

We believe that the revolving line of credit, operating efficiencies and the relocation to Arkansas will provide us with 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 June 30, 2013 and December 31, 2012 these two customers accounted for 82.2 percent and 71.0 percent of our gross accounts receivable balance, respectively. For the three and six months ended June 30, 2013 they accounted for 92.8 percent and 92.0 percent of net revenue, respectively. For the three and six months ended June 30, 2012 they accounted for 68.6 percent and 76.6 percent of net revenue, respectively.

On February 1, 2013 we agreed to a new two year services agreement with Google. Our current contract with Yahoo! expires in April 2014.

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 ends December 2, 2013, though subject to periodic review to determine whether it is making progress consistent with the plan. As of June 30, 2013 our stockholders' equity was $4,581,976.