INUVO, INC.
|
(Exact name of registrant as specified in its charter)
|
Nevada
|
87-0450450
|
|
(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
|
|
143 Varick Street
New York, NY
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10013
|
|
(Address of principal executive offices)
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(Registrant’s Zip Code)
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Large accelerated filer
|
o |
Accelerated filer
|
o |
Non-accelerated filer
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o |
Smaller reporting company
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þ |
Title of Class
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Shares Outstanding at November 1, 2012
|
|
Common Stock
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23,497,123
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Page No.
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|||||
Part I.
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FINANCIAL INFORMATION
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||||
Item 1.
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Financial Statements.
|
4 | |||
Consolidated Balance Sheets September 30, 2012 (Unaudited) and December 31, 2011
|
4 | ||||
Consolidated Statements of Operations for the three and nine months ended September 30, 2012 and 2011 (Unaudited)
|
5 | ||||
Consolidated Statements of Cash Flows for the nine months ended September 30, 2012 and 2011 (Unaudited)
|
6 | ||||
Notes to Consolidated Financial Statements for the three and nine months ended September 30, 2012 and 2011 (Unaudited)
|
7 | ||||
Item 2.
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Management’s Discussion and Analysis of Financial Condition and Results of Operations.
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20 | |||
Item 3.
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Quantitative and Qualitative Disclosure About Market Risk.
|
30 | |||
Item 4.
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Controls and Procedures.
|
30 | |||
Part II.
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OTHER INFORMATION
|
||||
Item 1.
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Legal Proceedings.
|
31 | |||
Item 1A.
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Risk Factors.
|
32 | |||
Item 2.
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Unregistered Sales of Equity Securities and Use of Proceeds.
|
33 | |||
Item 3.
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Defaults Upon Senior Securities
|
33 | |||
Item 4.
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Mine Safety Disclosures
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33 | |||
Item 5.
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Other Information
|
33 | |||
Item 6.
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Exhibits.
|
34 | |||
Signatures
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35 |
●
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Revenue;
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●
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Primary operating costs and expenses;
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●
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Capital expenditures;
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●
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Operating lease arrangements; and
|
●
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Evaluation of possible acquisitions of or investments in business, products, and technologies.
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September 30,
2012
|
December 31,
2011
|
|||||||
(Unaudited)
|
||||||||
ASSETS
|
||||||||
Current assets
|
||||||||
Cash
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$ | 3,200,464 | $ | 4,413 | ||||
Restricted cash
|
301,083 | 475,586 | ||||||
Accounts receivable, net of allowance for doubtful accounts of $310,496 and $477,289, respectively
|
6,562,452 | 5,426,865 | ||||||
Unbilled revenue
|
35,350 | 49,196 | ||||||
Intangible assets - current, net of accumulated amortization
|
598,419 | 947,882 | ||||||
Prepaid expenses and other current assets
|
829,024 | 433,601 | ||||||
Total current assets
|
11,526,792 | 7,337,543 | ||||||
Property and equipment, net
|
2,671,277 | 1,590,011 | ||||||
Other assets
|
||||||||
Goodwill
|
6,005,309 | 1,776,544 | ||||||
Intangible assets, net of accumulated amortization
|
11,366,830 | 390,000 | ||||||
Other assets
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164,187 | 2,243 | ||||||
Total other assets
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17,536,326 | 2,168,787 | ||||||
Total assets
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$ | 31,734,395 | $ | 11,096,341 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY (Deficit)
|
||||||||
Current liabilities
|
||||||||
Term and credit notes payable - current portion
|
$ | 1,333,333 | $ | 452,000 | ||||
Accounts payable
|
9,689,189 | 6,198,921 | ||||||
Accrued expenses and other current liabilities
|
3,535,417 | 1,611,831 | ||||||
Deferred compensation
|
— | 929,428 | ||||||
Current liabilities of discontinued operations
|
— | 160,000 | ||||||
Total current liabilities
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14,557,939 | 9,352,180 | ||||||
Long-term liabilities
|
||||||||
Deferred tax liability
|
4,543,000 | — | ||||||
Term and credit notes payable - long term
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6,522,222 | 2,454,303 | ||||||
Other long-term liabilities
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1,000,132 | 300,124 | ||||||
Total long-term liabilities
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12,065,354 | 2,754,427 | ||||||
Stockholders’ equity (deficit)
|
||||||||
Preferred stock, $.001 par value:
|
||||||||
Authorized shares - 500,000 - none issued and outstanding
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— | — | ||||||
Common stock, $.001 par value:
|
||||||||
Authorized shares - 40,000,000, issued shares 23,862,680 and 10,422,617, respectively
|
||||||||
Outstanding shares - 23,497,123 and 10,035,790, respectively
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23,862 | 10,422 | ||||||
Additional paid-in capital
|
127,282,457 | 115,096,953 | ||||||
Accumulated deficit
|
(120,806,925 | ) | (114,648,037 | ) | ||||
Accumulated other comprehensive income
|
505 | — | ||||||
Treasury stock, at cost - 365,557 and 386,827 shares, respectively
|
(1,388,797 | ) | (1,469,604 | ) | ||||
Total stockholders' equity (deficit)
|
5,111,102 | (1,010,266 | ) | |||||
Total liabilities and stockholders' equity (deficit)
|
$ | 31,734,395 | $ | 11,096,341 |
For the Three Months Ended
September 30,
|
For the Nine Months Ended
September 30,
|
|||||||||||||||
2012
|
2011
|
2012
|
2011 | |||||||||||||
Net revenue
|
$ | 15,481,425 | $ | 8,203,116 | $ | 37,122,558 | $ | 29,209,646 | ||||||||
Cost of revenue
|
||||||||||||||||
Affiliate expenses
|
5,471,602 | 3,922,166 | 14,118,763 | 14,090,378 | ||||||||||||
Data acquisition
|
1,054,725 | 669,613 | 3,571,752 | 1,942,606 | ||||||||||||
Merchant processing fees and product costs
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218,701 | 44,129 | 499,605 | 73,203 | ||||||||||||
Cost of services
|
6,745,028 | 4,635,908 | 18,190,120 | 16,106,187 | ||||||||||||
Gross profit
|
8,736,397 | 3,567,208 | 18,932,438 | 13,103,459 | ||||||||||||
Operating expenses
|
||||||||||||||||
Search costs
|
5,832,243 | 1,959,042 | 13,098,236 | 6,749,115 | ||||||||||||
Compensation and telemarketing
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1,649,063 | 1,481,007 | 4,571,418 | 6,367,437 | ||||||||||||
Selling, general and administrative
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2,378,826 | 1,363,385 | 6,734,383 | 4,018,959 | ||||||||||||
Total operating expenses
|
9,860,132 | 4,803,434 | 24,404,037 | 17,135,511 | ||||||||||||
Operating loss
|
(1,123,735 | ) | (1,236,226 | ) | (5,471,599 | ) | (4,032,052 | ) | ||||||||
Other income (expenses)
|
||||||||||||||||
Litigation settlements
|
(75,000 | ) | — | (75,000 | ) | (374,800 | ) | |||||||||
Write-off of capitalized development & note receivable
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— | (78,361 | ) | — | (179,106 | ) | ||||||||||
Interest expense, net
|
(127,379 | ) | (53,169 | ) | (398,801 | ) | (263,437 | ) | ||||||||
Other expense, net
|
(202,379 | ) | (131,530 | ) | (473,801 | ) | (817,343 | ) | ||||||||
Loss from continuing operations before taxes
|
(1,326,114 | ) | (1,367,756 | ) | (5,945,400 | ) | (4,849,395 | ) | ||||||||
Income tax expense
|
(8,690 | ) | (141 | ) | (70,667 | ) | (141 | ) | ||||||||
Net loss from continuing operations
|
(1,334,804 | ) | (1,367,897 | ) | (6,016,067 | ) | (4,849,536 | ) | ||||||||
Net income (loss) from discontinued operations
|
14,121 | — | (142,821 | ) | 257,136 | |||||||||||
Net loss
|
$ | (1,320,683 | ) | $ | (1,367,897 | ) | $ | (6,158,888 | ) | $ | (4,592,400 | ) | ||||
Other comprehensive income
|
||||||||||||||||
Foreign currency revaluation
|
6,084 | — | 505 | — | ||||||||||||
Total comprehensive loss
|
$ | (1,314,599 | ) | $ | (1,367,897 | ) | $ | (6,158,383 | ) | $ | (4,592,400 | ) | ||||
Per common share data
|
||||||||||||||||
Basic and diluted
|
||||||||||||||||
Net loss from continuing operations
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$ | (0.06 | ) | $ | (0.14 | ) | $ | (0.29 | ) | $ | (0.53 | ) | ||||
Net loss (income) from discontinued operations
|
$ | — | $ | — | $ | (0.01 | ) | $ | (0.03 | ) | ||||||
Net loss
|
$ | (0.06 | ) | $ | (0.14 | ) | $ | (0.30 | ) | $ | (0.50 | ) | ||||
Weighted average shares (Basic and diluted)
|
23,497,123 | 10,035,791 | 20,524,853 | 9,137,659 |
|
For the Nine Months Ended
September 30,
|
|||||||
2012
|
2011
|
|||||||
(Unaudited) | ||||||||
Operating activities:
|
||||||||
Net loss
|
$ | (6,158,888 | ) | $ | (4,592,400 | ) | ||
Adjustments to reconcile net loss to net cash provided by operating activities:
|
||||||||
Depreciation and amortization
|
5,933,754 | 3,203,147 | ||||||
Provision for doubtful accounts
|
77,245 | 45,520 | ||||||
Loss on write-off of note receivable
|
— | 100,745 | ||||||
Loss on write-off of capitalized development costs
|
— | 78,361 | ||||||
Deferred compensation
|
— | 368,193 | ||||||
Stock based compensation
|
632,477 | 1,092,282 | ||||||
Change in operating assets and liabilities:
|
||||||||
Restricted cash
|
174,503 | 140,083 | ||||||
Accounts receivable
|
881,013 | 1,582,911 | ||||||
Prepaid expenses and other assets
|
266,338 | 157,490 | ||||||
Accounts payable
|
(263,345 | ) | (1,346,404 | ) | ||||
Other accrued expenses and current liabilities
|
(842,159 | ) | (43,951 | ) | ||||
Net cash provided by operating activities from continuing operations
|
700,938 | 784,139 | ||||||
Net cash used in operating activities of discontinued operations
|
(160,000 | ) | (376,424 | ) | ||||
Net cash provided by operating activities
|
540,938 | 407,715 | ||||||
Investing activities:
|
||||||||
Purchases of equipment and capitalized development costs
|
(851,299 | (430,610 | ) | |||||
Net cash received from merger with Vertro, Inc., net of merger costs
|
2,470,755 | — | ||||||
Purchase of names database and bundled downloads
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(2,873,822 | ) | (2,143,370 | ) | ||||
Net cash used in investing activities
|
(1,254,366 | ) | (2,573,980 | ) | ||||
Financing activities:
|
||||||||
Proceeds from sale of common stock, net
|
— | 2,635,796 | ||||||
Proceeds from term note
|
5,000,000 | — | ||||||
Deposit to collateralize letter of credit
|
(475,000 | ) | — | |||||
Advances from credit note payable
|
3,808,742 | 4,631,144 | ||||||
Payments on term note payable and capital leases
|
(4,424,768 | ) | (4,059,056 | ) | ||||
Net cash provided by financing activities
|
3,908,974 | 3,207,884 | ||||||
Accumulated other comprehensive income
|
505 | — | ||||||
Net change – cash
|
3,195,546 | 1,041,619 | ||||||
Cash, beginning of period
|
4,413 | 118,561 | ||||||
Cash, end of period
|
$ | 3,200,464 | $ | 1,160,180 | ||||
Supplemental information:
|
||||||||
Interest paid
|
$ | 238,501 | $ | 312,912 | ||||
Non-cash investing activities:
|
||||||||
Issuance of stock as settlement of deferred compensation
|
$ | 915,750 | $ | — | ||||
Restricted advances on term note payable
|
$ | 300,000 | $ | 475,000 | ||||
Payment of litigation settlements with common stock
|
$ | — | $ | 365,400 | ||||
Retirement of 164,869 shares of treasury stock
|
$ | — | $ | 626,502 |
●
|
A more diversified revenue stream, which eliminated our dependence on one major customer
;
|
|
●
|
An install base in the Vertro ALOT toolbar, for the distribution of consumer facing innovations
;
|
●
|
A stronger business financially from which to access both debt and capital markets to support growth
;
|
|
●
|
The combination of two experienced digital marketing teams
; and
|
●
|
The elimination of approximately $2.9 million in overlapping annual operating and public company expenses
.
|
●
|
The ValidClick® service at www.validclick.com. ValidClick is a fraud filtering, pay-per-click marketplace where publishers can integrate dynamically-generated advertisements within their websites based on the demographics and natural search behaviors of the consumer. ValidClick provides publishers with access to tens of thousands of advertisers in an easy-to-use XML-based implementation, giving the publisher greater control over content and integration than other competitive offerings.
|
●
|
The owned and operated websites including the Yellowise.com™ directory search website at www.yellowise.com and the recently launched Local.ALOT.com website. Both websites are local search and review sites powered by the LocalXML service which allows publishers the ability to make real-time calls to the LocalXML database and have users receive a listing of all local businesses that meet the search criteria. Users may also post reviews of their favorite and not-so-favorite businesses making the reviews available to all other users of the site.
|
●
|
The MyAP® Affiliate Platform at www.MyAP.com. MyAP is a complete affiliate tracking and management software solution providing advertisers the ability to sign up, manage and track the activities of their publishers through a reliable, easy-to-use, and privately-branded platform with full data transparency. Where the Inuvo Platform is an open platform where many advertisers and publishers interact, the MyAP platform is designed specifically to allow merchants to build private affiliate networks. Each advertising customer of MyAP is supported by a unique implementation of the software, customized to suit their individual needs and populated by publishers . |
September 30, 2012
|
December 31, 2011
|
|||||||
(unaudited)
|
||||||||
Furniture and fixtures
|
$ | 427,121 | $ | 427,121 | ||||
Equipment
|
2,381,861 | 2,005,505 | ||||||
Software
|
7,971,097 | 5,469,804 | ||||||
Leasehold improvements
|
343,796 | 310,416 | ||||||
Subtotal
|
11,123,875 | 8,212,846 | ||||||
Less: accumulated depreciation and amortization
|
(8,452,598 | ) | (6,622,835 | ) | ||||
Total
|
$ | 2,671,277 | $ | 1,590,011 |
Description
|
Term
|
Carrying Value
|
Accumulated Amortization
(1)
|
Net Carrying Value
|
||||||||||||
Names database
|
9 months
|
$ | 15,848,688 | $ | (15,475,715 | ) | $ | 372,973 | ||||||||
Customer list
|
20 years
|
8,820,000 | (257,250 | ) | 8,562,750 | |||||||||||
Customer list
|
10 years
|
1,610,000 | (93,919 | ) | 1,516,081 | |||||||||||
Bundled downloads
|
4.5 months
|
2,446,697 | (2,221,252 | ) | 225,445 | |||||||||||
Exclusivity and non-compete agreements
|
1 year
|
120,000 | (70,000 | ) | 50,000 | |||||||||||
Trade names
|
5 years
|
960,000 | (112,000 | ) | 848,000 | |||||||||||
Trade names
|
— | 390,000 | — | 390,000 | ||||||||||||
Total intangible assets
|
$ | 30,195,385 | $ | (18,230,136 | ) | $ | 11,965,249 | |||||||||
Goodwill
|
$ | 6,005,309 | $ | — | $ | 6,005,309 |
(1)
|
Amortization for the three months ended September 30, 2012 and 2011 was approximately; names database $244,000 and $661,000, respectively; customer lists $151,000 and $0 respectively; bundled downloads $811,000 and $0, respectively; exclusivity and non-compete agreements $30,000 and $0, respectively; and trade names $48,000 and $0, respectively. Amortization for the nine months ended September 30, 2012 and 2011 was approximately; Names database $1,350,000 and $1,860,000, respectively; customer lists $351,000 and $0, respectively; bundled downloads $2,221,000 and $0, respectively; exclusivity and non-compete agreements $70,000 and $0 respectively; and trade names $112,000 and $0, respectively. Intangible assets with an amortization term of less than one year are shown in the current assets section of the consolidated balance sheets.
|
2012
|
$ | 652,805 | ||
2013
|
988,113 | |||
2014
|
794,004 | |||
2015
|
794,004 | |||
2016
|
794,004 | |||
Thereafter
|
7,552,319 | |||
Total
|
$ | 11,575,249 |
September 30,
2012
|
December 31,
2011
|
|||||||
(Unaudited)
|
||||||||
Search costs
|
$ | 1,714,209 | $ | 109,706 | ||||
Taxes
|
145,315 | - | ||||||
Capital leases - current portion
|
54,299 | 57,581 | ||||||
Payroll and commission liabilities
|
21,961 | 8,370 | ||||||
Affiliate expenses
|
5,873 | 16,570 | ||||||
All other expenses
|
1,593,760 | 1,419,604 | ||||||
Total
|
$ | 3,535,417 | $ | 1,611,831 |
September 30,
2012
|
December 31,
2011
|
|||||||
(Unaudited)
|
||||||||
Taxes payable
|
$ | 506,453 | $ | — | ||||
Deferred rent
|
403,117 | 283,469 | ||||||
Capital leases - less current portion
|
57,824 | 16,655 | ||||||
Long-term deposits
|
32,738 | — | ||||||
Total
|
$ | 1,000,132 | $ | 300,124 |
Lender
|
Due Date
|
Interest Rate
|
September 30,
2012
|
December 31,
2011
|
||||||||
(Unaudited)
|
||||||||||||
Bridge Bank - term note; paid in full on March 1, 2012
|
February 2013(paid in full)
|
Prime + 2 percentage points
|
$
|
—
|
$
|
475,000
|
||||||
Bridge Bank - term note
|
February 2016
|
Prime + 1 percentage points
|
4,555,555
|
|||||||||
Bridge Bank - credit facility; paid in full on March 1, 2012
|
February 2013(paid in full)
|
Prime + 2 percentage points
|
—
|
2,431,303
|
||||||||
Bridge Bank - credit facility
|
February 2014
|
Prime + 0.5 percentage points
|
3,300,000
|
|||||||||
Totals
|
7,855,555
|
2,906,303
|
||||||||||
Less: term and credit notes payable - current portion
|
(1,333,333
|
)
|
(452,000
|
)
|
||||||||
Term and credit notes payable - long-term
|
$
|
6,522,222
|
$
|
2,454,303
|
2012
|
$ | 333,333 | ||
2013
|
1,333,333 | |||
2014
|
1,333,333 | |||
2015
|
1,333,333 | |||
2016
|
222,223 | |||
Total
|
$ | 4,555,555 |
Stock Options Outstanding
|
RSA's Outstanding
|
Options and RSA's
Exercised
|
Available Shares
|
Total
|
||||||||||||||||
2010 ECP
|
628,497 | 151,093 | 903,696 | 1,702,659 | 3,385,945 | |||||||||||||||
2005 LTIP
|
577,343 | 0 | 224,164 | 198,493 | 1,000,000 | |||||||||||||||
Total
|
1,205,840 | 151,093 | 1,127,860 | 1,901,152 | 4,385,945 |
2012
|
2011
|
|||||||||||||||
Options
|
Weighted Average Exercise Price
|
Options
|
Weighted Average Exercise Price
|
|||||||||||||
Outstanding, beginning of period
|
1,358,717 | $ | 2.81 | 1,223,159 | $ | 3.74 | ||||||||||
Granted
|
49,500 | $ | 0.56 | 340,000 | $ | 2.83 | ||||||||||
Forfeited or expired
|
(202,377 | ) | 3.16 | (132,458 | ) | $ | 6.08 | |||||||||
Exercised
|
— | $ | — | — | $ | — | ||||||||||
Outstanding, end of period
|
1,205,840 | $ | 2.66 | 1,430,701 | $ | 3.00 | ||||||||||
Exercisable, end of period
|
837,902 | $ | 2.81 | 586,935 | $ | 3.57 |
2012
|
2011
|
||||
Expected life in years
|
3.15
|
4.5
|
|||
Volatility
|
174.2
|
% |
141.1
|
%
|
|
Risk free interest rate
|
0.30
|
% |
2.15
|
%
|
|
Dividend yield
|
—
|
—
|
For the Three Months Ended
September 30
|
For the Nine MonthsEnded
September 30
|
|||||||||||||||
2012
|
2011
|
2012
|
2011
|
|||||||||||||
Revenue
|
$ | — | $ | — | $ | — | $ | — | ||||||||
Loss from discontinued operations before sale
|
— | (1,709 | ) | — | ||||||||||||
Income (loss) from discontinued operations from European operations acquired with Vertro merger
|
14,121 | (141,112 | ) | |||||||||||||
Gain from litigation settlement in discontinued operations
|
— | — | — | 257,136 | ||||||||||||
Income (loss) from discontinued operations
|
$ | 14,121 | $ | — | $ | (142,821 | ) | $ | 257,136 |
Three Months Ended September 30
|
Nine Months Ended September 30
|
|||||||||||||||||||||||||||||||
2012 ($)
|
% of Revenue
|
2011 ($)
|
% of Revenue
|
2012 ($)
|
% of Revenue
|
2011 ($)
|
% of Revenue
|
|||||||||||||||||||||||||
Publisher Network
|
7,605 | 49.1 | % | 8,153 | 99.4 | % | 19,429 | 52.3 | % | 29,160 | 99.8 | % | ||||||||||||||||||||
Software Search
|
7,876 | 50.9 | % | 50 | 0.6 | % | 17,694 | 47.7 | % | 50 | 0.2 | % | ||||||||||||||||||||
Total net revenue
|
15,481 | 100.0 | % | 8,203 | 100.0 | % | 37,123 | 100.0 | % | 29,210 | 100.0 | % |
Three Months Ended September 30,
|
Nine Months Ended September 30,
|
|||||||||||||||||||||||||||||||
2012 ($)
|
% of Net Revenue
|
2011 ($)
|
% of Net Revenue
|
2012 ($)
|
% of Net Revenue
|
2011 ($)
|
% of Net Revenue
|
|||||||||||||||||||||||||
Publisher Network
|
1,895 | 12.2 | % | 3,517 | 42.9 | % | 4,326 | 11.7 | % | 13,054 | 44.7 | % | ||||||||||||||||||||
Software Search
|
6,841 | 44.2 | % | 50 | 0.6 | % | 14,606 | 39.3 | % | 50 | 0.2 | % | ||||||||||||||||||||
Total gross profit
|
8,736 | 56.4 | % | 3,567 | 43.5 | % | 18,932 | 51.0 | % | 13,104 | 44.9 | % |
Total consideration paid in common stock
|
$ | 11,442,196 | ||
Fair value of assets acquired:
|
||||
Accounts receivable, net
|
(2,093,845 | ) | ||
Other current assets
|
(520,342 | ) | ||
Property and equipment
|
(2,059,729 | ) | ||
Other assets
|
(283,911 | ) | ||
Goodwill
|
(4,234,371 | ) | ||
Intangible assets
|
(11,857,537 | ) | ||
Fair value of liabilities assumed:
|
||||
Accounts payable
|
3,753,613 | |||
Outstanding balance on credit facility
|
1,000,000 | |||
Accrued expenses
|
2,782,361 | |||
Deferred tax liability
|
4,543,000 | |||
Other long-term liabilities
|
709,991 | |||
Cash received in merger
|
$ | 3,181426 | ||
Stock issuance costs
|
(710,671 | ) | ||
Net cash received in merger
|
$ | 2,470,755 |
●
|
The ValidClick® service at www.validclick.com. ValidClick is a fraud filtering, pay-per-click marketplace where publishers can integrate dynamically-generated advertisements within their websites based on the demographics and natural search behaviors of the consumer. ValidClick provides publishers with access to tens of thousands of advertisers in an easy-to-use XML-based implementation, giving the publisher greater control over content and integration than other competitive offerings.
|
●
|
The owned and operated websites including the Yellowise.com™ directory search website at www.yellowise.com and the recently launched Local.ALOT.com website. Both websites are local search and review sites powered by the LocalXML service which allows publishers the ability to make real-time calls to the LocalXML database and have users receive a listing of all local businesses that meet the search criteria. Users may also post reviews of their favorite and not-so-favorite businesses making the reviews available to all other users of the site.
|
●
|
The MyAP® Affiliate Platform at www.MyAP.com. MyAP is a complete affiliate tracking and management software solution providing advertisers the ability to sign up, manage and track the activities of their publishers through a reliable, easy-to-use, and privately-branded platform with full data transparency. Where the Inuvo Platform is an open platform where many advertisers and publishers interact, the MyAP platform is designed specifically to allow merchants to build private affiliate networks. Each advertising customer of MyAP is supported by a unique implementation of the software, customized to suit their individual needs and populated by publishers.
|
●
|
Cost Containment. With the Vertro merger we anticipated that we would save approximately $2.9 million in operating expense synergies on an annualized run rate. As of September 30, 2012 we were on a run rate of approximately $0.9 million ahead of that expectation and we expect these savings to flow through to our bottom line throughout the fourth quarter of 2012 and beyond.
|
●
|
Revenue Growth. Our Publisher Network segment had a revenue growth rate of 40% in the third quarter of 2012 compared to the second quarter of 2012. Our Software Search segment had a revenue growth rate of 6% for the third quarter of 2012 compared to the second quarter of 2012. In September 2012, we attained revenue growth leading to a higher revenue share from Yahoo! for our Publisher Network segment and in July 2012, revenue growth in our Software Search Segment reached a level that yielded a higher revenue share from Google. We expect these higher revenue share rates to continue into the fourth quarter of 2012 and the higher percentage revenue share with each advertising partner is substantial and a meaningful component of our revenue growth. Our Yellowise and Local.alot owned and operated sites are contributing meaningful incremental revenues on a quarter by quarter basis and we expect their growth to continue. In addition we expect to see meaningful revenue coming from our BargainMatch.com product.
|
Three Months ended September 30
|
Nine Months ended September 30
|
|||||||||||||||||||||||||||||||
2012
|
% of Revenue
|
2011
|
% of Revenue
|
2012
|
% of Revenue
|
2011
|
% of Revenue
|
|||||||||||||||||||||||||
Net revenues
|
$ | 15,481 | 100 | % | $ | 8,203 | 100 | % | $ | 37,123 | 100 | % | $ | 29,210 | 100 | % | ||||||||||||||||
Cost of revenue
|
6,745 | 43.6 | % | 4,636 | 56.5 | % | 18,190 | 49 | % | 16,106 | 55.1 | % | ||||||||||||||||||||
Gross Profit
|
8,736 | 56.4 | % | 3,567 | 43.5 | 18,933 | 51 | % | 13,103 | 44.9 | % | |||||||||||||||||||||
Total operating expenses
|
9,860 | 63.7 | % | 4,803 | 58.6 | 24,404 | 65.7 | % | 17,136 | 58.7 | % | |||||||||||||||||||||
Operating Loss
|
(1,124 | ) | (7.3 | %) | (1,236 | ) | (15.1 | %) | (5,471 | ) | (14.7 | %) | (4,032 | ) | (13.8 | %) | ||||||||||||||||
Other expenses
|
(202 | ) | (1.3 | %) | (132 | ) | (1.6 | %) | (474 | ) | (1.3 | %) | (817 | ) | (2.8 | %) | ||||||||||||||||
Income tax expense
|
( 9 | ) | (0.1 | %) | — | -- | (71 | ) | (0.2 | %) | — | — | ||||||||||||||||||||
Net loss from continuing operations
|
(1,335 | ) | (8.6 | %) | (1,368 | ) | (16.7 | %) | (6,016 | ) | (16.2 | %) | (4,850 | ) | (16.6 | %) | ||||||||||||||||
Discontinued operations
|
14 | 0.1 | % | — | — | (143 | ) | (0.4 | %) | 257 | 0.9 | % | ||||||||||||||||||||
Net loss
|
$ | (1,321 | ) | (8.5 | %) | $ | (1,368 | ) | (16.7 | %) | $ | (6,159 | ) | (16.6 | %) | $ | (4,592 | ) | (15.7 | %) |
Three Months Ended September 30
|
||||||||||||||||||||||||
2012 ($)
|
% of Revenue
|
2011 ($)
|
% of Revenue
|
$ Change
|
% Change
|
|||||||||||||||||||
Publisher Network
|
7,605 | 49.1 | % | 8,153 | 99.4 | % | (548 | ) | (6.7 | )% | ||||||||||||||
Software Search
|
7,876 | 50.9 | % | 50 | 0.6 | % | 7,826 | 15,652.0 | % | |||||||||||||||
Total net revenue
|
15,481 | 100.0 | % | 8,203 | 100.0 | % | 7,278 | 88.7 | % |
Nine Months Ended September 30
|
||||||||||||||||||||||||
2012 ($)
|
% of Revenue
|
2011 ($)
|
% of Revenue
|
$ Change
|
% Change
|
|||||||||||||||||||
Publisher Network
|
19,429 | 52.3 | % | 29,160 | 99.8 | % | (9,731 | ) | (33.4 | )% | ||||||||||||||
Software Search
|
17,694 | 47.7 | % | 50 | 0.2 | % | 17,644 | 35,288 | % | |||||||||||||||
Total net revenue
|
37,123 | 100.0 | % | 29,210 | 100.0 | % | 7,913 | 27.1 | % |
Three Months Ended September 30
|
||||||||||||||||||||||||
2012 ($)
|
% of Revenue
|
2011 ($)
|
% of Revenue
|
$ Change
|
% Change
|
|||||||||||||||||||
Affiliate expenses
|
5,472 | 35.4 | % | 3,922 | 47.8 | % | 1,550 | 39.5 | % | |||||||||||||||
Data acquisition
|
1,054 | 6.8 | % | 688 | 8.4 | % | 366 | 53.2% | % | |||||||||||||||
Merchant processing fees and product costs
|
219 | 1.4 | % | 26 | 0.3 | % | 193 | 742.3 | % | |||||||||||||||
Total cost of revenue
|
6,745 | 43.6 | % | 4,636 | 56.5 | % | 2,109 | 45.5 | % |
Nine Months Ended September 30
|
||||||||||||||||||||||||
2012 ($)
|
% of Revenue
|
2011 ($)
|
% of Revenue
|
$ Change
|
% Change
|
|||||||||||||||||||
Affiliate expenses
|
14,119 | 38.0 | % | 14,090 | 48.2 | % | 29 | 0.2 | % | |||||||||||||||
Data acquisition
|
3,572 | 9.7 | % | 1,943 | 6.7 | % | 1,629 | 83.8 | % | |||||||||||||||
Merchant processing fees and product costs
|
500 | 1.3 | % | 73 | 0.3 | % | 427 | 584.9 | % | |||||||||||||||
Total cost of revenue
|
18,191 | 49.0 | % | 16,106 | 55.1 | % | 2,085 | 12.9 | % |
Three Months Ended September 30
|
||||||||||||||||||||||||
2012 ($)
|
% of Revenue
|
2011 ($)
|
% of Revenue
|
$ Change
|
% Change
|
|||||||||||||||||||
Publisher Network
|
1,894 | 12.9 | % | 3,517 | 42.9 | % | (1,623 | ) | (46.1 | )% | ||||||||||||||
Software Search
|
6,842 | 50.9 | % | 50 | 0.2 | % | 6,792 | 13,584 .0 | % | |||||||||||||||
Total gross profit
|
8,736 | 63.8 | % | 3,567 | 43.1 | % | 5,169 | 144.9 | % |
Nine Months Ended September 30
|
||||||||||||||||||||||||
2012 ($)
|
% of Revenue
|
2011 ($)
|
% of Revenue
|
$ Change
|
% Change
|
|||||||||||||||||||
Publisher Network
|
4,326 | 11.7 | % | 13,053 | 44.7 | % | (8,727 | ) | (66.9 | )% | ||||||||||||||
Software Search
|
14,606 | 39.3 | % | 50 | 0.2 | % | 14,556 | 29,112 | % | |||||||||||||||
Total gross profit
|
18,932 | 51.0 | % | 13,103 | 44.9 | % | 5,829 | 44.5 | % |
Three Months Ended September 30
|
||||||||||||||||||||||||
2012 ($)
|
% of Revenue
|
2011 ($)
|
% of Revenue
|
$ Change
|
% Change
|
|||||||||||||||||||
Search costs
|
5,832 | 37.7 | % | 1,959 | 23.9 | % | 3,873 | 197.7 | % | |||||||||||||||
Compensation and telemarketing
|
1,649 | 10.7 | % | 1,481 | 18.1 | % | 168 | 11.3 | % | |||||||||||||||
Selling, general and administrative
|
2,379 | 15.4 | % | 1,363 | 16.6 | % | 1,016 | 74.5 | % | |||||||||||||||
Total operating expenses
|
9,860 | 63.7 | % | 4,803 | 58.6 | % | 5,057 | 105.3 | % |
Three Months Ended September 30
|
||||||||||||||||||||||||
2012 ($)
|
% of Revenue
|
2011 ($)
|
% of Revenue
|
$ Change
|
% Change
|
|||||||||||||||||||
Publisher Network
|
718 | 4.6 | % | 2,379 | 29.0 | % | (1,661 | ) | (69.8 | )% | ||||||||||||||
Software Search
|
5,427 | 35.1 | % | 92 | 1.1 | % | 5,335 | 5,798.9 | % | |||||||||||||||
Corporate
|
3,715 | 24.0 | % | 2,332 | 28.4 | % | 1,383 | 59.3 | % | |||||||||||||||
Total operating expenses
|
9,860 | 63.7 | % | 4,803 | 58.6 | % | 5,057 | 105.3 | % |
Nine Months Ended September 30
|
||||||||||||||||||||||||
2012 ($)
|
% of Revenue
|
2011 ($)
|
% of Revenue
|
$ Change
|
% Change
|
|||||||||||||||||||
Search costs
|
13,098 | 35.3 | % | 6,749 | 23.1 | % | 6,349 | 94.1 | % | |||||||||||||||
Compensation and telemarketing
|
4,571 | 12.3 | % | 6,367 | 21.8 | % | (1,796 | ) | (28.2 | )% | ||||||||||||||
Selling, general and administrative
|
6,735 | 18.1 | % | 4,019 | 13.8 | % | 2,716 | 67.6 | % | |||||||||||||||
Total operating expenses
|
24,404 | 65.7 | % | 17,135 | 58.7 | % | 7,269 | 42.4 | % |
Nine Months Ended September 30
|
||||||||||||||||||||||||
2012 ($)
|
% of Revenue
|
2011 ($)
|
% of Revenue
|
$ Change
|
% Change
|
|||||||||||||||||||
Publisher Network
|
1,696 | 4.6 | % | 9,769 | 33.4 | % | (8,073 | ) | (82.6 | )% | ||||||||||||||
Software Search
|
12,649 | 34.1 | % | 193 | 0.7 | % | 12,456 | 6,453.9 | % | |||||||||||||||
Corporate
|
10,059 | 27.1 | % | 7,174 | 24.6 | % | 2,885 | 40.2 | % | |||||||||||||||
Total operating expenses
|
24,404 | 65.7 | % | 17,136 | 58.7 | % | 7,268 | 42.4 | % |
|
●
|
We fail to have websites and applications approved;
|
|
●
|
Our paid listings providers' performance deteriorates; or
|
|
●
|
We violate our paid listings providers' guidelines or they change their implementation guidelines.
|
4.8 | Form of warrant to purchase 51,724 shares pursuant to the Second Business Financing Modification Agreement with Bridge Bank, National Association, dated October 11, 2012 |
10.1
|
Second Business Financing Modification Agreement with Bridge Bank, National Association, dated October 11, 2012
|
31.1
|
Rule 13a-14(a)/15d-14(a) certificate of Chief Executive Officer 2002 (Sarbanes-Oxley)
|
31.2
|
Rule 13a-14(a)/15d-14(a) certificate of Chief Financial Officer
|
32.1
|
Section 1350certification of Chief Executive Officer
|
32.2
|
Section 1350certification of Chief Financial Officer
|
101.INS*
|
XBRL Instance Document
|
101.SCH*
|
XBRL Taxonomy Extension Schema Document
|
101.CAL*
|
XBRL Taxonomy Extension Calculation Linkbase Document
|
101.DEF*
|
XBRL Taxonomy Extension Definition Linkbase Document
|
101.LAB*
|
XBRL Taxonomy Extension Label Linkbase Document
|
101.PRE*
|
XBRL Taxonomy Extension Presentation Linkbase Document
|
*
|
To be filed by within the earlier of 30 days from the due date or filing date of this report pursuant to the grace period provided for the first filing of the first interactive data exhibit containing detailed note tagging.
|
INUVO, INC. | |||
Date
: November 8, 2012
|
By:
|
/s/ Peter A. Corrao | |
Peter A. Corrao, | |||
Chief Executive Officer, principal executive officer | |||
Date: November 8, 2012 | By: | /s/ Wallace D. Ruiz | |
Wallace D. Ruiz, | |||
Chief Financial Officer, principal financial and accounting officer |
BORROWERS: | LENDER: | |||||
INUVO, INC. | BRIDGE BANK, NATIONAL ASSOCIATION | |||||
By: | /s/ Wallace D. Ruiz | By: | /s/ Sarah Schmidt | |||
Name: | Wallace D. Ruiz | Name: | Sarah Schmidt | |||
Title: | Chief Financial Officer | Title: |
Vice President
|
BABYTOBEE, LLC | ||||||
By: | /s/ Wallace D. Ruiz | |||||
Name: | Wallace D. Ruiz | |||||
Title: | Chief Financial Officer |
|
KOWABUNGA MARKETING, INC.
|
||||||
By: | /s/ Wallace D. Ruiz | |||||
Name: | Wallace D. Ruiz | |||||
Title: | Chief Financial Officer |
|
VERTRO, INC. | ||||||
By: | /s/ Wallace D. Ruiz | |||||
Name: | Wallace D. Ruiz | |||||
Title: | Chief Financial Officer |
|
ALOT, INC.
|
||||||
By: | /s/ Wallace D. Ruiz | |||||
Name: | Wallace D. Ruiz | |||||
Title: | Chief Financial Officer |
|
1.
|
I have reviewed this quarterly report on Form 10-Q of Inuvo, Inc.;
|
2.
|
Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4.
|
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
c)
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
d)
|
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
5.
|
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
|
a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
Date: November 8, 2012
|
/s/ Peter A. Corrao |
|
|
Peter A. Corrao
|
|||
President and Chief Executive Officer
|
1.
|
I have reviewed this quarterly report on Form 10-Q of Inuvo, Inc.;
|
2.
|
Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4.
|
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
c)
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
d)
|
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
5.
|
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
|
a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
Date: November 8, 2012
|
/s/ Wallace D. Ruiz |
|
Wallace D. Ruiz
|
||
Chief Financial Officer, principal financial and accounting officer
|
November 8, 2012
|
/s/ Peter A. Corrao |
|
Peter A. Corrao
|
||
President and Chief Executive Officer
|
November 8, 2012
|
/s/ Wallace D. Ruiz |
|
Wallace D. Ruiz
|
||
Chief Financial Officer, principal financial and accounting officer
|