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Organization and Business
12 Months Ended
Dec. 31, 2012
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Organization and Business
Organization and Business
 
Company Overview
 
Inuvo®, Inc. and subsidiaries ("we", "us", "our" or the "Company") is an Internet marketing and technology company that develops consumer applications and delivers targeted advertisements onto websites reaching desktop and mobile.

We operate two segments, Network and Applications. In 2012, we reorganized operations along the operating segments (previously referred to as Publisher Network and Software Search, respectively). Prior to 2012, the segments were Performance Marketing and Web Properties.
 
The Network segment designs, builds, implements, manages and sells the various business to business technology platforms and services that the Company offers. The segment also designs, builds and markets to the various web properties the Company owns and operates. The segment is also responsible for managing the various affiliate technology, and programs it manages, either directly or indirectly. The technology that supports this segment facilitates transactions between advertisers and website publishers in an automated and transparent environment. The majority of the revenue earned within this segment is principally derived from clicks on advertisements as well as commissions on the sale of products through the applications, websites and platforms. We believe that greater transparency and alignment between advertisers and publishers, combined with sophisticated analytic technologies that predict fraud and target offers more effectively, will differentiate service providers in this marketplace.

The Applications segment designs, builds, and markets the various business to consumer products it offers. Revenue earned within this segment is derived from clicks on advertisements and sponsored advertisements within applications.

On March 1, 2012 we completed the acquisition of Vertro, Inc. (“Vertro”), an internet company that owns and operates the ALOT product portfolio, comprised of both browser-based consumer applications and websites. Vertro's operations are now part of our Applications segment. In evaluating the merger, we, and the management of Vertro, believed that the combination of the two companies could create a stronger, more scalable business, from which to attract advertisers, publishers and consumers. The merger allowed for greater diversification of revenue streams, mitigating dependence on a single customer; the existing ALOT install and distribution capability has provided a vehicle for our consumer facing innovations like BargainMatch; the combined business is a greater footprint to access the debt and capital markets; the combining of two experienced digital marketing teams has broadened our ability and reduced time to market; and the elimination of overlapping operating and public company expenses has reduced combined costs by over $2 million per year.

Subsequent Events

On January 25, 2013, we agreed with the state of Arkansas to receive a grant of up to $1.75 million for expenses related to the relocation of the our headquarters and operations from New York and Florida to Arkansas as well as expenses related to 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 and maintaining at least fifty full-time equivalent permanent positions for the following six years. The grant is also contingent upon us paying the full-time equivalent permanent positions an average total compensation of $90,000 per year. After the initial four year period, the grant provides for penalties if either the minimum full-time equivalent permanent positions or the average total compensation conditions are not met. In no event would the penalty exceed the amount of the grant received.

On January 31, 2013, we agreed to an early termination of the Clearwater office lease. For a total early termination fee of $615,000, the lease will terminate on March 31, 2013.

On January 31, 2013 we signed a two year lease for 5,834 square feet of office space in Conway, Arkansas. A director and shareholder of Inuvo is the majority owner of First Orion Corp., the lessor of this space.

On February 1, 2013 we agreed to a two year Services Agreement with Google Inc. for advertising and search services.

NYSE MKT

On May 9, 2011, we received notice from the NYSE MKT, LLC, formerly NYSE Amex (the "Exchange") that it did not meet certain of the Exchange's continued listing standards due to stockholders' equity of less than $4.0 million and losses from continuing operations and/or net losses in three of the four most recent fiscal years as set forth in Section 1003(a) (ii) of the NYSE MKT Company Guide. The exchange accepted our plan to regain compliance with the continued listing standards and on September 11, 2012, we received notification from the Exchange that the continued listing deficiencies were resolved. However, since we had losses from continuing operations and/or net losses in five of its most recent fiscal years, the Exchange's minimum requirement for continued listing becomes a stockholder equity of not less than $6,000,000. At September 30, 2012, stockholders' equity was $5.1 million and in November 2012, Inuvo was notified by the Exchange that it was below the Exchange's continued listing standards. We were afforded the opportunity to submit a plan of compliance to the Exchange by December 31, 2012, that demonstrates our ability to regain compliance with Section 1003(a)(iii) of the Company Guide by December 2, 2013 (the “Plan Period”). We submitted our plan and were notified on February 15, 2013 that the plan was accepted by the Exchange. We are able to continue our listing during the Plan Period, though subject to periodic review to determine whether it is making progress consistent with the plan.
 
Liquidity
 
While we do not have any commitments for capital expenditures which come due within the next 12 months, our liquidity was affected by the investment made in search costs to increase the ALOT users and revenue acquired in the merger with Vertro on March 1, 2012. In 2011 prior to the merger, we implemented a cost reduction plan which included a reduction in employees and related expenses which resulted in monthly savings of $107,000 beginning in February 2011. We have also delayed payments to publishers and vendors in the management of our cash flows.  Extending these payments may affect the decision of publishers and vendors to do business with us.  In September 2011, in order to further reduce our operating costs, we eliminated an additional 16 full time positions and six part-time positions.  The effect of this reduction in personnel was approximately $92,000 monthly. Additionally in 2011, the directors, executive officers and certain senior managers agreed to a deferral of cash compensation for approximately $356,000.  In the first quarter of 2011,we renegotiated the outsourced call center contract reducing the monthly cost outlay of over $100,000 monthly and in the second quarter decided to terminate the outsourcing agreement entirely.  The result of that decision was a one-time termination fee of $340,000 and the forgiveness of the remainder of a note receivable associated with the sale of furniture and equipment. In 2012, with the merger with Vertro, we moved our headquarters to the Vertro facilities in New York and negotiated the reduction of the leased space in Clearwater, FL by approximately $30,000 per month. The Company also consolidated its data operations, closing the Florida facility and moving it to the Vertro collocation in New York. However, even with the savings achieved by merging the two public companies, it was realized the fixed operating expense level was too high. On January 31, 2013, we announced that we had received a grant of $1.75 million from the state of Arkansas to assist with the costs of purchasing equipment and relocating our headquarters to Arkansas. We are in the process of relocating its headquarters to Conway, AR. In conjunction with the relocation, the Clearwater, FL office will be closed and the former headquarters office in New York City will be subleased. We are also in process of consolidating its data center collocation facilities in New York City into a single collocation facility in Arkansas. We believe a reduced leased space, a single collocation facility and a generally lower cost of living in Arkansas will have a significant effect in lowering its operating expenses in the future.  

Effective with our merger with Vertro on March 1, 2012 (Note 15),  we entered into a new Business Financing Agreement with Bridge Bank, for a $10 million accounts receivable revolving credit facility (the “Revolving Credit Line”) and a $5 million term loan (the “Term Loan”) . The Revolving Credit Line replaced our then existing $8 million revolving credit facility. The new credit facility will be used primarily to satisfy our working capital needs following the closing of the merger with Vertro, Inc. described later in this report.  Subject to the terms of the new agreement, we are entitled to obtain advances against the Revolving Credit Line up to 80% of eligible accounts receivable balances plus $1 million up to the credit limit of $10 million.  In addition, subject to the terms of the agreement, we are entitled to borrow up to $5 million under the Term Loan portion of the credit facility.  As of December 31, 2012, there was approximately $1.5 million of credit available on the revolving credit facility and $0 on the term loan. On June 29, 2012 we entered into the First Business Financing Modification Agreement with Bridge Bank (the "First Amendment") changing the minimum asset coverage ratio to 0.75 to 1.00 for the June 2012, July 2012 and August 2012, 0.80 to 1.00 for the September 2012, 0.85 to 1.00 for the October 2012, 1.00 to 1.00 for the November 2012 and 1.15 to 1.00 beginning December 2012. It also changed the minimum operating profit measured monthly on a trailing 3 month basis to not less than $200,000 for June 2012, $500,000 for July 2012, $1,000,000 for August 2012 and $1,500,000 for September 2012. Further, the First Amendment required from October 2012 and thereafter that the Debt Service Coverage Ratio be at least 1.50 to 1.0, on a trailing 3 month basis and waived the event of default caused by the non-compliance of the Asset Coverage Ratio in April and May 2012.

On October 11, 2012 we entered into the Second Business Financing Modification Agreement with Bridge Bank (the "Second Amendment") changed the minimum asset coverage ratio to 0.9 to 1.0 for September 2012 and October 2012, 1.0 to 1.0 for November and December 2012 and 1.15 to 1.0 for each measuring period thereafter beginning January 2013. It also changed the minimum operating profit measured monthly on a trailing 3 month basis to not less than $600,000 for the September 2012 measuring period and $1,000,000 for the October 2012 measuring period. Also changed was the minimum debt service ratio, measured monthly on a trailing 3 month basis, to not less than 1.1 to 1.0 for November 2012 measuring period, 1.25 to 1.0 for December 2012 and 1.50 to 1.0 for each measuring period thereafter beginning January 2013. Further, the Second Amendment waived the event of default caused by the non-compliance of the operating profit in July and August 2012. Additionally, pursuant to the Second Amendment, the Company issued Bridge Bank a warrant to purchase 51,724 shares of our own common stock exercisable at $0.87 per share until October 2017. As of December 31, 2012, we were in compliance with all terms of the amended Bridge Bank credit facility.

We believe that with the new Business Financing Agreement and the operating benefits from the merger with Vertro (Note 15) will provide us with sufficient cash for operations over the next 12 months.
 
The accompanying consolidated financial statements were prepared by management on a go-forward basis and therefore do not include any adjustment to our assets or liabilities.