INUVO, INC.
10-Ks and 10-Qs
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
March 31, 2015
OR
o
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________________ to ______________________
Commission file number:
001-32442
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Inuvo, Inc.
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(Exact name of registrant as specified in its charter)
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Nevada
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87-0450450
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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1111 Main St Ste 201
Conway, AR
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72032
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(Address of principal executive offices)
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(Zip Code)
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(501) 205-8508
Registrant's telephone number, including area code
not applicable
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to the filing requirements for at least the past 90 days. Yes
x
No
o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes
x
No
o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” ”accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer
o
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Accelerated filer
o
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Non-accelerated filer
o
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Smaller reporting company
x
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
o
No
x
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
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Title of Class
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April 24, 2015
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Common Stock
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24,269,457
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TABLE OF CONTENTS
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Page No.
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Part I
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Item 1.
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Financial Statements.
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Consolidated Balance Sheets
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Consolidated Statements of Comprehensive Income
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Consolidated Statements of Cash Flows
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Notes to Consolidated Financial Statements
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Item 2.
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Management's Discussion and Analysis of Financial Condition and Results of Operations.
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Item 3.
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Quantitative and Qualitative Disclosures About Market Risk.
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Item 4.
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Controls and Procedures.
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Part II
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Item 1.
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Legal Proceedings.
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Item 1A.
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Risk Factors.
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Item 2.
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Unregistered Sales of Equity Securities and Use of Proceeds.
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Item 3.
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Defaults upon Senior Securities.
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Item 4.
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Mine Safety and Disclosures.
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Item 5.
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Other Information.
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Item 6.
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Exhibits.
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Signatures
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). These forward-looking statements are subject to known and unknown risks, uncertainties and other factors which may cause actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “will,” “should,” “intend,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” or “continue,” or the negative of such terms or other comparable terminology. This report includes, among others, statements regarding our:
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•
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material dependence on our relationships with Yahoo! and Google;
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•
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dependence on our financing arrangements with Bridge Bank, N.A. which is collateralized by our assets;
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•
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covenants and restrictions in our grant agreement with the state of Arkansas;
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•
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dependence of our Partner Network segment on relationships with distribution partners; and the introduction of new products and services, which require significant investment;
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•
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dependence of our Owned and Operated Network segment on our ability effectively market and attract traffic;
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•
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ability to acquire traffic through other search engines;
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lack of control over content and functionality of advertisements we display from third-party networks;
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ability to effectively compete;
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need to keep pace with technology changes;
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•
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fluctuations in our quarterly earnings and the trading price of our common stock;
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possible interruptions of services;
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•
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possible need to raise additional capital;
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•
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dependence on third-party providers;
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•
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dependence on key personnel;
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regulatory and legal uncertainties;
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•
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failure to protect our intellectual property;
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risks from publishers who could fabricate clicks;
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•
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history of losses;
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•
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outstanding restricted stock grants warrants and options and potential dilutive impact to our stockholders; and
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•
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seasonality of our business.
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These forward-looking statements were based on various factors and were derived utilizing numerous assumptions and other factors that could cause our actual results to differ materially from those in the forward-looking statements. Most of these factors are difficult to predict accurately and are generally beyond our control. You should consider the areas of risk described in connection with any forward-looking statements that may be made herein. Readers are cautioned not to place undue reliance on these forward-looking statements and readers should carefully review this report in its entirety, including the risks described in Item 1A - Risk Factors appearing in this report, together with those appearing in Item 1A. Risk Factors, in our Annual Report on Form 10-K for the year ended December 31, 2014.
Except for our ongoing obligations to disclose material information under the Federal securities laws, we undertake no obligation to release publicly any revisions to any forward-looking statements, to report events or to report the occurrence of unanticipated events. These forward-looking statements speak only as of the date of this report, and you should not rely on these statements without also considering the risks and uncertainties associated with these statements and our business.
OTHER PERTINENT INFORMATION
Unless specifically set forth to the contrary, when used in this report the terms "Inuvo," the “Company,” "we," "us," "our" and similar terms refer to Inuvo, Inc., a Nevada corporation, and its subsidiaries. When used in this report, “
2014
” means the fiscal year ended
December 31, 2014
and "
2015
" means the fiscal year ended
December 31, 2015
. The information which appears on our corporate web site at www.inuvo.com is not part of this report.
3
INUVO, INC.
March 31, 2015
(Unaudited) and
December 31, 2014
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2015
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2014
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Assets
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Current assets
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Cash
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$
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1,923,617
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$
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3,714,525
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Accounts receivable, net of allowance for doubtful accounts of $86,642 and $86,722, respectively
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7,398,031
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5,106,300
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Unbilled revenue
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19,629
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23,541
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Prepaid expenses and other current assets
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232,727
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299,873
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Total current assets
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9,574,004
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9,144,239
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Property and equipment, net
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999,267
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959,475
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Other assets
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Goodwill
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5,760,808
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5,760,808
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Intangible assets, net of accumulated amortization
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9,331,821
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9,530,322
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Other assets
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200,032
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211,833
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Total other assets
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15,292,661
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15,502,963
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Total assets
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$
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25,865,932
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$
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25,606,677
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Liabilities and Stockholders’ Equity
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Current liabilities
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Accounts payable
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$
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7,001,628
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$
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5,714,158
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Accrued expenses and other current liabilities
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3,052,266
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3,704,464
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Term and credit notes payable - current portion
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959,942
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959,942
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Total current liabilities
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11,013,836
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10,378,564
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Long-term liabilities
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Deferred tax liability
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3,552,500
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3,552,500
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Term and credit notes payable - long term
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2,500,000
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2,666,667
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Other long-term liabilities
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98,711
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735,211
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Total long-term liabilities
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6,151,211
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6,954,378
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Stockholders’ equity
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Preferred stock, $.001 par value:
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Authorized shares 500,000, none issued and outstanding
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—
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—
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Common stock, $.001 par value:
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Authorized shares 40,000,000; issued shares 24,621,832
and 24,087,627, respectively; outstanding shares
24,245,305 and 23,711,100, respectively
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24,621
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24,087
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Additional paid-in capital
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128,535,067
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128,734,759
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Accumulated deficit
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(118,462,244
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)
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(119,088,552
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)
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Treasury stock, at cost - 376,527 shares
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(1,396,559
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)
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(1,396,559
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)
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Total stockholders' equity
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8,700,885
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8,273,735
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Total liabilities and stockholders' equity
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$
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25,865,932
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$
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25,606,677
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See accompanying notes to the consolidated financial statements.
4
INUVO, INC.
For the Three Months Ended
March 31
,
2015
and
2014
(Unaudited)
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For the Three Months Ended March 31,
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2015
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2014
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Net revenue
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$
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13,420,947
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$
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10,121,717
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Cost of revenue
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6,069,219
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3,676,755
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Gross profit
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7,351,728
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6,444,962
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Operating expenses
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Marketing costs
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4,922,146
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3,663,687
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Compensation
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1,191,057
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1,099,915
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Selling, general and administrative
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987,766
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1,010,609
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Total operating expenses
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7,100,969
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5,774,211
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Operating income
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250,759
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670,751
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Interest expense, net
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(51,161
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)
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(97,802
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)
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Income from continuing operations before taxes
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199,598
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572,949
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Income tax benefit
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406,453
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75,698
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Net income from continuing operations
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606,051
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648,647
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Net income from discontinued operations
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20,259
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26,112
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Net income
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626,310
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674,759
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Total comprehensive income
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$
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626,310
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$
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674,759
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Per common share data
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Basic and diluted:
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Net income from continuing operations
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$
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0.03
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$
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0.03
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Net income from discontinued operations
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—
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—
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Net income
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$
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0.03
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$
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0.03
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Weighted average shares
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|||||||
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Basic
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24,086,705
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23,444,053
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Diluted
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24,240,258
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23,481,415
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See accompanying notes to the consolidated financial statements.
5
INUVO, INC.
(Unaudited)
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For the Three Months Ended March 31,
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|||||||
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2015
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2014
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Operating activities:
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Net income
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$
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626,310
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$
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674,759
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Adjustments to reconcile net income to net cash (used in) provided by operating activities:
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Settlement of tax liability
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(406,453
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)
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—
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Depreciation and amortization
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370,883
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454,473
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Deferred income taxes
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—
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(75,698
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)
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Amortization of financing fees
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9,533
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4,167
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Adjustment of European liabilities related to discontinued operations
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(20,461
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)
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30,871
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(Recovery) Provision of doubtful accounts
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(80
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)
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17,000
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Stock based compensation
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51,924
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130,448
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Other, net
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(251,084
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)
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(96,289
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)
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Change in operating assets and liabilities:
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Accounts receivable and unbilled revenue
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(2,287,739
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)
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(327,790
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)
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Prepaid expenses and other assets
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57,613
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98,940
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Accounts payable
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1,307,931
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(541,985
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)
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Accrued expenses and other liabilities
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(837,934
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)
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11,173
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Other, net
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11,801
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—
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Net cash (used in) provided by operating activities
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(1,367,756
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)
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380,069
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Investing activities:
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Purchases of equipment and capitalized development costs
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(239,427
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)
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(178,423
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)
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Net cash used in investing activities
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(239,427
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)
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(178,423
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)
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Financing activities:
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Proceeds from revolving line of credit
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—
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750,000
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Payments on revolving line of credit
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—
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(761,469
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)
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Payments on term note payable and capital leases
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(183,725
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)
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(604,349
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)
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Net cash used in financing activities
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(183,725
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)
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(615,818
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)
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Net change – cash
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(1,790,908
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)
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(414,172
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)
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Cash, beginning of year
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3,714,525
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3,137,153
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Cash, end of period
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$
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1,923,617
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$
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2,722,981
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Supplemental information:
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Interest paid
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$
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37,075
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$
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74,667
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Income taxes paid
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$
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97,483
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$
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—
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See accompanying notes to the consolidated financial statements.
6
Inuvo, Inc.
Notes to Consolidated Financial Statements
Company Overview
Inuvo, Inc. and subsidiaries ("we", "us" or "our") are an internet advertising technology and digital publishing company.
We deliver content and targeted advertisements over the internet and generate revenue when an end user clicks on the advertisements we delivered. We manage our business as
two
segments, the Partner Network and the Owned and Operated Network.
The Partner Network delivers advertisements to our partners' owned or managed websites and applications on desktop, tablet and mobile devices. We generate revenue in this segment when an advertisement is clicked and we share a portion of that revenue with our partners. Our proprietary technology platform allows for targeted distribution of advertisements at a scale that measures in the hundreds of millions of advertisements delivered monthly.
The Owned and Operated Network designs, builds and markets consumer websites and applications. This segment consists of our mobile-ready ALOT websites and acquired web properties. The focus is on providing engaging content to our users. The majority of revenue generated by this segment is derived from clicks on advertisements delivered through web searches and advertisements displayed on the websites.
We have taken several significant steps to position our business for long-term success including investments in ad serving technology, the development of adaptive, programmatic and native advertising units, the creation of proprietary content, the expansion of publishers within the partner network and the optimization of overhead and operational costs all of which we expect will improve revenue and profitability.
Liquidity
On September 29, 2014, we renewed our Business Financing Agreement with Bridge Bank, N.A. ("Bridge Bank") (see Note 5, "Notes Payable"). The renewal provided continued access to the revolving line of credit up to
$10 million
through September 2016 and a new term loan of
$2 million
through September 2017. As of
March 31, 2015
, the revolving line of credit had approximately
$4.4 million
in availability. Though we do not expect to need additional funds in the next
twelve
months, we may still elect to sell stock to the public or to selected investors, or borrow under the current or any replacement line of credit or other debt instruments. During the first quarter of 2014 we filed an S-3 registration statement with the Securities and Exchange Commission ("SEC") to replace the existing, expiring S-3 “shelf” registration statement. We believe the revolving line of credit, cash generated by operations, and access to equity financing will provide sufficient cash for operations over the next
twelve
months.
Customer concentration
We generate the majority of our revenue from
two
customers, Yahoo! and Google. At
March 31, 2015
and
December 31, 2014
these two customers combined accounted for
96.8%
and
94.8%
of our gross accounts receivable balance, respectively. For the
three
months ended
March 31, 2015
and
March 31, 2014
, these two customers combined accounted for
98.3%
and
95.7%
of net revenue, respectively.
Basis of presentation
The consolidated financial statements presented are for Inuvo, Inc. and its consolidated subsidiaries. The accompanying unaudited consolidated financial statements have been prepared based upon SEC rules that permit reduced disclosure for interim periods. Certain information and footnote disclosures have been condensed or omitted in accordance with those rules and regulations. The accompanying consolidated balance sheet as of
December 31, 2014
, was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States. In our opinion, these consolidated financial statements reflect all adjustments that are necessary for a fair presentation of results of
7
operations and financial condition for the interim periods shown including normal recurring accruals and other items. The results for the interim periods are not necessarily indicative of results for the full year. For a more complete discussion of significant accounting policies and certain other information, this report should be read in conjunction with the consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the year ended
December 31, 2014
, which was filed with the SEC on February 9, 2015.
Use of estimates
The preparation of financial statements, in accordance with accounting principles generally accepted in the United States (" GAAP"), requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, net revenues and expenses and disclosure of contingent assets and liabilities. The estimates and assumptions used in the accompanying consolidated financial statements are based upon management’s regular evaluation of the relevant facts and circumstances as of the date of the consolidated financial statements. We regularly evaluate estimates and assumptions related to allowances for returns and redemptions, allowances for doubtful accounts, goodwill and purchased intangible asset valuations, lives of intangible assets, deferred income tax asset valuation allowances, contingent liabilities, including the Arkansas grant contingency, and stock compensation. Actual results may differ from the estimates and assumptions used in preparing the accompanying consolidated financial statements, and such differences could be material.
Revenue Recognition
We recognize revenue in accordance with Accounting Standards Codification (“ASC”) 605-10 Revenue Recognition. We recognize revenue when the following criteria have been met: persuasive evidence of an arrangement exists, the fees are fixed and determinable, no significant obligations remain and collection of the related receivable is reasonably assured.
Most of our revenue is generated through clicks on advertisements presented on our properties or those of our partners. We recognize revenue from clicks in the period in which the click occurs. Payments to partners who display advertisements on our behalf are recognized as cost of revenue. Revenue from data sales and commissions is recognized in the period in which the transaction occurs and the other revenue recognition criteria are met.
Recent accounting pronouncements
In May 2014, FASB issued Accounting Standards Update No. 2014-09,
Revenue from Contracts with Customers
, which provides a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and will supersede most current revenue recognition guidance. Under ASU 2014-09, a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods and services. The standard is effective for public entities for annual and interim periods beginning after December 15, 2016. Early adoption is not allowed. The adoption of ASU 2014-09 is not expected to have a significant impact on the Company’s consolidated financial position or results of operations.
In August 2014, FASB issued Accounting Standards Update No. 2014-15,
Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern
, which will require management to assess an entity’s ability to continue as a going concern, and to provide related footnote disclosures in certain circumstances. The adoption of ASU 2014-15 is not expected to have an impact on the Company’s consolidated financial position or results of operations.
In January 2015, FASB issued Update No. 2015-01,
Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items.
This Update eliminates from GAAP the concept of extraordinary items. Effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted provided that the guidance is applied from the beginning of the fiscal year of adoption. The adoption of ASU 2015-01 is not expected to have a significant impact on the Company’s consolidated financial position or results of operations.
8
The net carrying value of property and equipment was as follows as of:
|
|
March 31, 2015
|
December 31, 2014
|
|||||
|
Furniture and fixtures
|
$
|
69,940
|
|
$
|
67,341
|
|
|
|
Equipment
|
2,589,021
|
|
2,585,659
|
|
|||
|
Software
|
9,055,777
|
|
8,822,310
|
|
|||
|
Leasehold improvements
|
66,903
|
|
66,903
|
|
|||
|
Subtotal
|
11,781,641
|
|
11,542,213
|
|
|||
|
Less: accumulated depreciation and amortization
|
(10,782,374
|
)
|
(10,582,738
|
)
|
|||
|
Total
|
$
|
999,267
|
|
$
|
959,475
|
|
|
During the
three
months ended
March 31, 2015
and
March 31, 2014
, depreciation expense was
$172,382
and
$255,972
, respectively.
The following is a schedule of intangible assets from continuing operations as of
March 31, 2015
:
|
|
Term
|
Carrying
Value
|
Accumulated Amortization and Impairment
|
Net Carrying Value
|
Year-to-date Amortization
|
||||||||||||
|
Customer list, Google
|
20 years
|
$
|
8,820,000
|
|
$
|
(1,359,750
|
)
|
$
|
7,460,250
|
|
$
|
110,250
|
|
||||
|
Customer list, all other
|
10 years
|
1,610,000
|
|
(496,429
|
)
|
1,113,571
|
|
40,251
|
|
||||||||
|
Trade names, ALOT (1)
|
5 years
|
960,000
|
|
(592,000
|
)
|
368,000
|
|
48,000
|
|
||||||||
|
Trade names, web properties (2)
|
-
|
390,000
|
|
—
|
|
390,000
|
|
—
|
|
||||||||
|
Intangible assets classified as long-term
|
$
|
11,780,000
|
|
$
|
(2,448,179
|
)
|
$
|
9,331,821
|
|
$
|
198,501
|
|
|||||
|
Goodwill, Partner Network
|
$
|
1,776,544
|
|
$
|
—
|
|
$
|
1,776,544
|
|
$
|
—
|
|
|||||
|
Goodwill, Owned and Operated Network
|
3,984,264
|
|
—
|
|
3,984,264
|
|
—
|
|
|||||||||
|
Goodwill, total
|
|
$
|
5,760,808
|
|
$
|
—
|
|
$
|
5,760,808
|
|
$
|
—
|
|
||||
|
(1)
|
We determined the ALOT trade name should be amortized over
five
years.
|
|
(2)
|
We have determined that the trade names related to our web properties have an indefinite life, and as such it is not amortized.
|
Our amortization expense over the next five years and thereafter is as follows:
|
2015
|
$
|
595,503
|
|
|
2016
|
794,004
|
|
|
|
2017
|
634,004
|
|
|
|
2018
|
602,004
|
|
|
|
2019
|
602,004
|
|
|
|
Thereafter
|
5,714,302
|
|
|
|
Total
|
$
|
8,941,821
|
|
9
The following table summarizes our notes payable balances as of:
|
March 31, 2015
|
December 31, 2014
|
|||||||
|
Term note payable - 4.25 percent at March 31, 2015 (prime plus 1 percent), due September 10, 2017
|
$
|
1,666,667
|
|
$
|
1,833,334
|
|
||
|
Revolving credit line - 3.75 percent at March 31, 2015 (prime plus 0.5 percent), due September 29, 2016
|
1,793,275
|
|
1,793,275
|
|
||||
|
Total
|
3,459,942
|
|
3,626,609
|
|
||||
|
Less: current portion
|
(959,942
|
)
|
(959,942
|
)
|
||||
|
Term note payable and revolving credit line - long term portion
|
$
|
2,500,000
|
|
$
|
2,666,667
|
|
||
Principal Payments:
Principal payments under the term note payable are due as follows as of
March 31, 2015
:
|
2015
|
$
|
500,000
|
|
|
2016
|
666,667
|
|
|
|
2017
|
500,000
|
|
|
|
Total
|
$
|
1,666,667
|
|
On March 1, 2012 we entered into a Business Financing Agreement with Bridge Bank. The agreement provided us with a
$5 million
term loan and access to a revolving credit line of up to
$10 million
which we use to help satisfy our working capital needs. We have provided Bridge Bank with a first priority perfected security interest in all of our accounts and personal property as collateral for the credit facility.
Available funds under the revolving credit line are
80%
of eligible accounts receivable balances plus
$1 million
, up to a limit of
$10 million
. Eligible accounts receivable is generally defined as those from United States based customers that are not more than
90
days from the date of invoice. We had approximately
$4.4 million
available under the revolving credit line as of
March 31, 2015
.
In September 2014, the Company entered into the Fifth Business Financing Modification Agreement with Bridge Bank that renewed the existing Agreement and modified some terms. The renewed agreement extended the revolving line of credit to September 2016 and provided for a new term loan of
$2 million
through September 2017. On October 9, 2014, the Agreement was amended to clarify the definition of the financial covenants. The financial covenants are Debt Service Coverage Ratio, measured monthly on a trailing three months basis, of not less than
1.75
to
1.0
for the August 2014 measuring period, and each month measuring period thereafter and an Asset Coverage Ratio, measured monthly, of not less than
1.25
to
1.0
for the months ended August 2014 and September 30, 2014;
1.15
to 1.0 for the months ended October 31, 2014, November 30, 2014 and December 31, 2014, and
1.25
to
1.0
for the month ending January 31, 2015 and each month thereafter. We were in compliance with all bank covenants
March 31, 2015
.
10
The accrued expenses and other current liabilities consist of the following as of:
|
|
March 31, 2015
|
December 31, 2014
|
|||||
|
Accrued marketing costs
|
$
|
1,283,025
|
|
$
|
1,744,143
|
|
|
|
Accrued sales reserve
|
539,875
|
|
567,517
|
|
|||
|
Accrued expenses and other
|
350,078
|
|
552,288
|
|
|||
|
Loss contingency
|
308,000
|
|
308,000
|
|
|||
|
Deferred Arkansas grant, current portion and accrued reserve
|
248,109
|
|
224,994
|
|
|||
|
Accrued taxes
|
155,622
|
|
267,905
|
|
|||
|
Accrued payroll and commission liabilities
|
138,360
|
|
5,236
|
|
|||
|
Capital leases, current portion
|
29,197
|
|
34,381
|
|
|||
|
|
|
|
|
||||
|
Total
|
$
|
3,052,266
|
|
$
|
3,704,464
|
|
|
Other long-term liabilities consist of the following as of:
|
|
March 31, 2015
|
December 31, 2014
|
|||||
|
Taxes payable
|
$
|
—
|
|
$
|
506,453
|
|
|
|
Deferred Arkansas grant, less current portion
|
39,431
|
|
142,276
|
|
|||
|
Deferred rent
|
55,533
|
|
70,861
|
|
|||
|
Capital leases, less current portion
|
3,747
|
|
15,621
|
|
|||
|
Total
|
$
|
98,711
|
|
$
|
735,211
|
|
|
In February 2015, we settled a disputed income tax claim with the State of New Jersey. The claim related to the 2007-2009 tax years and was settled for
$100,000
. As a result, the long-term taxes payable liability of
$506,453
was adjusted to
zero
.
We have a deferred tax liability of
$3,552,500
as of
March 31, 2015
, related to our intangible assets.
We also have a net deferred tax asset of approximately
$41,000,000
. We have evaluated this asset and are unable to support a conclusion that it is more likely than not that any of this asset will be realized. As such, the net deferred tax asset is fully reserved. We will continue to evaluate our deferred tax assets to determine whether any changes in circumstances could affect the realization of their future benefit.
Due to the settlement of a disputed income tax claim with the State of New Jersey (see Note 7), the accrual for other long-term liabilities for uncertain tax positions was adjusted to
zero
and approximately
$406,000
was credited to income tax expense.
We maintain a stock-based compensation program intended to attract, retain and provide incentives for talented employees and directors and align stockholder and employee interests. Currently, we grant options and restricted stock units ("RSUs") from the 2005 Long-Term Incentive Plan ("2005 LTIP") and the 2010 Equity Compensation Plan (“2010 ECP”). Option and restricted stock unit vesting periods are generally up to
three
years.
For the
three
months ended
March 31, 2015
and
March 31, 2014
, we recorded stock-based compensation expense for all equity incentive plans of
$51,924
and
$130,448
, respectively. Total compensation cost not yet recognized at
March 31, 2015
was
11
$366,643
to be recognized over a weighted-average recognition period of
0.4
years. As of
March 31, 2015
, no equity grants have been made in 2015.
On April 1, 2014, we granted certain employees a total of
82,000
RSUs with a weighted average fair value of $
0.80
per share which vest annually over three years. On April 22, 2014, we also granted employees a performance RSU contingent upon achieving 2014 profit targets. On January 21, 2015, the number of RSUs issued under the performance grant was
697,853
shares with a weighted average fair value of
$1.13
per share. On April 29, 2014, we granted members of our board of directors a total of
102,560
RSUs with a weighted average fair value of
$.78
a share which were fully vested by March 31, 2015. In September 2014,
20,073
RSUs were granted to a new director with a weighted average fair value of
$1.53
per share which were fully vested by March 31, 2015.
The following table summarizes the stock grants outstanding under our 2005 LTIP and 2010 ECP plans as of
March 31, 2015
:
|
|
Options Outstanding
|
RSUs Outstanding
|
Options and RSUs Exercised
|
Available Shares
|
Total
|
|||||||||
|
2010 ECP
|
250,498
|
|
127,836
|
|
1,911,422
|
|
1,546,189
|
|
3,835,945
|
|
||||
|
2005 LTIP
|
29,998
|
|
254,940
|
|
695,145
|
|
19,917
|
|
1,000,000
|
|
||||
|
Total
|
280,496
|
|
382,776
|
|
2,606,567
|
|
1,566,106
|
|
4,835,945
|
|
||||
We also have
81,165
options outstanding with exercise prices from
$16.01
to
$17.08
under a separate plan which is not authorized to issue any additional shares.
Certain of our subsidiaries previously operated in the European Union ("EU"). Though operations ceased in 2009, statutory requirements require a continued presence in the EU for varying terms until November 2015. Profits and losses generated from the remaining assets and liabilities are accounted for as discontinued operations.
For the
three
months ended
March 31, 2015
and
March 31, 2014
, we recognized net income from discontinued operations of
$20,259
and
$26,112
, respectively, which came primarily from an adjustment of certain accrued liabilities originating in 2009 and earlier as well as from a favorable translation adjustment.
During the
three
months ended
March 31, 2015
, we generated net income from continuing operations. Accordingly, some of our outstanding stock options, warrants and restricted stock awards now have a dilutive impact, illustrated in the following table. We generated basic and diluted earnings per share from net income of
$0.03
for the
three
month period ending
March 31, 2015
.
|
For the Three Months Ended
|
|||||||
|
March 31, 2015
|
March 31, 2014
|
||||||
|
Weighted average shares outstanding for basic EPS
|
24,086,705
|
|
23,444,053
|
|
|||
|
Effect of dilutive securities
|
|||||||
|
Options
|
5,770
|
|
9,553
|
|
|||
|
Restricted stock units
|
127,607
|
|
13,796
|
|
|||
|
Warrants
|
20,176
|
|
14,013
|
|
|||
|
Weighted average shares outstanding for diluted EPS
|
24,240,258
|
|
23,481,415
|
|
|||
In addition, we have potentially dilutive options and warrants. We have
359,641
outstanding stock options with a weighted average exercise price of
$5.93
. We also have
725,000
outstanding warrants with a weighted average exercise price of
$2.15
.
12
We lease certain office space and equipment. As leases expire, it can be expected that they will be renewed or replaced in the normal course of business. Rent expense from continuing operations was a credit of
$1,966
and
$2,966
for the
three
months ended
March 31, 2015
and
March 31, 2014
, respectively. The credit is primarily due to subleasing the company’s former New York City office at a higher rate than its lease cost.
Minimum future lease payments and future receipts under non-cancelable operating leases as of
March 31, 2015
are:
|
Lease Payments
|
Sublease income
|
||||||
|
2015
|
$
|
475,481
|
|
$
|
455,661
|
|
|
|
2016
|
219,360
|
|
50,753
|
|
|||
|
2017
|
176,024
|
|
—
|
|
|||
|
2018
|
179,545
|
|
—
|
|
|||
|
2019
|
183,136
|
|
—
|
|
|||
|
2020
|
123,708
|
|
—
|
|
|||
|
Total
|
$
|
1,357,254
|
|
$
|
506,414
|
|
|
We also entered into an agreement to lease office space in Conway, Arkansas for
two
years in the total amount of
$193,200
which we prepaid. The lease terminated in February 2015 and now continues on a month to month basis. The lessor of this space is First Orion Corp., which is owned by a director and stockholder of Inuvo.
In April 2015, we entered into a
five
year agreement to lease office space in Little Rock, AR, commencing September 1, 2015, to serve as our headquarters. The new lease is for
12,245
square feet and will cost approximately
$171,000
during its first year. Thereafter, the lease payment will increase by
2%
(see Note 16). We anticipate terminating the Conway, AR lease upon occupying the Little Rock headquarters.
From time to time we may become subject to legal proceedings, claims and litigation arising in the ordinary course of business. In addition, we are currently involved in the following litigation which is not incidental to its business:
Oltean, et al. v. Think Partnership, Inc.; Edmonton, Alberta CA.
On March 6, 2008, Kelly Oltean, Mike Baldock and Terry Schultz, former employees, filed a breach of employment claim against Inuvo in The Court of Queen's Bench of Alberta, Judicial District of Edmonton, Canada, claiming damages for wrongful dismissal in the amount of
$200,000
for each of Kelly Oltean and Terry Schultz and
$187,500
for Mike Baldock. On March 6, 2008, the same
three
plaintiffs filed a similar statement of claim against Vintacom Acquisition Company, ULC, a subsidiary of Inuvo, again for wrongful dismissal and claiming the same damages. In October 2009, the
two
actions were consolidated. The case is in the discovery stage and Inuvo is vigorously defending the matter.
Admanage Litigation.
In May 2014 Inuvo and its wholly owned subsidiary ValidClick, Inc. filed a complaint in the Circuit Court of Faulkner County Arkansas against certain former distribution partners of our Publisher Network, i.e., Admanage S.A., ClickFind Media Corp., Neo Clicks, Inc. and Neoclicks Internet Services Corp., demanding return of an aggregate of approximately
$134,000
paid to such distribution partners during time periods when Inuvo and ValidClick allege that the activities of the distribution partners violated the ValidClick terms of service. In July 2014, Admanage S.A., Neoclicks Internet Services and ClickFind Media Corp. filed a suit against Inuvo and ValidClick in United States District Court Eastern District of Arkansas Western Division, alleging, among other things breach of contract for non payment of approximately
$696,000
allegedly earned by the distribution partners. Admanage S.A., Neoclicks Internet Services and ClickFind Media Corp. subsequently removed the Faulkner County Circuit Court lawsuit to United States District Court Eastern District of Arkansas Western Division, and the
two
cases have now been consolidated into the removed case. Inuvo is vigorously defending the matter.
13
We operate our business as
two
segments, Partner Network and Owned and Operated Network which are described in Note 1.
Listed below is a presentation of net revenue and gross profit for all reportable segments for the three months ended
March 31, 2015
and
2014
. We currently only track certain assets at the segment level and therefore assets by segment are not presented below.
Revenue by Segment
|
For the Three Months Ended
|
|||||||||||
|
|
March 31, 2015
|
March 31, 2014
|
|||||||||
|
$
|
% of Revenue
|
$
|
% of Revenue
|
||||||||
|
Partner Network
|
7,573,380
|
|
56.4
|
%
|
5,451,617
|
|
53.9
|
%
|
|||
|
Owned and Operated Network
|
5,847,567
|
|
43.6
|
%
|
4,670,100
|
|
46.1
|
%
|
|||
|
Total net revenue
|
13,420,947
|
|
100.0
|
%
|
10,121,717
|
|
100.0
|
%
|
|||
Gross Profit by Segment
|
For the Three Months Ended
|
|||||||||||
|
March 31, 2015
|
March 31, 2014
|
||||||||||
|
$
|
Gross Profit %
|
$
|
Gross Profit %
|
||||||||
|
Partner Network
|
1,520,895
|
|
20.1
|
%
|
1,858,403
|
|
34.1
|
%
|
|||
|
Owned and Operated Network
|
5,830,833
|
|
99.7
|
%
|
4,586,559
|
|
98.2
|
%
|
|||
|
Total gross profit
|
7,351,728
|
|
54.8
|
%
|
6,444,962
|
|
63.7
|
%
|
|||
On January 31, 2013 we entered into an agreement to lease office space in Conway, AR for
two
years at a monthly rental rate of
$8,400
which we prepaid in connection with our relocation to Arkansas for a discounted total of
$193,200
. The lease terminated in February 2015 and now continues on a month to month basis. A director and shareholder of Inuvo is the majority owner of the lessor of this space.
On April 8, 2015, we entered into a Lease Agreement (the “Lease”) with Arkansas Democrat-Gazette, Inc. for a total of
12,245
square feet of office space located in Little Rock, Arkansas. The Lease has a term of
five
years, with
two
optional
five
year renewal periods, commencing on the earlier of September 1, 2015 or the date the build-out of the premises is substantially complete. The lease is approximately
$171,000
in the first year of the term and increases by
2%
annually for the remainder of the term.
Company Overview
Inuvo, Inc. and subsidiaries ("we", "us" or "our") are an internet advertising technology and digital publishing company.
We deliver content and targeted advertisements over the internet and generate revenue when an end user clicks on the advertisements we delivered. We manage our business as two segments, the Partner Network and the Owned and Operated Network.
The Partner Network delivers advertisements to our partners' owned or managed websites and applications on desktop, tablet and mobile devices. We generate revenue in this segment when an advertisement is clicked and we share a portion of that
14
revenue with our partners. Our proprietary technology platform allows for targeted distribution of advertisements at a scale that measures in the hundreds of millions of advertisements delivered monthly.
The Owned and Operated Network designs, builds and markets consumer websites and applications. This segment consists of our mobile-ready ALOT websites and acquired web properties. The focus is on providing engaging content to our users. The majority of revenue generated by this segment is derived from clicks on advertisements delivered through web searches and advertisements displayed on the websites.
We have taken several significant steps to position our business for long-term success including investments in ad serving technology, the development of adaptive, programmatic and native advertising units, the creation of proprietary content, the expansion of publishers within the Partner Network and the optimization of overhead and operational costs all of which we expect will improve revenue and profitability. Our ALOT-branded websites and applications have a broad appeal focusing on popular topics such as health, local search, finance, careers, travel and living. These sites are content rich, searchable, mobile-ready web properties. We plan to continue the expansion of our website and mobile application business. In 2015, we announced the beta launch of our proprietary native advertising solution for web publishers and application developers, "Searchlinks"
®
. This is our entry product in the fast growing marketplace of direct to consumer marketing utilizing ad content that seamlessly integrates with the content of the host website or application. We expect Searchlinks to be a significant contributor to our growth.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of revenue and expenses during the reported periods. The more critical accounting estimates include estimates related to revenue recognition and accounts receivable allowances. We also have other key accounting policies, which involve the use of estimates, judgments and assumptions that are significant to understanding our results, which are described in Note 2 to our unaudited consolidated financial statements appearing earlier in this report.
Results of Operations
Net Revenue
|
|
For the Three Months Ended March 31,
|
|||||||||||||
|
|
2015
|
2014
|
Change
|
% Change
|
||||||||||
|
Partner Network
|
$
|
7,573,380
|
|
$
|
5,451,617
|
|
$
|
2,121,763
|
|
38.9
|
%
|
|||
|
Owned and Operated Network
|
5,847,567
|
|
4,670,100
|
|
1,177,467
|
|
25.2
|
%
|
||||||
|
Net Revenue
|
$
|
13,420,947
|
|
$
|
10,121,717
|
|
$
|
3,299,230
|
|
32.6
|
%
|
|||
Net revenue increased 33% in the three months ended March 31, 2015 to $13.4 million compared to $10.1 million in the same period in the prior year. Both segments grew compared to the prior year, the Partner Network by 39% to $7.6 million and the Owned and Operated Network by 25% to $5.8 million.
The Partner Network, which represents 56% of our total net revenue, delivers advertisements to our partners' websites and applications. Revenue in this segment is both a function of the total number of transactions processed through the ValidClick platform and the revenue we receive per transaction. We typically experience lower RPCs (“Revenue per Click”) during the first quarter of the year as the supply of inventory outstrips demand by advertisers. Though we experienced a higher number of transactions (clicks) in the first quarter of 2015 compared to the same quarter last year, RPCs were generally lower. We expect increased revenue in this segment as RPCs seasonally increase as well as deploying new proprietary advertising solutions throughout our publisher network.
The Owned and Operated Network represents 44% of our total net revenue and generates revenue through our consumer-facing websites and applications. We have a number of web properties under the ALOT brand; including ALOT Health, ALOT Finance, ALOT Careers, ALOT Local, ALOT Travel and ALOT Living. These websites are content-rich and optimized for mobile and desktop devices, and are designed to capitalize on a growing consumer demand for content, delivered both on the desktop and on mobile devices. The revenue from our combined websites has grown to $5.8 million in the first quarter of 2015
15
compared to $4.7 million in the first quarter of 2014. We intend to continue to expand our Owned and Operated Network by enhancing our current websites and mobile applications, launching additional mobile applications, acquiring additional web properties and expanding the content of the ALOT sites.
Cost of Revenue
|
|
For the Three Months Ended March 31,
|
|||||||||||||
|
|
2015
|
2014
|
Change
|
% Change
|
||||||||||
|
Partner Network
|
$
|
6,052,485
|
|
$
|
3,593,214
|
|
$
|
2,459,271
|
|
68.4
|
%
|
|||
|
Owned and Operated Network
|
16,734
|
|
83,541
|
|
(66,807
|
)
|
(80.0
|
%)
|
||||||
|
Cost of revenue
|
$
|
6,069,219
|
|
$
|
3,676,755
|
|
$
|
2,392,464
|
|
65.1
|
%
|
|||
Cost of revenue in the Partner Network is generated by payments to website publishers and application who host our
advertisements. The increase in cost of revenue is directly associated with higher revenue in this segment. The higher gross margin in the first quarter last year compared to the same quarter of 2015 was due primarily to the changes we implemented last year that included tightening the Network management operating policies related to publisher payments,
approving traffic sources, publisher auditing and implementing a number technological and manual innovations designed to assure publisher compliance with Inuvo policies. These changes resulted in higher margins within the first quarter of 2014 that were not expected to reoccur in subsequent quarters.
The decrease in cost of revenue in the Owned and Operated Network was driven primarily by the continued transition away from the ALOT Appbar product, which by 2015 had become relatively insignificant. Other cost of revenue in this segment consists of charges for web searches and content acquisition.
Operating Expenses
|
|
For the Three Months Ended March 31,
|
|||||||||||||
|
|
2015
|
2014
|
Change
|
% Change
|
||||||||||
|
Marketing costs
|
$
|
4,922,146
|
|
$
|
3,663,687
|
|
$
|
1,258,459
|
|
34.3
|
%
|
|||
|
Compensation
|
1,191,057
|
|
1,099,915
|
|
91,142
|
|
8.3
|
%
|
||||||
|
Selling, general and administrative
|
987,766
|
|
1,010,609
|
|
(22,843
|
)
|
(2.3
|
%)
|
||||||
|
Operating expenses
|
$
|
7,100,969
|
|
$
|
5,774,211
|
|
$
|
1,326,758
|
|
23.0
|
%
|
|||
Operating expenses for the three months ended
March 31, 2015
increased 23% compared to the same period last year primarily due to an increase in marketing costs. Marketing costs include those expenses required to attract traffic to our owned and operated websites. Marketing costs increased to promote the growth of the owned and operated website business. The 25% increase in the owned and operated segment revenue this year over last year is largely related to the higher marketing spend this year. We expect marketing costs to continue to increase as we expand our owned and operated business.
Compensation expense increased by $91,000 in the
three
month period ended
March 31, 2015
as compared to the same period of 2014, due primarily to an increase in the number of employees compared to this period last year. Our total employment, both full-time and part-time was
52
at
March 31, 2015
, compared to 34 the same time last year.
The decrease in selling, general and administrative expenses of approximately $23,000 in the three months ended
March 31, 2015
compared to the same period last year was primarily due to lower amortization and depreciation expense.
Interest expense, net
Interest expense, net was
$51,161
and
$97,802
for the three months ended
March 31, 2015
and
2014
, respectively, These charges are entirely interest expense on the bank credit facility where outstanding loan balances were higher in the three month period ended March 31, 2014 than the same period this year.
16
Income tax benefit
In February 2015, we settled a disputed income tax claim with the State of New Jersey. The claim related to the 2007-2009 tax years and was settled for $100,000. As a result, the remaining long-term taxes payable liability was adjusted and resulted in a one-time $406,000 income tax benefit.
Income from Discontinued Operations
For the
three
month periods ended
March 31, 2015
and
March 31, 2014
, we recognized net income from discontinued operations of
$20,259
and
$26,112
, respectively. The income was generated primarily by an adjustment of certain accrued liabilities originating in 2009 and earlier as well as from a favorable translation adjustment.
Liquidity and Capital Resources
On September 29, 2014, we renewed our Business Financing Agreement with Bridge Bank (see Note 5, "Notes Payable"). The renewal provided continued access to the revolving line of credit up to $10 million through September 2016 and a new term loan of $2 million through September 2017. As of
March 31, 2015
, the revolving line of credit had approximately
$4.4 million
in availability.
During the first quarter of 2014, we filed an S-3 registration statement with the Securities and Exchange Commission ("SEC") to replace the existing, expiring S-3 "shelf" registration statement. Though we do not expect to need additional funds in the next twelve months, we may still elect to sell stock to the public or to selected investors, or borrow under the current or any replacement line of credit or other debt instruments. We believe the revolving line of credit, cash generated by operations, and anticipated financing will provide sufficient cash for operations over the next twelve months.
Cash Flows - Operating
Net cash used in operating activities was
$1,367,756
during the
three
months ended
March 31, 2015
. In the first quarter, we produced net income of
$626,310
,
which included several non-cash items; depreciation and amortization expense of
$370,883
, stock-based compensation expense of
$51,924
,
and a credit adjustment of $406,453 to accrued income tax.
The change in operating assets and liabilities was a
$1,748,328
use of cash and was
predominately due to a higher accounts receivable balance caused by a late payment by a major advertising partner’s system issue.
During the comparable period in
2014
we generated cash from operating activities of
$380,069
and a net income of
$674,759
.
Cash Flows - Investing
Net cash used in investing activities was
$239,427
and
$178,423
for the
three
months ended
March 31, 2015
and
2014
, respectively. Cash used in investing activities during both periods primarily consisted of capitalized internal development costs.
Cash Flows - Financing
Net cash used in financing activities was
$183,725
during
2015
. The cash was used to reduce the bank term loan.
In
2014
, net cash used in financing activities was
$615,818
and was used to reduce the outstanding balance of the bank credit facility.
Off Balance Sheet Arrangements
As of
March 31, 2015
, we do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors. The term "off-balance sheet arrangement" generally means any transaction, agreement or other contractual arrangement to which an entity unconsolidated with us is a party, under which we have any obligation arising under a guarantee contract, derivative instrument or variable interest or a retained or contingent interest in assets transferred to such entity or similar arrangement that serves as credit, liquidity or market risk support for such assets.
17
Not applicable to a smaller reporting company.
Evaluation of Disclosure Controls and Procedures
We maintain “disclosure controls and procedures” as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934. Disclosure controls and procedures are controls and procedures designed to reasonably assure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, such as this report, is recorded, processed, summarized and reported within the time periods prescribed by SEC rules and regulations, and to reasonably assure that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
Our management does not expect that our disclosure controls will prevent all errors and fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. In addition, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the control. The design of any systems of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of these inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
As required by Rule 13a-15 under the Securities Exchange Act of 1934, as of
March 31, 2015
, the end of the period covered by this report, our management concluded their evaluation of the effectiveness of the design and operation of our disclosure controls and procedures. As of the evaluation date, our Chief Executive Officer and Chief Financial Officer concluded that we maintain disclosure controls and procedures that are effective in providing reasonable assurance that information required to be disclosed in our reports under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods prescribed by SEC rules and regulations, and that such information is accumulated and communicated to our management to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the period ended
March 31, 2015
that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
See Note 13, Litigation and Settlements, for a discussion of outstanding legal proceedings.
We desire to take advantage of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. Accordingly, we incorporate by reference the risk factors disclosed in Part I, Item 1A of our Form 10-K for the year ended
December 31, 2014
, filed with the Securities and Exchange Commission on February 9, 2015 subject to the new or modified risk factors appearing below that should be read in conjunction with the risk factors disclosed in such Form 10-K.
18
We rely on two customers for a significant portion of our revenues.
We are reliant upon Yahoo! and Google for most of our revenue. During the
first
quarter of
2015
they accounted for
65.0%
and
33.4%
of our revenues, respectively, and during the same period 2014 they accounted for 52.8% and 42.9%, respectively. The amount of revenue we receive from these customers is dependent on a number of factors outside of our control, including the amount they charge for advertisements, the depth of advertisements available from them, and their ability to display relevant ads in response to end-user queries.
We would likely experience a significant decline in revenue and our business operations could be significantly harmed if these customers do not approve our new websites and applications, or if we violate their guidelines or they change their guidelines. In addition, if any of these preceding circumstances were to occur, we may not be able to find a suitable alternate paid search results provider or otherwise replace the lost revenues. The loss of either of these customers or a material change in the revenue or gross profit they generate would have a material adverse impact on our business, results of operations and financial condition in future periods.
Failure to comply with the covenants and restrictions in our credit facility could result in the acceleration of a substantial portion of our debt, which we may not be able to repay or refinance on favorable terms.
We have a credit facility with Bridge Bank, N.A. ("Bridge Bank") under which we had approximately
$3.5 million
in debt outstanding as of
March 31, 2015
. The credit facility contains a number of covenants that requires us and certain of our subsidiaries to, among other things,:
|
•
|
pay fees to the lender associated with the credit facility;
|
|
•
|
meet prescribed financial covenants;
|
|
•
|
maintain our corporate existence in good standing;
|
|
•
|
grant the lender a security interest in our assets;
|
|
•
|
provide financial information to the lender; and
|
|
•
|
refrain from any transfer of any of our business or property, subject to customary exceptions.
|
We have historically had difficulties meeting the financial covenants set forth in our credit agreement. Our lender has given us waivers in the past and reset our financial covenants several times. In the event of a breach of our covenants we cannot provide any assurance that our lender would provide a waiver or reset our covenants. A breach in our covenants could result in a default under the credit facility, and in such event Bridge Bank could elect to declare all borrowings outstanding to be due and payable. If this occurs and we are not able to repay, Bridge Bank could require us to apply all of our available cash to repay the debt amounts and could then proceed against the underlying collateral. Should this occur, we cannot assure you that our assets would be sufficient to repay our debt in full, we would be able to borrow sufficient funds to refinance the debt, or that we would be able to obtain a waiver to cure any such default. In such an event, our ability to conduct our business as it is currently conducted would be in jeopardy.
We have a history of losses and there are no assurances that we can consistently generate net income.
Although we generated net income in 2013, 2014 and the first three months of 2015, we have a history of net losses that have resulted in an accumulated deficit of
$118,462,244
as of
March 31, 2015
. We cannot provide assurance that we can consistently generate a net income.
None.
None.
Not applicable.
On April 25, 2015, Joseph Durrett provided us with notice of his intent not to stand for reelection to the Board of Directors of the Company at the 2015 Annual Meeting of Shareholders. Mr. Durrett’s decision not to pursue reelection was not due to a
19
disagreement with the Company. Mr. Durrett will continue to serve as a director of the Company until the expiration of his term at the 2015 Annual Meeting of Stockholders.
|
Exhibit No.
|
|
Description of Exhibit
|
|
10.30
|
Lease Agreement, dated April 8, 2015, with Arkansas Democrat-Gazette, Inc.*
|
|
|
10.31
|
Google Services Agreement, effective February 1, 2015, with Google, Inc.*
/
**
|
|
|
31.1
|
|
Rule 13a-14(a)/15d-14(a) certification of Chief Executive Officer *
|
|
31.2
|
|
Rule 13a-14(a)/15d-14(a) certification of Chief Financial Officer *
|
|
32.1
|
|
Section 1350 certification of Chief Executive Officer *
|
|
32.2
|
|
Section 1350 certification of Chief Financial Officer *
|
|
101.INS
|
XBRL Instance Document *
|
|
|
101.SCH
|
XBRL Taxonomy Extension Schema Document *
|
|
|
1010.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 *
|
|
* filed herewith
** Portions of this exhibit have been omitted pursuant to a request for confidential treatment filed with the Commission under Rule 24b-2. The omitted material has been filed separately with the Commission. The location of the omitted confidential information is indicated in the exhibit with asterisks (***).
20
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
|
Inuvo, Inc.
|
|
|
|
April 29, 2015
|
By:
|
/s/ Richard K. Howe
|
|
|
|
Richard K. Howe,
|
||
|
Chief Executive Officer, principal executive officer
|
|||
|
|
|
|
|
|
April 29, 2015
|
By:
|
/s/
Wallace D. Ruiz
|
|
|
Wallace D. Ruiz,
|
|||
|
|
|
Chief Financial Officer, principal financial officer
|
|
21
TABLE OF CONTENTS
Part I - Financial InformationItem 1. Financial StatementsNote 1 Organization and BusinessNote 2 Summary Of Significant Accounting PoliciesNote 3 Property and EquipmentNote 4 Other Intangible Assets and GoodwillNote 5 - Notes PayableNote 6 Accrued Expenses and Other Current LiabilitiesNote 7 Other Long-term LiabilitiesNote 8 Income TaxesNote 9 - Stock-based CompensationNote 10 Discontinued OperationsNote 11 - Earnings Per ShareNote 12 - LeasesNote 13 - Litigation and SettlementsNote 14 - SegmentsNote 15 - Related Party TransactionsNote 16 - Subsequent EventItem 2. Management's Discussion and Analysis Of Financial Condition and Results Of OperationsItem 3. Quantitative and Qualitative Disclosures About Market RiskItem 4. Controls and ProceduresPart IIItem 1. Legal ProceedingsItem 1A. Risk FactorsItem 2. Unregistered Sales Of Equity Securities and Use Of ProceedsItem 3. Defaults Upon Senior SecuritiesItem 4. Mine Safety and DisclosuresItem 5. Other InformationItem 6. Exhibits