3
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, and Section 21E of the Securities Exchange Act of 1934, as amended. 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:
·
Revenue;
Primary operating costs and expenses;
Capital expenditures;
Operating lease arrangements;
Evaluation of possible acquisitions of or investments in business, products, and technologies; and
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 appear in this report. 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 the “Company,” "we," "us," "ours," and similar terms refers to Inuvo, Inc., a Nevada corporation and our subsidiaries.
When used in this report, “2010” means the fiscal year ended December 31, 2010 and “2011” means the fiscal year ending December 31, 2011 and “2012” means the fiscal year ending December 31, 2012.
All share and per share information contained in this report gives effect to the 1:10 reverse stock split of our outstanding common stock effective December 10, 2010.
The information which appears on our web site at www.inuvo.com is not part of this report.
4
PART I
ITEM 1. BUSINESS.
Company Overview
Inuvo® develops software and analytics technology that is accessible over the internet for use by online advertisers and website publishers. The online advertisers agree to pay us when a consumer action, including a click, a lead or a sale, is initiated from within the platforms, and online publishers agree to generate consumer actions for a fee.
Our platforms provide a mechanism for advertisers, publishers and consumers to easily and openly connect, thus facilitating the execution of marketing programs. Our performance marketing segment consists of the technology and analytics platforms that support online marketing. Our web properties segment consists of websites we own and operate and consumer applications we have designed, developed and marketed. The performance marketing and web properties segments represented approximately 67.7% and 32.3%, respectively, of our total net revenue for 2011. In 2010, the performance marketing and web properties segments represented approximately 72.4% and 27.6%, respectively, of our total net revenue.
As described later in this section under “Our History,” on March 1, 2012 we completed our 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 web properties 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. Expected benefits include:
●
diversified revenue streams which should mitigate our dependence on one major customer;
an existing install and distribution capability through Vertro’s ALOT toolbar applications for our consumer facing innovations;
a stronger business from which to access both debt and capital markets to support growth;
the combination of two experienced digital marketing teams; and
We are in the early stages of integrating the operations of the two companies.
Industry Overview
The dollars spent on online advertising, as a function of total advertising spend, has continued to grow in the United States, and research supports the assumption that this will continue. In 2011, online advertising spend grew 23% to $32.0 billion according to digital marketing research firm, eMarketer. As marketers evaluate their marketing spend across channels, they are likely to allocate increasingly larger percentages of overall budgets to online channels where return on investment (“ROI”) is more directly measurable and controllable. As the amount of time individual consumers spend online as a percentage of their total time spent across all media continues to grow, it is believed that advertising spend will increase in those higher trafficked marketing channels. We believe our online business is well-positioned to benefit from these market and consumer trends.
5
Our Strategy and Differentiators
In online advertising, an advertising network typically provides advertisers with access to consumer traffic through associations developed with multiple website publishers. The network then acts as an intermediary between an advertiser and publisher. In contrast, an online technology provider, such as our company, builds, implements and operates solutions that allow advertisers and publishers to work directly with each other. The platforms provide all the individual management functions the parties need so they may run, track and adapt their various online advertising campaigns.
While we have continued to generate revenue and profit from advertising network operations, our core strategy today is focused on building out the data, technology and analytics that support the Inuvo platform and the ALOT browser-based technology supporting the roughly 7 million worldwide consumers who have that technology on their desktop. The platform technology set is designed to be extensible, meaning we can technologically adapt more quickly to market trends by rapidly building platform extensions. With this capability, we can execute on both an innovation and fast follower strategy as it relates to the sales of online marketing solutions across marketing channels. Concurrently, we believe that with the Inuvo platform, we are in a position to provide publishers with additional value-added services that both retain and monetize their website traffic.
To help us market our products and increase their appeal to consumers around the world, we are constantly working to develop micro-segmented configurations of both the ALOT Home page and the ALOT Appbar. Consumers can, for example, choose to install an ALOT Appbar for recipes, which comes preconfigured with apps for cooking enthusiasts; or they could choose our version of ALOT Appbar for music, which comes preconfigured with apps for music enthusiasts. Regardless which configuration consumers choose, consumers have the ability to customize their experience by adding and removing apps to make their version of the product totally relevant to their individual interests.
Further, with the recent launch of the ALOT version of the BargainMatch application, we are able to offer consumers a comparative shopping and cashback service which they can access directly from their Appbar.
Performance Marketing
The performance marketing segment designs, builds, implements, manages and sells the various technology platforms and services we offer. The performance marketing segment consolidates some of the disparate technologies and platforms we acquired between 2002 and 2008 into the Inuvo platform. The Inuvo platform is an open, fraud filtering, lead generation marketplace designed to allow advertisers and publishers to manage their transactions in an automated and transparent environment. In addition to the core Inuvo platform for advertisers and publishers, we continue to sell services and license legacy platforms and directories within the performance marketing segment, also included below:
● The ValidClick® service at www.validclick.com. ValidClick is a fraud filtering, pay-per-click marketplace where publishers can integrate dynamically-generated advertisements within their websites based on the demographics and natural search behaviors of the consumer. ValidClick provides publishers with access to tens of thousands of advertisers in an easy-to-use XML-based implementation, giving the publisher greater control over content and integration than other competitive offerings.
● The MyAP® Affiliate Platform at www.MyAP.com. MyAP is a complete affiliate tracking and management software solution providing advertisers the ability to sign up, manage and track the activities of their publishers through a reliable, easy-to-use, and privately-branded platform with full data transparency. Where the Inuvo Platform is an open platform where many advertisers and publishers interact, the MyAP platform is designed specifically to allow merchants to build private affiliate networks. Each advertising customer of MyAP is supported by a unique implementation of the software, customized to suit their individual needs and populated by publishers who use the platform exclusively for that advertiser. Today, MyAP supports hundreds of customers.
● The LocalXML service at www.localxml.com. LocalXML is a service which allows publishers to make real-time calls to the LocalXML database. These calls answer the simple questions “what” and “where.” For example, “what” equals “steaks” and “where” equals “Tampa,” from which the LocalXML database returns a complete listing of all local businesses in Tampa that meet this criteria. Publishers may customize how the data appears on their site, and include user reviews of the businesses searched. The LocalXML service is designed to be bundled with the ValidClick service described above.