8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported) October 26, 2016

INUVO, INC.

(Exact name of registrant as specified in its charter)

Nevada	001-32442	87-0450450
(State or other jurisdiction of incorporation)	(Commission File Number)	(IRS Employer Identification No.)

500 President Clinton Ave., Ste. 300, Little Rock, AR	72201
(Address of principal executive offices)	(Zip Code)

Registrant's telephone number, including area code 501 205-8508

 (Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

ITEM 2.02.           RESULTS OF OPERATIONS AND FINANCIAL CONDITION.

On October 26, 2016, Inuvo, Inc. issued an earnings release regarding financial performance for Q3 2016 and held a management conference call to discuss these results and the outlook of the Company. Copies of the earnings release and the script of the Company’s management for the conference call are being furnished herewith as Exhibits 99.1 and 99.2 respectively.

The information in this Current Report on Form8-K under this caption and accompanying exhibits are being furnished under Item 2.02 and shall not be deemed to be “filed” for the purposes of Section18 of the Securities Exchange Act of 1934 (the “Exchange Act”), or otherwise subject to the liabilities of such section, nor shall such information be deemed incorporated by reference in any filing under the Securities Act of 1933 (the “Securities Act”) or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.

The Company made reference to non-GAAP financial information in the conference call. A reconciliation of these non-GAAP financial measures to the comparable GAAP financial measures is contained in the press release announcing Q3 2016 financial results.

ITEM 7.01           REGULATION FD DISCLOSURE.

On October 26, 2016, the Company held a management conference call to discuss the Company's financial results for Q3 2016, the outlook of the Company and certain other matters.

A copy of the script for the conference call is attached as Exhibit 99.2 and is incorporated by reference into this Current Report on Form8-K.

The information in this Current Report on Form 8-K and accompanying exhibit is being furnished and shall not be deemed to be “filed” for the purposes of Section18 of the Exchange Act, or otherwise subject to the liabilities of such section, nor shall such information be deemed incorporated by reference in any filing under the Securities Act or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.

ITEM 9.01           FINANCIAL STATEMENTS AND EXHIBITS

(d)           Exhibits.

Exhibit No.    Description

99.1        Earnings Release for Q3 2016.

99.2        Conference Call Script.

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 hereunto duly authorized.

	INUVO, INC.
Date: October 26, 2016	By:	/s/ John B. Pisaris
	John B. Pisaris, General Counsel

 EXHIBIT INDEX

99.1        Earnings Release for Q3 2016.

99.2        Conference Call Script.

EX-99.1

Inuvo Reports Third Quarter 2016 Results

Little Rock, AR, October 26, 2016 -- Inuvo, Inc. (NYSE MKT: INUV), an advertising technology and digital publishing company, today announced financial results for the three and nine months ended September 30, 2016.

“After a soft second quarter, advertiser demand recovered, putting us back on track to quarterly sequential growth, which in the third quarter was 12%,” stated Rich Howe, Chairman and CEO of Inuvo. “On an Adjusted EBITDA basis, we delivered $420 thousand, or $0.02 per share, up 49% over the second quarter. We expect revenue in the last quarter of the year to continue to improve sequentially.“

Financial Highlights - First Nine Months and Third Quarter 2016

• 2016 first nine months’ revenue was up 5% year-over-year to $51.9 million.

• Adjusted EBITDA for the first nine months of 2016 was $2.0 million.

• 2016 third quarter revenue was up 12% sequentially to $17.5 million, down from $19.3 million in the third quarter of 2015.

• Adjusted EBITDA for the third quarter 2016 was up 49% sequentially to $420 thousand, or $0.02 per share.

• GAAP net loss for the third quarter of 2016 was $263 thousand or $0.01 net loss per share.

• Cash balance at September 30, 2016 was $3.6 million.

• There was no bank debt at September 30, 2016.

• Balance Sheet strengthens with current ratio improving from .88 at December 31, 2015 to .97 at September 30, 2016.

• Inuvo renewed the $10 million bank revolving credit agreement for an additional two years.

“Our long term goal, set out in 2014 to reach a $100 million annual run rate, or $25 million per quarter, during 2017 is very much on track,” said Rich Howe.

The Inuvo business is managed along two segments, the Partner Network and the Owned and Operated Network. The Partner Network facilitates transactions between advertisers and our partners' websites and applications. The Owned and Operated Network designs, builds and markets mobile-ready consumer websites and applications mainly under the ALOT brand. Both segments utilize the company’s ad delivery software as a service (SaaS) technologies.

Financial results for the three-month period ended September 30, 2016

Net revenues for the third quarter of 2016, were $17.5 million, recovering from a soft second quarter of 2016 where revenues were $15.6 million and compared to $19.3 million for the three months ended September 30, 2015. Both business segments improved sequentially in the third quarter of 2016. Revenue in our Partner Network was $6.2 million in the third quarter of 2016 compared to $4.7 million in the three months that ended June 30, 2016, a 30% increase. Revenue in the Owned and Operated Network was $11.3 million in the third quarter of 2016 compared to $10.9 million in the three months that ended June 30, 2016, a 4% increase.

Partner Network revenue in the third quarter of 2015 was $7.2 million. The lower Partner Network revenue in the third quarter this year compared to the same quarter last year is due in part to lower advertiser demand which persisted into the early part of the third quarter of 2016.

Owned and Operated Network revenue in the third quarter of 2015 was $12.0 million. The lower revenue in the Owned & Operated Network in the third quarter this year compared to the same quarter last year is due in part to a decrease in marketing expenditures and in part due to the demand weakness described earlier. Operating expenses increased by approximately $58 thousand in the third quarter of 2016 over the same quarter last year.

For the quarter ended September 30, 2016, GAAP net loss was $263 thousand or $0.01 net loss per share compared to $651 thousand net income, or $0.03 net income per diluted share, for the quarter ended September 30, 2015. This year’s net loss included a one-time net income from discontinued operations of $171,844 or $0.01 net income per share. Adjusted EBITDA in the period was $420 thousand or $0.02 per share.

Balance Sheet as of September 30, 2016

At September 30, 2016, cash and cash equivalents totaled $3.6 million and there was no bank debt. The current ratio improved from .88 at December 31, 2015 to .97 at September 30, 2016.

Conference Call Information

Date: Wednesday, October 26, 2016

Time: 4:15 p.m. ET

Domestic Dial-in number: 1-888-510-1785

International Dial-in number: 1-719-457-2647

Live webcast: http://public.viavid.com/player/index.php?id=121352

In addition, the call will be webcast on the Investor Relations section of the Company's website at http://investor.inuvo.com/events_and_presentations where it will also be archived for 45 days. A telephone replay will be available through November 9, 2016. To access the replay, please dial 1-844-512-2921 (domestic) or 1-412-317-6671 (international). At the system prompt, enter the code 2666972 followed by the # sign. You will then be prompted for your name, company and phone number. Playback will then automatically begin.

About Inuvo, Inc.

Inuvo®, Inc. (NYSE MKT: INUV) is an advertising technology and digital publishing business that serves hundreds of millions of income generating ads monthly across a network of websites and apps serving desktop, tablet and mobile devices. To learn more about Inuvo, please visit www.inuvo.com or download our app for Apple iPhone or for Android.

Forward-looking Statements

This press release contains certain forward-looking statements that are based upon current expectations and involve certain risks and uncertainties within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Words or expressions such as "anticipate," "plan," "will," "intend," "believe" or "expect'" or variations of such words and similar expressions are intended to identify such forward-looking statements.

These forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties, and other factors, some of which are beyond our control and difficult to predict and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements, including, without limitation, statements made with respect to expectations with respect to our lack of profitable operating history, changes in our business, potential need for additional capital, fluctuations in demand; changes to economic growth in the U.S. economy; and government policies and regulations, including, but not limited to those affecting the Internet, all as set forth in our Annual Report on Form 10-K for the year ended December 31, 2015 and our most recent Form 10-Q. All forward-looking statements involve significant risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements, many of which are generally outside the control of Inuvo and are difficult to predict. Inuvo undertakes no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise.

Inuvo, Inc.
Wally Ruiz, Chief Financial Officer501-205-8397
wallace.ruiz@inuvo.com
or
Investor RelationsCapital Markets Group
Alan Sheinwald or Valter Pinto
914-669-0222alan@CapMarketsGroup.com

INUVO, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
	(Unaudited)
	September 30,		December 31,
	2016		2015
Assets
Current assets
Cash		$3,638,111		$4,257,204
Accounts receivable, net	6,315,256		7,001,337
Unbilled revenue	10,999		16,154
Prepaid expenses and other current assets	383,752		345,752
Total current assets	10,348,118		11,620,447
Property and equipment, net	1,751,924		1,805,561
Other assets
Goodwill	5,760,808		5,760,808
Intangible assets, net	8,574,936		9,320,951
Other assets	29,229		224,759
Total other assets	14,364,973		15,306,518
Total assets		$26,465,015		$28,732,526
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable	7,873,231		10,080,315
Accrued expenses and other current liabilities	2,804,056		3,169,445
Total current liabilities	10,677,287		13,249,760
Long-term liabilities
Deferred tax liability	3,799,600		3,799,600
Other long-term liabilities	330,008		722,722
Total long-term liabilities	4,129,608		4,522,322
Total stockholders' equity	11,658,120		10,960,444
Total liabilities and stockholders' equity		$26,465,015		$28,732,526

INUVO, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
	(Unaudited)					(Unaudited)
	Three Months Ended					Nine Months Ended
	September 30,			September 30,		September 30,			September 30,
	2016			2015		2016			2015
Net revenue		$17,485,087			$19,254,052		$51,864,448			$49,402,809
Cost of revenue	5,136,242			5,876,429		13,392,598			19,038,392
Gross profit	12,348,845			13,377,623		38,471,850			30,364,417
Operating expenses
Marketing costs	9,921,395			10,153,987		30,395,472			21,659,395
Compensation	1,650,474			1,540,730		4,973,192			4,073,240
Selling, general and administrative	1,229,177			1,047,808		3,759,225			3,214,113
Total operating expenses	12,801,046			12,742,525		39,127,889			28,946,748
Operating (loss) income	(452,201)			635,098		(656,039)			1,417,669
Interest expense, net	(25,729)			(23,101)		(71,784)			(111,674)
(Loss) income from continuing operations before taxes	(477,930)			611,997		(727,823)			1,305,995
Income tax benefit	43,013			7,332		91,999			379,085
Net (loss) income from continuing operations	(434,917)			619,329		(635,824)			1,685,080
Net income from discontinued operations	171,844			32,065		172,197			37,632
Net (loss) income	(263,073)			651,394		(463,627)			1,722,712
Earnings (loss) per share, basic and diluted
From continuing operations		($0.020	)		$0.03		($0.030	)		$0.07
From discontinued operations	0.01			-		0.01			-
Net (loss) income		($0.010	)		$0.03		($0.020	)		$0.07
Weighted average shares outstanding
Basic	24,694,566			24,271,895		24,571,271			24,209,667
Diluted	24,694,566			24,788,469		24,571,271			24,549,072
By Segment (Unaudited):
Net revenue
Partner Network		$6,165,769			$7,241,441		$16,187,174			$24,098,859
Owned and Operated Network	11,319,318			12,012,611		35,677,274			25,303,950
Total		$17,485,087			$19,254,052		$51,864,448			$49,402,809
Gross profit
Partner Network		$1,050,256			$1,381,134		$2,870,589			$5,111,050
Owned and Operated Network	11,298,589			11,996,489		35,601,261			25,253,367
Total		$12,348,845			$13,377,623		$38,471,850			$30,364,417

Non-GAAP Financial Measures In addition to disclosing financial results in accordance with United States generally accepted accounting principles (“GAAP”), our earnings release contains the non-GAAP financial measure “Adjusted EBITDA.” Adjusted EBITDA is not a measure of performance defined in accordance with GAAP. However, management believes that Adjusted EBITDA is useful to investors in evaluating the Company’s performance because Adjusted EBITDA is a commonly used financial analysis tool for measuring and comparing companies in the Company’s industry in areas of operating performance. Management believes that the disclosure of Adjusted EBITDA offers an additional view of the Company’s operations that, when coupled with the GAAP results and the reconciliation to GAAP net income, provides a more complete understanding of the Company’s results of operations and the factors and trends affecting the Company’s business. INUVO, INC.
RECONCILIATION OF (LOSS) INCOME FROM CONTINUING OPERATIONS BEFORE TAXES TO ADJUSTED EBITDA
(Unaudited)
	Three Months Ended					Nine Months Ended
	September 30,			September 30,		September 30,		September 30,
	2016			2015		2016		2015
(Loss) income from continuing operations before taxes		($477,930	)		$611,997	(727,823)			$1,305,995
Interest expense, net	25,729			23,101		71,784		111,674
Depreciation	325,236			229,350		958,704		615,778
Amortization	231,060			234,294		699,648		690,951
Stock-based compensation	315,596			251,144		1,002,044		385,818
Adjusted EBITDA		$419,691			$1,349,886		$2,004,357		$3,110,216

Reconciliation of (Loss) Income from Continuing Operations before Taxes to Adjusted EBITDA:

We present Adjusted EBITDA as a supplemental measure of our performance. We defined Adjusted EBITDA as (loss) income from continuing operations before taxes plus (i) interest expense, net, (ii) depreciation, (iii) amortization, and (iv) stock-based compensation. These further adjustments are itemized above. You are encouraged to evaluate these adjustments and the reasons we consider them appropriate for supplemental analysis. In evaluating Adjusted EBITDA, you should be aware that in the future we may incur expenses that are the same or similar to some of the adjustments in the presentation. Our presentation of Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items.

EX-99.2

Inuvo, Inc.

Third Quarter 2016 Conference Call

October 26, 2016

Operator Comments:

Good day and welcome to the Inuvo, Inc. 2016 Third Quarter Conference Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Mr. Alan Sheinwald of Capital Markets Group, LLC. Please go ahead, sir.

Alan Sheinwald (Investor Relations) Comments:

Thank you Operator and good afternoon. I’d like to thank everyone for joining us today for the Inuvo third quarter 2016 shareholder’s update conference call. Today, Mr. Richard Howe, Chief Executive Officer, and Mr. Wally Ruiz, Chief Financial Officer, of Inuvo will be your presenters on the call.

Before we begin, I’m going to review the Company’s Safe Harbor statement. The statements in this conference call that are not descriptions of historical facts are forward-looking statements relating to future events and, as such, all forward-looking statements are made pursuant to the Securities Litigation Reform Act of 1995. These forward-looking statements are subject to risks and uncertainties and actual results may differ materially.When used in this call, the words anticipate, could, enable, estimate, intend, expect, believe, potential, will, should, project, and similar expressions as they relate to Inuvo, Inc., are, as such, a forward-looking statement. Investors are cautioned that all forward-looking statements involve risks and uncertainties which may cause actual results to differ from those anticipated by Inuvo at this time. In addition, other risks are more fully described in Inuvo's public filings with the US Securities and Exchange Commission, which can be reviewed at www.sec.gov.

With that out of the way, now I’d like to turn the call over to Mr. Richard Howe, CEO of Inuvo. Rich, congratulations on the return to sequential growth in Q3, the floor is yours.

Richard Howe (CEO) Comments:

Thank you Alan, and thanks everyone for joining us.

We recovered well from a softer than expected second quarter with Revenue up strongly to $17.5 million or 12% growth on a sequential basis. For the 9-month period, year over year growth was 5% and while our second quarter performance clearly impacted the short term, we remain on track, from a growth perspective, to reach our $25 million quarterly run rate target by the end of 2017. We expect to continue sequential growth through the fourth quarter of 2016.

In Q3 we delivered $420 thousand dollars, or $0.02 cents per share of Non GAAP Adjusted EBITDA, up nearly 50% over the second quarter. Wally will review the reconciliation between GAAP and Non-GAAP income in his comments.

At the end of Q3, we had cash on hand of $3.6 million dollars and we remained free of bank debt. We also renewed, under similar terms, our $10-million-dollar bank revolving credit agreement for an additional two years.

From a Segment perspective, the Owned and Operated business represented 65% of overall revenue and the Partner business 35%. We continue to experience mobile expansion, with 58% of overall revenue from mobile sources in the quarter, up from 38% in 2015.

The Partner Network returned to sequential growth in the quarter with Revenue of $6.2 million, up strongly at 30% from the prior quarter and in line with the baseline Q4-2015 Quarter we had previously messaged as the best starting point comparison for this business following revenue reporting changes between segments that occurred in 2015.

We’ve seen a stabilization of the demand issues we reported in Q2 and we see renewed focus on growth within one of our major advertising suppliers post the announcement of

their planned acquisition. New opportunities, particularly in mobile, may accelerate and we are actively working on a number of deals that should continue to support sequential growth.

We continue to see encouraging signs within SearchLinks. The number of Ad clicks generated within this new product line was up 20% over the previous quarter and revenue collected from SearchLinks publishers was up 15%.

We’ve experienced growth in share within many of our existing SearchLinks publishing partners and we continue to expand the technology foundation of the product to meet the needs of Publishers and the competitive threats of the marketplace.

Specifically, we are currently testing within our O/O properties the use of behavioral targeting as a compliment to the contextual targeting currently deployed universally within SearchLinks.

With this feature, we will have the ability to determine, in real time, whether or not we should show an ad based on the content of the page currently being engaged, or show an ad based on a visitors’ previous search or content engagement experience. We will of course have the ability to optimize between these Ad-Serving options based on the earnings potential to Inuvo.

These enhancements should allow for market share expansion and ultimately, as the product scales, margin enhancement. Performance to date on this new feature within the O/O business has been encouraging.

The Owned / Operated Network also experienced sequential growth, up 4% to $11.3 million dollars in the Quarter. The segment was down year-over-year in part because of the same demand issues that impacted overall performance through Q2 and into early Q3.

We’ve been an early adopter of Header Bidding, a programmatic technique wherein we can offer up our O/O Ad-Placement opportunities to multiple Ad-Suppliers. This technique offers us the absolute best chance to get the highest payment for non-SearchLinks Ad-Inventory

on our O/O pages. We’ve seen a 15 to 20% increase over the amount we collect from Advertisers by using this evolving technique.

What’s equally promising for us and specifically the result of synergies between segments is the future opportunity for the SearchLinks product within Header Bidding. As we learn how to optimize these Ad Placements on our own sites as a Publisher, we will be in a position to leverage the opposite or supply side of this header Bidding marketplace by developing SearchLinks Ad-Products specifically designed for the Header Bidding marketplace which could expand our reach for the Product to thousands of Publishers.

We produced over 75 original videos in the quarter, the majority of which were in the Health, Travel, Living and the EarnSpendLive site. We expect to be developing more videos over the months, including some developed and branded with direct advertising partners. We are also doing direct advertiser deals with other pieces of ALOT content, including within the Automotive vertical which we launched some months back at AUTO.ALOT.COM.

We also launched the compliment to the EarnSpendLive site with TheEssentialBS site. This property is targeted at 25-35-year-old men. Within EarnSpendLive, we also created a weekly series called RealTalk with a number of interviews with prominent CEO’s.

We’ve also completed our first content syndication deal with thefinancialdiet.com. In this model we effectively lease our content to others and benefit from the consumer traffic it generates for ALOT, a great example of how we can repurpose proprietary content, the cost of which has already been spent, to attract an audience.

With that, I’d now like to turn the call over to Wally.

Wally Ruiz (CFO) Comments:

Thank you Rich; good afternoon everyone. We reported today the results of our third quarter.

Inuvo reported revenue of $17.5 million for the quarter that ended September 30, 2016; a 12% increase from the immediate prior quarter and a 9% decrease from the $19.3 million reported in the same quarter last year. For the nine months ended September 30, 2016, Inuvo reported revenue of $51.9 million, a 5% increase over the same nine-month period last year.

EBITDA, adjusted for stock based compensation expense, a non-GAAP financial measure was $420 thousand in the quarter that ended September 30, 2016 or 2-cent per share; compared to $282 thousand or 1-cent per share in the immediate prior quarter and compared to $1.3 million or 5-cents per diluted share in the same quarter of the prior year.

For the first nine months of 2016, adjusted EBITDA delivered $2 million dollars or 8-cents per Share compared to $3.1 million or 13-cents per diluted share for the same period last year.

On a GAAP basis, Inuvo reported a net loss of $263 thousand or 2-cents net loss per share in the quarter ended September 30, 2016. In the same quarter last year, we reported a net income of $651 thousand or 3-cents per diluted share.

We exited the second quarter of 2016 with a plan to remedy the demand weakness we identified on our last call and the strong third quarter over second quarter growth reflects our recovery from those issues.

The Partner Network delivers advertisements to our partners’ websites and applications. The Partner Network reported $6.2 million in the third quarter of this year compared to $4.7 million in the immediate prior quarter and $7.2 million in the same quarter last year.

As we have reported in prior teleconferences, 2015 had a number of inter-segment revenue transfer events that make year over year comparisons at the segment level not entirely “apples-to-apples”. As a result, we have also said on prior calls that the best starting quarter comparison for the Partner segment is Q4-2015, where we delivered $6.2 million in revenue.

With that said, third quarter revenue of $6.2 million was in line with Q4 2015 revenue, a seasonally high quarter, but more importantly up 30% higher than the immediate prior quarter revenue. The current trend indicates that Partner Network revenue in the fourth quarter will continue to exceed the third quarter revenue.

The Owned & Operated Network is made up of a collection of websites and apps we own and where income is derived from advertisements. The Owned & Operated Network represented 65% of the company’s total revenue in the third quarter of this year. The Owned & Operated Network reported $11.3 million of revenue in the third quarter of 2016 compared to $10.9 million in the immediate prior quarter and a $12 million in the same quarter last year. The Owned & Operated revenue in the third quarter exceeded the immediate prior quarter by 4%.

Inuvo gross profit in the third quarter of 2016 was $12.3 million compared to $11.7 million in the immediate prior quarter and a $13.3 million in the same quarter last year.

Gross profit as a percent of revenue or gross margin was 71% in the third quarter of 2016 compared to 69% in the same quarter last year. The increase in the percentage is largely due to the mix between Partner and Owned & Operated revenue shifting more toward the higher margin Owned & Operated Network.

Partner Network gross profit in the third quarter of 2016 was approximately $1.1 million compared to $797 thousand in the immediate prior quarter and a $1.4 million in the same quarter last year. The lower gross profit in this year’s quarter compared to the same period last year is due to both lower revenue and to lower average RPCs (revenue per click) this year compared to the same period last year.

Gross Profit in the Owned & Operated segment in the third quarter of 2016 was $11.3 million compared to $12.0 million last year. The lower gross profit in this year’s quarter compared to last year is due entirely to the lower revenue reported this year.

Operating expense, which is comprised of Marketing costs, Compensation and Selling, general & administration expense was $12.8 million in the third quarter of 2016 compared to $12.7 million in the same quarter last year.

Marketing costs are the primary costs associated with the Owned & Operated Network where dollars are spent to build an audience for the various sites and apps we own. Marketing costs were $9.9 million in the third quarter of 2016, a $233 thousand decrease from the same quarter in the prior year.

Compensation expense increased by $110 thousand to $1.7 million in the third quarter of 2016 compared to the same quarter in the prior year. The higher expense in the current quarter is primarily due to higher payroll cost associated with additional hiring. At September 30, 2016, we had 70 full- and part-time employees; a year earlier we had 61 full- and part-time employees.

S,G&A or Selling, general & administration expense was $1.2 million in the third quarter of 2016 compared to $1 million in the same quarter in the prior year. The higher expense this year is due to higher depreciation and amortization expense and a credit adjustment made last year associated with the unamortized portion of the Arkansas grant.

We expect marketing costs to increase in coming quarters commensurate with the growth in the Owned & Operated Network revenue. We expect compensation expense to increase modestly to support technology development and our sales initiatives. We expect S, G & A expense to remain relatively flat.

Net interest expense was $26 thousand in the third quarter of 2016, roughly the same as last year.

The current year quarter included a net income gain of $171 thousand or $0.01 per share for the final adjustment and closing of our European subsidiaries, which have been classified as discontinued operations for many years. Adjusted EBITDA of $420 thousand, or 2 cents per share does not include net income from discontinued operations.

At September 30, 2016, we had cash and cash equivalents of $3.6 million and no bank debt. The balance sheet continues to strengthen and the current ratio improved to .97 at September 30, 2016 from .88 at December 31, 2015.

Now, I’d like to turn the call back to Rich for closing remarks.

Richard Howe (CEO) Comments:

Thanks Wally.

We made solid progress in Q3 coming off a weak Q2. We typically see strong demand from advertisers beginning in November through Christmas and expect to see sequential growth in the final quarter of the year.

As we look out towards 2017 advancements we’ve made in areas like behavioral targeting with SearchLinks, expanded content in video and on new sites like Auto along with a growing cadre of direct advertiser relationships support our goal to get to $25 million by Q4 2017, which implies a run rate of $100 million.

With that, I’d like to now turn the call over to the operator for questions.

Richard Howe (CEO) Closing Comments:

I would like to thank everyone who joined us on today’s call. We appreciate your continued interest in Inuvo and look forward to reporting progress over the coming quarters.