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)     August 8, 2013

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.)

1111 Main St., Suite 201, Conway AR	72032
(Address of principal executive offices)	(Zip Code)

Registrant's telephone number, including area code 855-440-8484

 (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 August 8, 2013, Inuvo, Inc. issued a press release and held a management conference call regarding its financial results for Q2 2013 and the outlook of the Company. A copy of the Company’s press release is being furnished herewith as Exhibit 99.1 and a copy of the script of the Company’s management for the conference call is being furnished herewith as Exhibit 99.2.

 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 both the press release and the conference call. A reconciliation of these non-GAAP financial measures to the comparable GAAP financial measures is contained in the attached press release.

ITEM 7.01 REGULATION FD DISCLOSURE.

 On August 8, 2013, the Company held a management conference call to discuss the Company's financial results for Q2 2013 and 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 Form8-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	Press release dated August 8, 2013 regarding Q2 2013 financial results.
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:  August 8, 2013	By:	/s/ John Pisaris
	John Pisaris
	General Counsel

EXHIBIT INDEX

Exhibit No.	Description
99.1	Press release dated August 8, 2013 regarding Q2 2013 financial results.
99.2	Conference Call Script.

EX-99.1

EXHIBIT 99.1

Inuvo, Inc. Reports Net Income of $0.02 per share on Higher Revenue in the Second Quarter

CONWAY, AR, August 8, 2013 -- Inuvo, Inc. (NYSE MKT: INUV), an Internet marketing and technology company that delivers targeted advertisements into websites and applications reaching desktop and mobile devices, today announced net income of $381 thousand or 2₵ per diluted share for the second quarter of 2013 compared to a net loss of $3.0 million, or $0.13 per share loss last year.  Revenue for the second quarter of 2013 was $13.1 million compared to $12.9 million in the same period of 2012.  Adjusted EBITDA was $848 thousand, a 316% increase, compared to the second quarter of 2012. The company reported that unaudited revenue for the month of July exceeded $5 million.

"We are delighted to report a GAAP net income for the second quarter, the direct result of higher revenues and lower operating expenses,” stated Richard Howe, Chairman and Chief Executive Officer of Inuvo. “With revenue through the first half of the year up 34% over last year and compensation and SG&A expensesin 2013 down $0.5 million in June from January, our Company’s relocation and product strategies appear to be gaining traction.”

Second Quarter 2013 Highlights

● Net revenue of $13.1 million, compared to $12.9 in the second quarter of 2012.

● Net income of $382 thousand, compared to a net loss of $3 million in the second quarter of 2012.

● Adjusted EBITDA, a non-GAAP measure, increased to $848 thousand compared to $204 thousand in the second quarter of 2012.

● Net revenue for the Network segment was $10.1 million and gross profit was $3.4 million, an increase of 86% and 259% from the second quarter of 2012, respectively.

● Net revenue for the Applications segment was $3.0 million and gross profit was $2.8 million compared to $7.4 million net revenue and $5.8 million gross profit in second quarter 2012.

Three-month financial results for the period ended June 30, 2013

Net revenues for the three months ended June 30, 2013, were $13.1 million, up from the $12.9 million reported in three months ended June 30, 2012. Growth in the quarter was driven by the Network segment, where revenue increased to $4.7 million, an 86% improvement over the same period in 2012. Net revenue from the Applications segment was $3.0 million, or 23% of total net revenues. Gross profit decreased to $6.2 million in the three months ended June 30, 2013 compared to $6.8 million for the same period of 2012 due to the decrease in the Applications segment revenue.

For the quarter ended June 30, 2013, Adjusted EBITDA, a non-GAAP measure, increased to $848 thousand compared to $204 thousand in the second quarter of 2012. The Company reported net income of $382 thousand, or $0.02 per diluted share, for the three months ended June 30, 2013, compared to a net loss of $3.0 million, or $0.13 per share loss, for the corresponding period last year.

Six-month financial results for the period ended June 30, 2013

Net revenues for the first six months of 2013 were $29.1 million, up from the $21.6 million reported in the same six months of 2012. The Network segment revenue increased 77% to $20.9 million over the same period in 2012. Net revenue from the Applications segment was $8.2 million, or 28% of total net revenues. Gross profit increased to $14.6 million in the six months ended June 30, 2013 compared to $10.2 million the same period of 2012. The higher gross profit is due to the higher percent of revenue from the higher margin Applications segment in the first quarter of 2013.

For the six months ended June 30, 2013, Adjusted EBITDA, a non-GAAP measure, increased to $2.2 million compared to $432 thousand in the same period of 2012. The Company reported net income of $91 thousand for the six months ended June 30, 2013, compared to a net loss of $4.8 million, or $0.26 per share loss for the corresponding period last year.

The Company's consolidated financial statements as of June 30, 2013 include the financial results of its Vertro subsidiary from March 2012 forward; the prior year periods do not contain financial results of the Vertro subsidiary for the first two months of 2012. Net income includes various adjustments and charges to the company’s discontinued operations in Europe. In the second quarter and six-month period of 2013, this had a favorable effect on net income of $283 thousand and $408 thousand, respectively. In the second quarter and six-month period of 2012, an expense of $155 thousand and $157 thousand was incurred by the company’s discontinued operations in Europe, respectively.

Balance Sheet as of June 30, 2013

Cash and cash equivalents totaled $3.2 million at June 30, 2013. Current assets and total assets were $8.6 million and $27.1 million, respectively and current liabilities and total liabilities were $11.7 million and $22.5 million, respectively, as of June 30, 2013. Borrowings under our bank line of credit were reduced to $6.9 million from $7.8 million at December 31, 2012. Shareholder’s equity was approximately $4.6 million.

Conference Call Information

Date: Thursday, August 8, 2013

Time: 4:30 p.m. EDT

Domestic Dial-in number: 1-877-941-2069

International Dial-in number: 1-480-629-9713

Live webcast: http://public.viavid.com/index.php?id=105621

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 Thursday August 22, 2013. To access the replay, please dial 1-877-870-5176 (domestic) or 1-858-384-5517 (international).  At the system prompt, enter the code 4634023 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 Internet marketing and technology company that delivers targeted advertisements into websites and applications reaching desktop and mobile devices. To learn more about Inuvo, please visit www.inuvo.com.

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, 2012. 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 Officer

501-205-8397

wallace.ruiz@inuvo.com

or

Investor Relations

Alliance Advisors, LLC.

Chris Camarra, 212-398-3487

ccamarra@allianceadvisors.net

INUVO, INC.

CONDENSED CONSOLIDATED BALANCE SHEET

	(Unaudited)
	June 30,		December 31,
	2013		2012
Assets
Current assets
Cash	$	3,151,635	$	3,381,018
Restricted cash		-		301,158
Accounts receivable, net		4,718,335		5,400,290
Unbilled revenue		15,720		58,219
Intangible, net - current		-		328,665
Other current assets		670,256		467,957
Total current assets		8,555,946		9,937,307
Property and equipment, net		1,543,534		2,110,771
Goodwill		5,760,808		5,760,808
Intangible assets, net		10,721,328		11,138,330
Other assets		479,205		182,387
Total assets	$	27,060,821	$	29,129,603
Liabilities and Stockholders’ Equity (Deficit)
Current liabilities
Term and credit notes payable - current portion	$	1,333,333	$	1,333,333
Accounts payable		7,579,497		10,196,930
Accrued expenses and other current liabilities		2,762,552		1,872,722
Total current liabilities		11,675,382		13,402,985
Deferred tax liability		3,940,301		4,099,000
Term and credit notes payable - long term		5,604,913		6,488,889
Other long-term liabilities		1,258,249		932,377
Total liabilities		22,478,845		24,923,251
Total stockholders' equity (deficit)		4,581,976		4,206,352
Total liabilities and stockholders' equity (deficit)	$	27,060,821	$	29,129,603

INUVO, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
	Three Months Ended						Six Months Ended
	June 30, 2013			June 30, 2012			June 30, 2013			June 30, 2012
Net revenue	$	13,130,428		$	12,873,981		$	29,050,207		$	21,641,133
Cost of revenue		6,964,311			6,097,341			14,445,179			11,445,093
Gross profit		6,166,117			6,776,640			14,605,028			10,196,040
Operating expenses
Search costs		2,993,165			5,422,936			7,686,054			7,265,993
Compensation		1,455,369			1,625,790			3,448,694			2,922,355
Selling, general and administrative		1,631,945			2,386,083			3,776,776			4,355,546
Total operating expenses		6,080,479			9,434,809			14,911,524			14,543,894
Operating income		85,638			(2,658,169	)		(306,496	)		(4,347,854	)
Interest expense, net		(66,328	)		(104,731	)		(172,997	)		(271,431	)
Net income (loss) from continuing operations before taxes		19,310			(2,762,900	)		(479,493	)		(4,619,285	)
Income tax benefit (expense)		79,247			(45,977	)		162,247			(61,977	)
Net income (loss) from continuing operations		98,557			(2,808,877	)		(317,246	)		(4,681,262	)
Net income (loss) from discontinued operations		283,015			(155,236	)		408,108			(156,943	)
Net income (loss)		381,572			(2,964,113	)		90,862			(4,838,205	)
Other comprehensive income
Foreign currency revaluation		(127	)		(10,735	)		(124	)		(5,579	)
Total comprehensive loss	$	381,445		$	(2,974,848	)	$	90,738		$	(4,843,784	)
Per common share data
Basic and diluted
Net income (loss) from continuing operations	$	0.01		$	(0.12	)	$	(0.02	)	$	(0.25	)
Net income (loss) from discontinued operations		0.01			(0.01	)		0.02			(0.01	)
Net loss	$	0.02		$	(0.13	)	$	-		$	(0.26	)
Weighted average shares outstanding
Basic		23,290,479			23,484,733			23,271,159			19,022,387
Diluted		23,323,158			23,484,733			23,271,159			19,022,387

By Segment (Unaudited):	Three Months Ended				Six Months Ended
	June 30, 2013		June 30, 2012		June 30, 2013		June 30, 2012
Net revenue
Network	$	10,090,434	$	5,439,452	$	20,883,519	$	11,823,541
Applications		3,039,994		7,434,529		8,166,688		9,817,592
Total	$	13,130,428	$	12,873,981	$	29,050,207	$	21,641,133
Gross profit
Network	$	3,400,971	$	947,908	$	7,120,651	$	2,430,854
Applications		2,765,146		5,828,732		7,484,377		7,765,186
Total	$	6,166,117	$	6,776,640	$	14,605,028	$	10,196,040

INUVO, INC. RECONCILIATION OF INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE TAXES TO ADJUSTED EBITDA
(Unaudited)
	Three Months Ended						Six Months Ended
	June 30, 2013			June 30, 2012			June 30, 2013			June 30, 2012
Income (loss) from continuing operations before taxes	$	19,310		$	(2,762,900	)	$	(479,493	)	$	(4,619,285	)
Interest expense, net		66,328			104,731			172,997			271,431
Depreciation		504,567			693,267			1,210,034			1,135,572
Amortization		198,501			1,977,065			745,667			2,820,811
Stock-based compensation		110,420			191,445			300,413			386,864
Accrued severances		(51,348	)		-			264,813			-
Merger costs		-			-			-			436,458
Adjusted EBITDA	$	847,778		$	203,608		$	2,214,431		$	431,851

Reconciliation of Net Loss from Continuing Operations to Adjusted EBITDA

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 loss, provides a more complete understanding of the Company’s results of operations and the factors and trends affecting the Company’s business.

We present Adjusted EBITDA as a supplemental measure of our performance. We defined Adjusted EBITDA as net income (loss) from continuing operations before taxes plus (i) interest expense, net, (ii) depreciation, (iii) amortization, (iv) stock-based compensation, (v) accrued severance and (vi) indirect costs incurred due to the merger with Vertro. 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

EXHIBIT 99.2

INUVO, INC.

Q2 2013 Earnings Call Script

Alan Sheinwald:            

Thank you and good morning.  I’d like to thank everyone for joining us today for the Inuvo Second Quarter 2013 Shareholder Update Conference Call.  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.  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 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, I’d now like to congratulate management on yet another strong quarter and introduce Mr. Rich Howe, CEO of Inuvo.  Rich, please go ahead.

Richard Howe Comments:

Thank you Alan, and thanks everyone for joining us today.

For the 2nd Quarter of 2013, we are pleased to report a Net Income of $381 thousand dollars or 2¢ per share on 13.1 million of Revenue and $848 thousand dollars of Adjusted EBITDA. These quarterly results reflect positively the significant operating improvements we have made within the business and the improving margins associated with our growth.

Revenue through the first half of the year has totaled $29 million, up 34% over the previous year and Adjusted EBITDA was $2.2 million, up 413% from the previous year. Net Income through the first half of the year was $91,000, up from a loss of $4.8 million through the first half of 2012.

On today’s call I would like to provide some updates on information communicated on the first quarter call, offer some additional insights about the second quarter and highlight some initiatives underway within the segments.

Following my opening statements, I will turn the call over to Wally for a more detailed accounting of our financial results after which I will have some closing remarks.

As a reminder to those of you who are new to the company, we organize and report our business along two segments.

Our Network segment is an Ad delivery service provided to websites and application owners on both desktop and mobile devices. We also account for Ad based Revenue from our growing suite of Owned and operated websites within this segment.

And the Applications segment, where Inuvo delivers Ad’s into company owned applications, which are marketed directly to consumers through various online marketing methods.

Growth in the second quarter and through the first half of the year has come from within the Network segment, which accounted for about 77% of 2nd Quarter Revenue and 72%√ of first half revenue. The decline in contribution from the Application segment reflects the focus on the Network segment where the delivery of Ad’s accessed through mobile devices and the development of Owned and Operated websites are a priority.

While the Application segment of the business has scaled back in recent quarters, we continue to see this segment as a source of potential future growth, particularly within the Mobile applications marketplace. The direct to consumer marketing competency and the Google relationship we acquired with the acquisition in the first quarter of 2012 continue to be important assets in our overall strategy and the existing users within the segment remain a good source of high quality advertising clicks.

Further, its important to understand that the ALOT brand, which drives much of the application segments revenue, is the foundation for the Owned and Operated site expansion.

We had also discussed on the first quarter call, certain changes that had been made within the marketplace that supports the Network segment and had provided some indication of its Q2 Revenue impact at that time. We remedied these issues starting in April and saw a positive trend throughout the 2nd Quarter and into the 3rd Quarter. As a result, we are pleased to report in advance of Q3 results that unaudited Revenue for the month of July exceeded $5 million dollars, up from $4.6 million in July of 2012.

Within the first half of the 2013 calendar year, Revenue, Gross profit, AEBITDA, Operating Expenses, Bank Debt and Net Income were all improved relative to last year and as of August 8th, this trend has continued. The Company has been Cash Flow positive since August of 2012.

Following the announcement of our move in January, we had suggested a potential benefit of approximately $120,000 dollars in monthly expense reductions associated with the move. As disclosed in the Press Release today, compensation & SG&A expenses on a monthly basis are now down nearly $500,000 per month in 2013, going from roughly $1.5 million in January to the current $1.0 million per month run rate. These expenses should stay relatively stable throughout the remaining months of this year.

With the recent exit of the New York City Data Centers, the relocation to Arkansas is now completed. Additionally, based on current commitments, we have already achieved our March 2014 obligation to have 26 full time employees within the State and will soon have received the last of the $1.75 million dollars in Grant funds.

Let me now talk briefly about the two segments of the business and how we are doing against our plans, starting first with the Application segment.

We have this segment of the business focused on maintaining current revenue and profitability levels. As you will recall, changes to the ways in which software can be marketed to consumers earlier in the year gave us cause to rethink our objectives for this segment and we made a conscious decision to manage towards a stable and profitable run rate.

This does not mean we are not taking steps to position this segment for growth in the future. Our marketing team continues to optimize our campaigns and we could start to see modest revenue growth again starting in the Fourth Quarter.

Additionally, in Q2, we started to explore a more current strategy for the ALOT business that is aligned around mobile applications that could include both homegrown applications and the acquisition of existing mobile apps, which are surprisingly cheap and in supply.  Our ability to market & monetize these Apps is a significant competitive advantage here.

This strategy is also synergistic with our Owned and Operated websites, which we have said in the past should each have companion mobile applications.

We launched a Weather application in the second quarter that was quickly developed in-house as a way to better understand the marketing, support and monetization of these mobile applications before we make any significant investment.

Turning now to the Network segment, which has been driving growth within the business.

In the first quarter of 2013, Owned and Operated websites accounted for roughly 12% of overall revenue and that ratio held steady in the second quarter. We expect to be making more announcements related to site launches in the third quarter. The next site we plan to launch will be ALOT Health, a content rich web property optimized for both desktop and mobile devices. The site will feature information on ailments, fitness, dieting, and pregnancy in addition to a resource for contacting local physicians.

As it relates to mobile expansion, in the first quarter, we had mentioned that approximately 15% of all traffic within the Network originated through a mobile device. In the second quarter, that number held constant. We now have over 200 mobile application prospects in various stages of implementation and/or testing.

In support of our mobile strategy, we are also introducing a number of enhancements to the platform that serves the Network. This improved functionality ranges from features designed to improve self-serve access to features designed to provide additionally flexibility and ease of implementation, particularly for Mobile Ad units.

As one example, we recently launched in beta, an Ad unit that displays results based on website content and automatically sizes itself appropriately for the device being used to access the site, whether that be desktop, tablet or phone. The feedback from prospects for this Ad unit has been encouraging and the pipeline for the unit is robust.

Since the beginning of the year, in addition to the mobile application partners we are working with, we have also added over 300 new websites to the Network, each of which are in various stages of going live.

I would like to now turn the call over to Wally for a more detailed analysis of the financials. Wally.

Wally Ruiz Comments:

Thank you Rich.  Good afternoon everyone.  Thank you for joining us today to discuss the company's financial results for the second quarter of 2013.  My comments will refer to this morning’s press release and the 10-Q filed today.   

As Rich mentioned, Inuvo today reported net revenue of $13.1 million in the second quarter of 2013, a $256,000 increase over the same quarter last year; and for the first six months of 2013, $29.1 million which is $7.4 million ahead of the same period last year. The Network segment reported $10.1 million of revenue in the current quarter, an increase of 86% over the same quarter last year. The Network segment represents 77% of the company’s total revenue. The increase in the second quarter of 2013 over the same quarter last year is due to the strong increase in the delivery of advertisements to partner websites, our own websites, and the delivery of advertisements to mobile devices. Revenue from partner’s websites increased 85% compared to the second quarter of 2012, the result of expansion across publisher segments, an improvement in quality and the growth in mobile. Revenue from our owned and operated websites increased 346% compared to the second quarter of 2012 largely due to the expansion of websites, particularly the local search directory at local.alot.com. All other revenue in the segment, non-core operations, declined $439 thousand in the second quarter compared to the same quarter last year primarily due to the closing of the low margin data business in the first quarter.

 The Applications segment, representing 23% of the company’s total revenue in the second quarter, reported $3 million of revenue. This segment is mostly comprised of operations acquired in March of last year. The Applications segment revenue in the second quarter of 2013 decreased $4.4 million compared to the same quarter last year and was $2.1 million lower than the immediate prior quarter, the first quarter of 2013. Marketing policy changes in the first quarter required that we modify our strategy for the business, focusing first on managing towards a stable and profitable revenue stream only then to explore additional growth provided the ROI exceeds the other parts of the business.

Gross profit was $6.2 million in the second quarter of 2013 or as a percent of revenue, 47%. This compares to a gross profit of $6.8 million or as a percent of revenue, 53% last year. Overall gross profit declined in the second quarter compared to last year due to lower revenue from the Application segment.  In the second quarter of 2013, the Network segment gross profit as a percent of revenue was 34% compared to 18% for the same quarter last year. The increase in the Network segment gross profit comes from the expansion of the Network. The Applications segment gross profit, as a percent of revenue was 91% compared to 78% for the same quarter last year. The higher gross profit is primarily due the discontinuance of underperforming marketing programs.

Operating expense was $6.1 million in the second quarter. This is a $3.4 million decrease over the same quarter last year and a $2.8 million decrease from the immediate prior quarter.  All three categories of operating expense; search costs, compensation and S,G&A decreased in the second quarter of 2013 compared to the same quarter last year and the immediate prior quarter.

Search costs are mostly associated with the ALOT operations within the Applications segment where we bid on keywords in order to drive traffic to our landing pages, the successful result from which is that a consumer downloads our product. To a lesser extent, we also spend on Search for owned and operated web properties. Search costs decreased $2.4 million in the second quarter of 2013 over the same quarter in the prior year and decreased approximately $1.7 million from the immediate prior quarter due to the policy changes previously mentioned.

Compensation expense decreased $170 thousand in the second quarter of 2013 over the same quarter in the prior year and decreased $538 thousand from the immediate prior quarter due to a non-recurring accrual of $316 thousand dollars for severance for employees who chose not to relocate to Arkansas. Selling, general & administration expense, or S, G & A decreased $754 thousand in the second quarter of 2013 compared to the same quarter in the prior year and decreased $513 thousand from the immediate prior quarter. The decrease in the current quarter S,G&A from both the same quarter of the prior year and the immediate prior quarter is due primarily to lower facilities expense and lower depreciation and amortization expense associated with the elimination of facilities in New York and Florida in the first quarter.

As mentioned, the relocation to Arkansas has gone well and we are seeing the benefits in the form of lower operating expense. The full impact of the savings will be seen late in the third quarter. At this point, the state has reimbursed us over $1.6 million in relocation expenses.

Net interest and other expense was $66 thousand in the second quarter of 2013 compared to $105 thousand in the same quarter in the prior year. The lower interest expense is due primarily to interest income received on a security deposit as well as lower average loan balances this year.

The company reported a $79,000 income tax benefit due to amortizing its deferred tax liability generated from intangible assets acquired in the March 2012 acquisition.

As part of that acquisition, we acquired several discontinued subsidiaries located in Europe. These subsidiaries have liabilities to web publishers and vendors that were recorded in 2009 and earlier. In the second quarter, we determined that a portion of these liabilities were not valid and relieved the balance sheet of them. The effect on the income statement was $283,000 and was classified as net income from discontinued operations.

The Company reported a net income of $381 thousand, or $0.02 per diluted share, for the three months ended June 30, 2013. The net income from continuing operations was $99 thousand. In the second quarter of last year we reported a net loss of $3.0 million, or $0.13 per share.

EBITDA, adjusted for stock compensation expense and accrued severances associated with the relocation was approximately $848 thousand in the quarter that ended June 30, 2013 and that compares to an adjusted EBITDA of $204 thousand in the same quarter of the prior year.

Balance Sheet as of June 30, 2013

Turning the balance sheet, cash and cash equivalents totaled $3.2 million at June 30, 2013 compared to $3.4 million at the end of 2012.  Bank debt was approximately $6.9 million compared to $7.8 million at the end of 2012. The company has been generating a positive cash flow from operations since last August and has used the cash to reduce bank debt and to remain current with publishers and vendors.

I would like to now turn the call back to Rich for closing remarks.

Richard Howe Comments:

Thanks Wally. In closing, I would like to summarize:

1)   We delivered $381 thousand dollars of Net Income, or 2¢ per share in Q2, up from a loss of $3 million dollars the prior year.

2)   Revenue, Gross Profit, Cash Flow, Operating Expenses, Net Income and Debt were all improved in the 2nd Quarter.

3)   Through the first half of 2013, Revenue was up 34% and Adjusted EBITDA was up 413% over the comparable period. Net Income for the 1st half amounted to $91,000 dollars, up from a loss of $4.8 million the prior year.

4)   Within the Application segment, and in particular for the AppBar, we are focused on optimizing for profitability and quality and its important to note that our Owned and Operated website business, which is growing, is an extension of this direct to consumer business.

5)   Our move to Arkansas is now completed. We are ahead of our expense reduction goal of $120K per month and based on commitments, we have already met our March 2014 headcount obligation to the State.

6)    Unaudited revenue for the first month of the 3rd Quarter, July, exceeded $5 million dollars, up from $4.6 million in the prior year.

And Finally,

7)   We continue to be focused on mobile expansion within the Network. Mobile web traffic is increasing 55% per year and the marketplace remains in its infancy. Shareholders should be assured that Inuvo is well positioned to take advantage of this growth opportunity.

I’d like to now turn the call over to the operator for questions and answers.

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Richard Howe 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.