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)     May 14, 2012

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.)

143 Varick Street, New York, NY	10013
(Address of principal executive offices)	(Zip Code)

Registrant's telephone number, including area code 212-231-2000

 (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 May 14, 2012, the Company issued a press release entitled “Inuvo Reports 2012 First Quarter Financial Results; Hosts Conference Call Today” regarding its financial results for the three months ended March 31, 2012, and held a management conference call to discuss these results 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 Form 8-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 Section 18 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 May 14, 2012, the Company held a management conference call to discuss the Company's financial results for the three months ended March 31, 2012, the outlook of the Company and certain other matters.

 A copy of the script for the presentation is attached as Exhibits 99.2 and is incorporated by reference into this Current Report on Form 8-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 Section 18 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.

Item 9.01 Financial Statements and Exhibits.

(d)           Exhibits.

Exhibit No.	Description
99.1	Press release dated May 14, 2012, titled “Inuvo Reports 2012 First Quarter Financial Results; Hosts Conference Call Today”.
99.2	Script for May 14, 2012 Web Conference Call.

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:  May 14, 2012	By:	/s/ John Pisaris
	John Pisaris, General Counsel

EXHIBIT INDEX

Exhibit No.	Description
99.1	Press release dated May 14, 2012, titled “Inuvo Reports 2012 First Quarter Financial Results; Hosts Conference Call Today”.
99.2	Script for May 14, 2012 Web Conference Call.

EX-99.1

Exhibit 99.1

Inuvo Reports 2012 First Quarter Financial Results; Hosts Conference Call Today

Company Reports Adjusted EBITDA of $212,000 and Revenue of $8.8 million

May 14, 2012 - New York, NY  - Inuvo® (NYSE Mkt: INUV) an Internet marketing and technology company specializing in marketing browser-based consumer applications, managing networks of website publishers and operating specialty websites, today announced its first quarter ending March 31, 2012. The Company’s consolidated financial statements as of March 31, 2012 include one month of operations and financial results of its Vertro subsidiary and  the costs of the merger, which became effective  on March 1, 2012.

Recent Highlights

●   Completed the merger with Vertro, Inc.

●   Achieved adjusted EBITDA of $212,000 with revenues of $8.8 million.

●   Reported $4.4 million of revenue for the first month of combined results.

●   Over 7 million ALOT Live Users and growing.

●   Reorganized the company around three distinct revenue-generating divisions: Software Search, Publisher Network and Partner Programs.

●   Focused resources to realize cost savings, as well as incorporate product synergies.

●   Successfully negotiated a $15 million Business Financing Agreement with Bridge Bank.

“We are pleased to announce positive adjusted EBITDA for the first quarter of 2012.  It is important to note that only one of the three months in this reported quarter represents combined operations on a financial reporting basis.  Further, the associated closing costs of the Vertro merger are included in our first quarter results, so we believe the first quarter results of 2012 are not indicative of the Company’s ongoing operations” commented Peter Corrao, President and CEO of Inuvo.

“We remain focused on the integration of the businesses and believe that our financial performance will continue to improve throughout 2012. During the remainder of the year, we plan to remain focused on generating revenue from our newly combined product lines, growing our Software Search segment and integrating and growing our Partner Programs segment, while realizing cost savings from the merger.”

Three Month Financial Results for the Quarter Ended March 31, 2012

Revenue was $8.8 million for the quarter ended March 31, 2012 compared to $11.8 million for the same quarter last year.  By segment, revenue in the current year quarter was $5.6 Million from Publisher Network, $1.8 million for Software Search and $1.4 million in Partner Programs or 64.2%, 20.2% and 15.6%, respectively, of total revenues, for the quarter.  The decrease was due to lower revenue in both the Publisher Network and Partner Programs segments. A decrease in the number of transactions driven through third party and company owned websites and a $238,000 chargeback by Yahoo! for advertiser refunds associated with low conversion traffic caused the lower Publisher Network revenue. The exiting of the telemarketing business last June is the primary reason for the lower Partner Program revenue.

Gross Profit decreased $2.0 million in the first quarter to $3.4 million compared to $5.4 million in the same quarter last year, and gross margins also decreased to 39% from 46% in the same quarter last year. The decrease in gross profit was due primarily to lower revenue within both the Publisher Network and Partner Programs segments.

Search Costs were approximately $650,000 lower in the first quarter of the current year compared to the same quarter last year due to the reduction of traffic the Company directed to websites it manages while it restarted its various campaigns that were put on hold while investigating low converting traffic. The lower spend on traffic was partially offset by advertising expense in the acquired Software Search segment.

Compensation and Telemarketing Expense was approximately $1.4 million lower in the current year quarter compared to the same quarter last year primarily due to the termination of the telemarketing business in June 2011.

Selling, General and Administrative Expense was approximately $550,000 higher in the current year quarter compared to last year, primarily due to the costs of closing the merger with Vertro this past March.

The Net Loss for the quarter ended March 31, 2012 was $1.9 million compared to a net loss of $1.4 million for the same period last year. The current year net loss includes one-time charges of approximately $436,000 for indirect closing costs related to the merger with Vertro. The last year quarter net loss included one-time net charges of approximately $118,000 for  settlements of litigation.

Adjusted EBITDA, a non-GAAP measure was approximately $212,000 in the first quarter of 2012 compared to approximately $202,000 in the same quarter last year.

As of March 31, 2012, Inuvo had 45 full time employees.

Conference Call Information

The Company will host a conference call today, Monday, May 14, 2012 at 4:30 p.m. Eastern Daylight Time.   Participants can access the call by dialing 877-941-2068 (domestic) or 480-629-9712 (international). 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. Live webcast: http://viavid.net/dce.aspx?sid=00009743

 A telephone replay will be available through Monday May 28, 2012.  To access the replay, please dial 877-870-5176 (domestic) or 858-384-5517 (international). At the system prompt, enter the code 4536399 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 specialized in marketing browser-based consumer applications, managing networks of website publishers and operating specialty websites. To learn more about Inuvo, 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: the strategy, markets, synergies, costs, efficiencies, and other anticipated financial impacts of the proposed transaction; the combined company’s plans, objectives, expectations, intentions with respect to future operations, 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 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. Additional key risks are described in the filings made by Inuvo with the U.S. Securities and Exchange Commission, including the Form 10-K for the year ended December 31, 2011.

INUVO, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

	March 31, 2012		December 31,
	(Unaudited)		2011
Assets
Current assets:
Cash	$	3,490,425	$	4,413
Restricted cash		475,762		475,586
Accounts receivable, net		5,299,757		5,426,865
Intangibles, net - current		1,235,238		947,882
Other current assets		910,944		482,797
Total current assets		11,412,126		7,337,543
Property and equipment, net		3,339,250		1,590,011
Goodwill		6,062,750		1,776,544
Intangible assets		11,823,834		390,000
Other assets		162,730		2,243
Total assets	$	32,800,690	$	11,096,341
Liabilities and Stockholders’ Equity (Deficit)
Current liabilities:
Term and credit notes payable – current portion	$	1,111,000	$	452,000
Accounts payable		10,093,695		6,198,921
Deferred revenue		17,250		18,083
Accrued expenses and other current liabilities		3,132,302		2,523,176
Current liabilities of discontinued operations		100,000		160,000
Total current liabilities		14,454,247		9,352,180
Term and credit notes payable – long-term		3,889,000		2,454,303
Deferred tax liability		4,543,000
Other long-term liabilities		927,962		300,124
Total liabilities		23,814,209		12,106,607
				-
Total stockholders’ equity (deficit)		8,986,481		(1,010,266	)
Total liabilities and stockholders’ equity (deficit)	$	32,800,690	$	11,096,341

INUVO, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(Unaudited)

	Three Months Ended March 31,
	2012			2011
Net revenue	$	8,767,149		$	11,793,495
Cost of revenue		5,347,751			6,371,466
Gross profit		3,419,398			5,422,029
Operating expenses:
Search costs		1,843,057			2,493,479
Compensation and telemarketing		1,296,565			2,672,277
Selling, general and administrative		1,985,463			1,435,166
Total operating expenses		5,125,085			6,600,922
Operating loss		(1,705,687	)		(1,178,893	)
Interest and other expenses, net		(166,701	)		(471,469	)
Net loss from continuing operations before taxes		(1,872,388	)		(1,650,362	)
Net (loss) income from discontinued operations		(1,709	)		257,136
Net loss	$	(1,874,097	)	$	(1,393,226	)
Other comprehensive loss
Foreign currency		5,156			-
Total comprehensive loss	$	(1,868,941	)	$	(1,393,226	)
Per common share data:
Basic and diluted:
Net loss from continuing operations	$	(0.13	)	$	(0.19	)
Net income from discontinued operations		-			0.03
Net loss	$	(0.13	)	$	(0.16	)
Weighted average shares:    (Basic and diluted)		14,431,201			8,558,790

By Segment: (unaudited)

	Three Months Ended March 31,
	2012		2011
Net revenue:
Publisher Network	$	5,624,956	$	9,850,062
Software Search		1,767,340		-
Partner Programs		1,374,853		1,943,433
Total	$	8,767,149	$	11,793,495
Gross profit:
Publisher Network	$	1,241,195	$	4,113,419
Software Search		1,452,308		-
Partner Programs		725,895		1,308,610
Total	$	3,419,398	$	5,422,029

INUVO, INC.

RECONCILIATION OF NET LOSS FROM CONTINUING OPERATIONS TO ADJUSTED EBITDA

(Unaudited)

	Three Months Ended March 31,
	2012			2011
Net loss from continuing operations	$	(1,872,388	)	$	(1,650,362	)
Interest expense, net		166,701			96,960
Depreciation		329,849			414,534
Amortization		956,203			729,573
Stock based payments		195,419			611,285
		(224,216	)		201,990
Plus Merger costs Adjusted EBITDA	$	436,452  212,236		$	-  201,990
By Segment:
Publisher Network	$	904,270		$	1,487,292
Software Search		50,724			-
Partner Programs		1,056,492			627,169
Corporate		(1,799,250	)		(1,912,471	)
Adjusted EBITDA	$	212,236		$	201,990

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 loss from continuing operations plus (i) interest expense, net, (ii) provision for taxes, (iii) depreciation and amortization, (iv) stock based payments, and (v) indirect costs incurred during 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.

Contact:

Inuvo, Inc.

Wally Ruiz, 212-231-2000 ext 160

Chief Financial Officer

wallace.ruiz@inuvo.com

Michael Buchanan, 646-253-0606

Director, Investor Relations

michael.buchanan@inuvo.com

Or:

Alliance Advisors, LLC

Alan Sheinwald, 914-669-0222

President

asheinwald@allianceadvisors.net

EX-99.2

Exhibit 99.2

VERTRO, INC.

Q1 2012 Earnings Call Script

Alan Sheinwald

Alan Sheinwald

Thank you and good afternoon everyone. Welcome to Inuvo’s first quarter 2012 financial results conference call. Joining me on the call today are President and CEO Peter Corrao, Wally Ruiz, CFO and Rob Roe, Senior Vice President and General Manager.

I’d like to remind everyone that today’s comments include forward-looking statements.  These statements are subject to risks and uncertainties that may cause actual results and events to differ materially from those expressed in the forward-looking statements.  These risks and uncertainties will be outlined at the end of this conference call, and are also detailed in our filings with the SEC. Before handing the call over to Peter, let me review how we measure our financial performance. In addition to the standard GAAP measurements, we utilize certain profitability based metrics to evaluate our period-to-period and year-over-year performance.

They are:

EBITDA, (earnings from continuing operations before interest, income taxes, depreciation and amortization),

Adjusted EBITDA, (EBITDA as adjusted for non-cash compensation expense and non-recurring items),

Adjusted income/loss, and

Adjusted income/loss per share.

A description of our reasons for utilizing these measures, as well as our definition of them and their reconciliation to the corresponding GAAP measurements can be found in the earnings release we issued today.

To comply with the SEC’s guidance on “fair and open disclosure,” we have made this conference call publicly available via audio webcast through the investor relations section of our website at www.inuvo.com, and a replay of this conference call will be available for 90 days. I’d now like to turn the call over to President and CEO, Peter Corrao. Peter?

 PETER CORRAO

Thanks Alan and good afternoon everyone; thank you for joining us.

The past few months have been a very busy time at Inuvo.  We achieved much in the first quarter, including our first month of combined operations and have seen improvements in most of our business segments. Much of our focus at Inuvo has been on integrating the operations of the two companies. Now that the integration is fully underway, our next focus is assimilating our products and setting the stage for the growth in the future.

We have expanded our product portfolio and can now access a more diverse set of strategic partnerships.  We plan to further develop these relationships in order to realize the greatest return on a product specific basis. By integrating and modifying our existing portfolio, we plan to deliver the most viable products into the rapidly growing mobile and tablet market place, as well as enhancing our current delivery into traditional platforms.  We also plan to expand geographically into countries not currently served. We already have begun our geographic expansion and currently serve twenty-four countries and offer our products in seven different languages. Recent additions are Italy, Turkey and Russia.

At this point I would like to remind everyone that the Company’s consolidated financial statements as of March 31, 2012 include only one month of operations and financial results of our Vertro subsidiary as well as closing costs of the merger between Inuvo and Vertro. Revenue for the quarter was $8.8 million, with $4.4 million of that amount from our first month of combined operations. I am also pleased to announce a positive adjusted EBITDA of $212,000 for the first Quarter. Since only one of the three months in the first quarter included results from combined operations, and as the Company incurred cost related to the closing of the merger, we do not believe that these results will be indicative of the Company’s operations going forward.

With that said, let me now walk you through Inuvo’s current operational structure and where and how we plan to grow the company in the future.

Inuvo currently operates along three distinctive business lines, Software Search, Publisher Network, and Partner Programs.

Our first and strongest business segment, Software Search, includes our ALOT Homepage and Appbar products. Using our specialized direct marketing programs, we strive to continuously increase our user base and increase our monetization per user.  The Appbar, Homepage, and free Apps developed by Inuvo are designed to increase the usability of the Internet while allowing us to attract new users to our products and increase our user retention. Growth in our Software Search segment remains strong, and we anticipate increasing to approximately 10 million live users by year-end from our current 7.4 million live users as we expand internationally and continue to improve upon our direct marketing campaigns domestically and abroad.

In our second business segment, the Publisher Network, we facilitate performance based advertising between third-party publishers and advertisers through our partnership with Yahoo!. Additionally, our Publisher Network includes our owned and operated websites that we monetize with our partners.  Our Publisher Networks results  are down on a year over year and quarter over quarter basis, due to a decrease in the number of transactions driven through our network, both from third-party publishers and our owned and operated websites.  The decrease in transactions running through our network is due primarily to traffic irregularities identified by Yahoo! that caused Yahoo! to make advertiser refunds that resulted in a charge back to Inuvo of approximately $238,000 in Q1 2012.  This amount was a reduction of our revenue and most of it has been charged back to our vendors. Further, we have seen less traffic coming through specific partners.  The revenue in this segment has been volatile and we expect the negative volatility to continue in the near future.

We are currently targeting new publishers for our Publisher Network to add additional high quality traffic to the network.  Our new target publishers are smaller publishers than the Company has targeted in the past and we believe the Company has a unique selling proposition to help those smaller publishers  increase their monetization opportunities.  For our owned and operated business, we are slowly testing and re-launching campaigns that we use to drive traffic to our websites that received charge-backs.  Importantly, we have switched management of these campaigns primarily from third-party vendors to our in-house media buying team.

Partner Programs, our third business segment, includes display advertising, retail affiliate programs, BargainMatch and Kowabunga properties. We anticipate these products will experience rapid growth going forward as we introduce them to a broader user base.  As and example, BargainMatch, our customer loyalty, comparison-shopping, and cash back program, has seen dramatic positive results and financial growth since the merger. This product is a part of the Alot app bar and as well as a standalone website.  Kowabunga, our locally focused 'deal of the day' marketing initiative, is scheduled to launch May 21 in 10  small markets in North and South Carolina.  We have high hopes for growth in this initiative and we look forward to reporting our progress in the future.  Display revenue continues its march to higher highs each and every month. The keys to our success, and what will be our model going forward with these initiatives, is our strong and growing ALOT user base, our ability to acquire consumers to all of our properties through our internal resources and our significant knowledge of consumer tendencies that enable us to leverage this data for improved monetization across our business lines.

The Company has rapidly and successfully adapted in this period of transition.  We are dedicated to continuing our cost savings and product synergy initiatives, and plan to introduce a number of new products and services to our users in the near future. Our combined development teams are working closely together to offer the most attractive products to the consumer, whether it is an individual, publisher or advertiser. We are confident we can offer solutions that are user both friendly and simple to use, without heavy investment. We expect our new products and our enhanced existing products to retain and attract users and other constituents.

As we shift into Q2, our first full quarter as the newly merged Inuvo, we anticipate growth in our Software Search and Partner Programs segments but expect continued volatility in our Publisher Network.  We anticipate that any further volatility in our Publisher Network will come from decreased transactions in the network from our lower margin third-party network partners.  Consequently, while we believe there is revenue risk in the Publisher Network, we believe the margin risk is lower.

With these new initiatives we expect to be cash flow positive by the end of 2012, excluding one-time costs. We expect these initiatives can be funded internally and through our recently secured credit facility with Bridge Bank for up to $15 million.

With that said, let me hand the call over to Wally to discuss our financial results. Wally?

Wally Ruiz

Thank you, Peter.  Good afternoon everyone.  Thank you for joining us today.  My comments will be in regard to the financial results for the first quarter of 2012.

As mentioned, the first quarter was unusual as it had a number of “one-time’ financial entries associated with our merger with Vertro on March 1st. For example,

●   only one of the three months of the quarter, March had combined operations of both companies,

●   the quarter saw charges to operations for the cost of closing the merger, and

●   the ending balance sheet included the purchase accounting entries to record the assets and liabilities acquired in the merger.

Also of note is the fact the new combined companies called for a new organizational structure, more streamlined than the former organizations of either company prior to the merger. As described by Peter, we organized around 3 business segments, Software Search, Publisher Network and Partner Programs.

Inuvo today reported net revenue of $8.8 million in the first quarter of 2012; $2.2 million higher than the immediate preceding quarter and $3 million lower than the same quarter last year. In the current quarter, the Publisher Network segment contributed $5.6 million or 64% of the total revenue, Software Search contributed $1.8 Million or 20% of the total revenue and Partner Programs contributed $1.4 million or 16% of the current quarter’s total revenue. On a go forward basis we expect the revenue to be allocated approximately as 50% Software Search and 25% each for Publisher Network and Partner Programs.

The Publisher Network segment reported $4.2 million lower revenue compared to the first quarter of last year. This segment is comprised of the Inuvo platform which allows web publishers operating search-related sites to have pay-per-click sponsored ads on their site. This segment also operates our owned and operated search-related sites that monetize on pay-per-click sponsored ads. This segment has experienced a decline in revenues since Yahoo gave us notice in December that it had detected traffic irregularities across its publisher network. Though the irregular traffic did not originate with Inuvo, we are a partner to the Yahoo publisher network. As a result of this traffic, Yahoo! made refunds to its advertisers which were partially charged back to us. In the first quarter of 2012, those charge backs amounted to $238,000 which was a reduction to our revenue and partially a reduction of cost of revenue as we in turn charged back our publishers.

The Software Search segment reported revenue of $1.8 million in the first quarter of this year. This revenue stream is entirely the March search revenue from the Alot AppBar and homepage businesses which we acquired from Vertro.

The Partner Programs segment contributed $1.4 million, $600,000 lower than the same quarter last year mainly as a result of terminating the telemarketing operations last June, partially offset by revenue generated from Display Advertising and BargainMatch.

For the three months ended March 31st 2012, the Company’s gross profit was $3.4 million and its Gross Margin was 39 percent.  That compares to $5.4 million or 42 percent for the same period last year.  .  The lower gross profit is due primarily to the Publisher Network segment, where revenue declined 43% and cost of revenue declined only 24%. The gross margin of the Software Search segment was 82% and the Partner Programs was 52%.

Our company-wide operating expenses decreased by $1.5 million or 22% to $5.1 million for the quarter ending March 31st 2012. Search costs were lower by $650,000 due to the lower volume in the Publisher Network segment, though partially offset by the search costs required to operate the Software Search segment for one month. Compensation and Telemarketing expense were lower by $1.4 million due to the termination of the outsourced telemarketing agreement in June 2011 and somewhat lower compensation expense. SG&A expense is $550,000 higher in the current quarter compared to the same quarter last year due primarily to $436,000 of costs to close the merger.

The net loss reported of $1.9 million was $481 thousand greater than the same quarter last year. The last year quarter included a $118,000 one-time net charge to settle legal disputes and this year’s quarter contains $436,000 of closing costs associated with the March merger.

 The adjusted EBITDA for the three months ended March 31st, 2012 was $212 thousand.  This compares to an adjusted EBITDA for the first quarter last year of $201 thousand.

Turning to the balance sheet, the cash balance at the end of March was $3.5 million. Restricted cash balances were $475,000 at the end of the quarter and are composed mostly of a deposit held by our bank to secure a letter of credit required by a lease. 

Effective with the merger, March 1st we commenced a new financing agreement with our bank which includes up to a $10 million line of credit and a $5 million term loan. The agreement has a term of 2 years for the revolving credit line and 4 years for the term note. In March we drew down the $5 million term note to pay the closing costs of the merger and outstanding vendor payables.

The larger changes in the balance sheet are a result of the merger in March. The consideration given for all the outstanding shares of Vertro was $11.4 million of Inuvo stock. Inuvo purchased or absorbed $3.1 million of cash; $2.6 million in current assets, mostly receivables; $2.3 in non-current assets, mostly P,P&E; $11.8 million in Intangible assets, mostly customer lists and trade names; and we absorbed $4.8 million in liabilities. The resultant transaction left $4.3 million in additional goodwill.

With that, I’m going to hand the call back to the operator for any questions. Operator?

Q&A SESSION

_________________________________________________________________________

Alan Sheinwald

This conference call contained certain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. 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: the strategy, markets, synergies, costs, efficiencies, and other anticipated financial impacts of the proposed transaction; the combined company’s plans, objectives, expectations, intentions with respect to future operations, 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 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. Additional key risks are described in the filings made by Inuvo with the U.S. Securities and Exchange Commission, including the Form 10-K for the year ended December 31, 2011.

That concludes our call today; thank you for listening.