INUVO, INC. (Form: 10-K, Received: 03/29/2012 17:24:23)

INUVO, INC.

FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010

INDEX TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS

	CONTENTS
Report of Independent Registered Public Accounting Firm		F-2
Consolidated Financial Statements:
Consolidated Balance Sheets		F-3
Consolidated Statements of Operations		F-4
Consolidated Statements of Stockholders’ (Deficit) Equity		F-5
Consolidated Statements of Cash Flows		F-6
Notes to Consolidated Financial Statements		F-7

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and

Stockholders of Inuvo, Inc.

We have audited the accompanying consolidated balance sheets of Inuvo, Inc. (the Company) as of December 31, 2011 and 2010 and the related consolidated statements of operations, stockholders’ (deficit) equity, and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion of the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on the test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Inuvo, Inc. as of December 31, 2011 and 2010, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

/s/ Mayer Hoffman McCann P.C.

Clearwater, Florida

March 27, 2012

F-2

INUVO, INC.

CONSOLIDATED BALANCE SHEETS

December 31, 2011 and 2010

	2011			2010
Assets:
Current assets:
Cash	$	4,413		$	118,561
Restricted cash		475,586			140,493
Accounts receivable, net of allowance for doubtful accounts of $477,289 and $450,634, respectively		5,426,865			4,500,894
Unbilled revenue		49,196			59,881
Names database		947,882			-
Prepaid expenses and other current assets		433,601			463,958
Current assets of discontinued operations		-			50,000
Total current assets		7,337,543			5,333,787
Property and equipment, net		1,590,011			2,749,098
Other assets:
Goodwill		1,776,544			3,351,405
Intangible assets		390,000			2,511,918
Other assets		2,243			79,324
Total other assets		2,168,787			5,942,647
Total assets	$	11,096,341		$	14,025,532

Liabilities and Stockholders’ (Deficit)Equity:

Current liabilities:
Term and credit note payable – current portion	$	452,000		$	1,850,000
Accounts payable		6,198,921			5,479,796
Deferred revenue		18,083			19,921
Deferred compensation		929,428			-
Accrued expenses and other current liabilities		1,593,748			1,599,625
Current liabilities of discontinued operations		160,000			712,024
Total current liabilities		9,352,180			9,661,366

Long-term liabilities:
Term and credit notes payable – long term		2,454,303			-
Other long-term liabilities		300,124			356,509
Total long-term liabilities		2,754,427			356,509

Stockholders’ (deficit) equity:
Preferred stock, $.001 par value:
Authorized shares – 500,000 – none issued or outstanding		-			-
Common stock, $.001 par value:
Authorized shares 20,000,000, issued shares 10,422,617 and 9,110,486, respectively
Outstanding shares – 10,035,790 and 8,558,790, respectively		10,422			9,110
Additional paid-in capital		115,096,953			111,766,319
Accumulated deficit		(114,648,037	)		(105,671,666	)
Treasury stock, at cost – 386,827 and 551,696 shares, respectively		(1,469,604	)		(2,096,106	)
Total stockholders’ (deficit) equity		(1,010,266	)		4,007,657
Total liabilities and stockholders’ (deficit) equity	$	11,096,341		$	14,025,532

See accompanying reports of independent registered public accounting firms and notes to the consolidated financial statements.

F-3

INUVO, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

Years Ended December 31, 2011 and 2010

	2011			2010
Net revenue	$	35,819,996		$	48,969,847
Cost of revenue:
Affiliate expenses		18,130,731			26,817,621
Data acquisition		2,644,779			2,335,313
Merchant processing fees and product costs		56,249			102,376
Cost of revenue		20,831,759			29,255,310
Gross profit		14,988,237			19,714,537
Operating expenses:
Search costs		7,446,116			5,418,099
Compensation and telemarketing		7,670,869			10,356,682
Selling, general and administrative		5,567,103			7,627,703
Total operating expenses		20,684,088			23,402,484
Operating loss		(5,695,851	)		(3,687,947	)
Other income (expense):
Interest income		4,990			4,721
Interest expense		(335,870	)		(564,001	)
Litigation settlements		(374,800	)		-
Loss on sale of assets		(193,133	)		-
Impairment of assets		(2,630,967	)		(400,000	)
Other income		-			11,843
Other expenses, net		(3,529,780	)		(947,437	)
Loss from continuing operations before taxes on income		(9,225,631	)		(4,635,384	)
Income tax expense		(7,876	)		(2,642	)
Net loss from continuing operations		(9,233,507	)		(4,638,026	)
Income (loss) from discontinued operations net of tax expense of $0		257,136			(368,223	)
Net loss	$	(8,976,371	)	$	(5,006,249	)

Per common share data:
Basic and diluted:
Loss from continuing operations	$	(0.99	)	$	(0.55	)
Income (loss) from discontinued operations		0.03			(0.04	)
Net loss	$	(0.96	)	$	(0.59	)

Weighted average shares (basic and diluted)		9,364,038			8,496,284

See accompanying reports of independent registered public accounting firms and notes to the consolidated financial statements.

F-4

INUVO, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ (DEFICIT) EQUITY

YEARS ENDED DECEMBER 31, 2011 AND 2010

	Common Stock						Additional Paid in									Total Stockholders’
	Shares			Stock			Capital			Accumulated Deficit			Treasury Stock			(Deficit) Equity
Balances December 31, 2009		8,444,233		$	8,996		$	110,976,129		$	(100,665,417	)	$	(2,096,106	)	$	8,223,602
Forfeited restricted stock units		(6,667	)		(7	)		7			-			-			-
Additional shares issued due to reverse stock split		87			-			-			-			-			-
Issuance of common stock for compensation		121,137			121			256,779			-			-			256,900
Stock based compensation		-			-			533,404			-			-			533,404
Net loss		-			-			-			(5,006,249	)		-			(5,006,249	)

Balances December 31, 2010		8,558,790			9,110			111,766,319			(105,671,666	)		(2,096,106	)		4,007,657
Forfeited restricted stock units		(3,000	)		(3	)		3			-			-			-
Sale of stock, net of stock issuance costs		1,350,000			1,350			2,634,446			-			-			2,635,796
Issuance of common stock for litigation settlements		130,000			130			365,270			-			-			365,400
Retirement of treasury shares		-			(165	)		(626,337	)		-			626,502			-
Stock based compensation								957,252									957,252
Net loss		-			-			-			(8,976,371	)		-			(8,976,371	)

Balances December 31, 2011		10,035,790		$	10,422		$	115,096,953		$	(114,648,037	)	$	(1,469,604	)	$	(1,010,266	)

See accompanying reports of independent registered public accounting firms and notes to the consolidated financial statements.

F-5

INUVO, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

Years Ended December 31, 2011 and 2010

	2011			2010
Operating activities:
Net loss	$	(8,976,371	)	$	(5,006,249	)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation and amortization		4,213,771			5,067,982
Amortization of financing fees		108,824			-
Litigation settlements in stock		249,800
Provision for doubtful accounts		83,020			491,000
Stock based compensation		1,530,487			790,304
Deferred compensation		356,193			-
Loss on sale of assets		193,133			-
Impairment of assets		2,630,967			400,000
Loss on sale of discontinued operations		-			989,364
Change in operating assets and liabilities:
Restricted cash		(335,093	)		499,082
Accounts receivable		(1,008,991	)		(320,384	)
Prepaid expenses and other current assets		38,580			(39,247	)
Accounts payable		719,125			1,048,511
Deferred revenue		(1,838	)		(92,852	)
Accrued expenses and other current liabilities		62,581			(90,828	)
Net cash (used in) provided by operating activities from continuing operations		(135,812	)		3,736,683
Net cash used in operating activities from discontinued operations		(386,424	)		(389,699	)
Net cash (used in) provided by operating activities		(522,236	)		3,346,984

Investing activities:
Purchasing of equipment and software		(462,114	)		(659,451	)
Purchase of names database and exclusivity rights		(2,567,029	)		(2,444,598	)
Proceeds from sale of discontinued operations		-			1,434,923
Proceeds from the sale of property and equipment		-			20,018
Net cash used in investing activities		(3,029,143	)		(1,649,108	)

Financing activities:
Principal payments made on term note and capital leases		(124,843	)		(3,627,443	)
Advances from credit note		7,304,756			40,067,000
Prepaid financing fees		(130,025	)		-
Payments on credit note		(6,248,453	)		(42,862,000	)
Proceeds from issuance of common stock, net of costs		2,635,796			-
Net cash provided by (used in) financing activities		3,437,231			(6,422,443	)
Net decrease in cash		(114,148	)		(4,724,567	)
Cash, beginning of year		118,561			4,843,128

Cash, end of year	$	4,413		$	118,561
Supplemental information:
Interest paid	$	236,783		$	548,371
Income taxes paid, net	$	7,876		$	2,642
Non-cash investing activities:
Equipment under capital leases	$	-		$	19,236
Sale of assets through note receivable	$	-		$	140,472

See accompanying reports of independent registered public accounting firms and notes to the consolidated financial statements.

F-6

Inuvo, Inc.

Notes to Consolidated Financial Statements

December 31, 2011 and 2010

Note 1 – Organization and Business

Company Overview

Inuvo™, Inc. and subsidiaries (“we,” “us,” or “our”) is an Internet marketing/technology business with two segments:

●	Performance marketing, and

●	Web properties.

In 2011, management reorganized our operations along two new operating segments – performance marketing and web properties. Prior to 2011, our segments were classified as exchange and direct segments.

The performance marketing segment designs, builds, implements, manages and sells the various technology platforms and services we offer. The performance marketing segment consolidates the disparate platforms we acquired between 2002 and 2008, resulting in a single technology foundation which can serve the needs of advertiser and publisher clients within this segment. This foundation is referred to as the Inuvo Platform. The Inuvo Platform is an open, quality-controlled, lead generation marketplace designed to allow advertisers and publishers the ability to manage their consumer marketing transactions in an automated and transparent environment. In addition to the core Inuvo Platform for advertisers and publishers, we continue to sell services and license legacy platforms or directories within the performance marketing segment. Revenue is principally generated when a consumer clicks on links, fills out a lead form or purchases a product. In this segment, we must attract highly visited web publishers where competition for advertising space is driven primarily by the amount paid for each offer presented on each page viewed. We believe that greater transparency and alignment between advertisers and publishers, combined with sophisticated analytic technologies that predict fraud and target offers more effectively, will differentiate service providers in this marketplace.

The web properties segment designs, builds and manages unique offers and/or websites that generate revenue principally from the sale of products, leads and/or advertising. The web properties segment manages owned and operated websites across verticals that include local search, product shopping comparison, pre/post natal interests. The segment uses a number of online tactics designed to drive traffic to these owned and operated sites including search, affiliates, email and display marketing campaigns. In the future, we expect that a majority of such tactics will be deployed and/or tracked via the Inuvo Platform. In October 2009, we brought to market the Inuvo Platform. Within this solution, advertisers create and manage advertising campaigns, web publishers better monetize their available advertising inventory, and strategic partners and web developers have the ability to customize implementations through an application-programming interface. We believe a very important by-product of our business is the information produced both on the advertiser side, where we analyze what kind of products convert, and on the publisher side, where it analyzes what kind of websites consumers have interests in. This business intelligence allows for improved detection of fraudulent transactions and higher advertising response rates.

As described later in this section, beginning in the fourth quarter of 2010, we experienced a reduction in search marketing revenue resulting from our migration to the recently launched Yahoo!-Bing platform. While we have made adjustments to adapt to this new marketplace, we continued to experience volatility in volumes and revenue throughout 2011. As a result, our operations and liquidity have been adversely impacted. We are unable to ascertain at this time whether the volatility will continue into 2012.

Subsequent Events

On March 1, 2012, we completed our acquisition of Vertro, Inc. (“Vertro”), an Internet company that owns and operates the ALOT product portfolio. Vertro’s operations are now part of our web properties segment.

F-7

In evaluating the merger, we, and the management of Vertro, believed that the combination could create a stronger, more scalable business from which to attract advertisers, publishers and consumers. We also expect that the combination will allow for the elimination of approximately $2.4 million in overlapping operating and public company annual expenses. Other expected benefits include:

●

diversified revenue streams which will mitigate our dependence on one major customer;

●

an existing install and distribution capability through Vertro’s ALOT toolbar applications for our consumer facing innovations;

●

a stronger business from which to access both debt and capital markets to support growth; and

●

the combination of two experienced digital marketing teams.

We are in the early stages of integrating the operations of the two companies.

NYSE Amex

On May 9, 2011, we received notice from the NYSE Amex that we were below certain of the exchange’s continued listing standards due to stockholders’ equity of less than $4.0 million and losses from continuing operations and/or net losses in three of our four most recent fiscal years as set forth in Section 1003(a)(ii) of the NYSE Amex Company Guide. The exchange accepted our plan to regain compliance with the continued listing standards and in June 2011 we executed the first part of the plan by raising $2.7 million in equity. Another key component of the plan was the launching of new marketing initiatives, BargainMatch and Kowabunga! , that we believed would enhance revenues and income in the next 12 months. However, following the closing of the merger with Vertro, our stockholders’ equity then exceeded the minimum requirement of the exchange and we regained compliance with the continued listing standards. The exchange has advised us it will monitor our continued compliance for several quarters as we integrate Vertro’s operations into our company.

On May 31, 2011, we notified our outsourced telemarketing company that we were exercising our right to terminate the Master Services Agreement between the parties without cause. Pursuant to the terms of the Master Services Agreement, we were required to pay a one-time payment of $340,000 that was made in June 2011. Pursuant to this termination we wrote off a note receivable for approximately $101,000 related to the sale of property and equipment.

Liquidity

While we do not have any commitments for capital expenditures which come due within the next 12 months, our liquidity has been negatively affected throughout 2011 and into 2012, as a result of a reduction in search marketing revenue resulting from the migration by Yahoo! to the Bing platform. The integration of these two platforms caused both an unexpected disruption in search traffic purchased through the Yahoo!-Bing platform and lower revenue-per-click received from the Yahoo!-Bing platform. We have made adjustments to adapt to this new marketplace, but we continue to experience volatility in revenue that may continue in the future. In response, we implemented a cost reduction plan during the first quarter of 2011 to offset the reduced revenue which included a reduction in employees and related expenses which resulted in monthly savings of $107,000 beginning in February 2011. We have also delayed payments to publishers and vendors in the management of our cash flows. Extending these payments may affect the decision of publishers and vendors to do business with Inuvo. In September 2011, in order to further reduce our operating costs, we eliminated an additional 16 full time positions and six part-time positions. The effect of this reduction in personnel was approximately $92,000 monthly.

Additionally, our directors, executive officers and certain senior managers agreed to a deferral of cash compensation of approximately $356,000.. In the first quarter of 2011, we favorably renegotiated the outsourced call center contract reducing the monthly cost outlay of over $100,000 monthly and in the second quarter we decided to terminate the outsourcing agreement entirely. The result of that decision was a one-time termination fee of $340,000 and the forgiveness of the remainder of a note receivable associated with the sale of furniture and equipment.

F-8

On February 15, 2011, we entered into the Business Financing Agreement (the “Agreement”) with Bridge Bank, N.A. (“Bridge Bank”) (see Note 6). This Agreement provides for a revolving credit facility of up to $8.0 million and replaced the $5.0 million credit facility with Wachovia Bank, N.A. (“Wachovia”) that was scheduled to expire in March 2011. The Bridge Bank credit facility allowed us to borrow against 80% of eligible accounts receivable balances. In addition, the Bridge Bank facility provides an additional term credit of $475,000 to collateralize a stand-by letter of credit required by our corporate headquarters lease.

Effective with our merger with Vertro on March 1, 2012 (Note 17), we entered into a new Business Financing Agreement with Bridge Bank, for a $10 million accounts receivable revolving credit facility (the “Revolving Credit Line”) and a $5 million term loan (the “Term Loan”) . The Revolving Credit Line replaced our then existing $8 million revolving credit facility. The new credit facility will be used primarily to satisfy our working capital needs following the closing of the merger with Vertro, Inc. described later in this report, . As of March 1, 2012, there was approximately $4.2 million of credit available on the revolving credit facility and $0 on the term loan. Subject to the terms of the new agreement, we are entitled to obtain advances against the Revolving Credit Line up to 80% of eligible accounts receivable balances plus $1 million up to the credit limit of $10 million. In addition, subject to the terms of the agreement, we are entitled to borrow up to $5 million under the Term Loan portion of the credit facility.

We believe that with the new Business Financing Agreement and the operating benefits from the merger with Vertro (Note 17) will provide us with sufficient cash for operations over the next 12 months.

The accompanying consolidated financial statements were prepared by management on a go-forward basis and therefore do not include any adjustment to our assets or liabilities.

Discontinued Operations

During the second quarter of 2008, we made a decision to divest our MarketSmart Advertising, Inc. (“MSA”) operations and, effective August 31, 2010, we sold substantially all of the assets of MSA. In March 2010, we determined that due to market and strategic reasons to accelerate our decision to exit the negative-option marketing programs which became part of our web properties segment following the iLead Media, Inc. (“iLead”) acquisition in 2006. In July 2010, the Board of Directors approved the plan to sell our Real Estate School Online (“RESO”) business unit and in December 2010, substantially all of the assets of RESO were sold.

Note 2 – Summary of Significant Accounting Policies

a) Basis of presentation

The consolidated financial statements include our accounts and those of our wholly-owned subsidiaries. All inter-company accounts and transactions have been eliminated in consolidation.

b) Cash and restricted cash

We consider all highly liquid investments with an original maturity of three months or less at the time of purchase to be cash equivalents. Our cash deposits exceeded FDIC-insured limits at various financial institutions on December 31, 2011 and 2010 by approximately $0.0 and $4.2 million, respectively, as reported before adjustment for outstanding checks. We have not experienced any losses in such accounts. We believe we are not exposed to any significant credit risk on cash.

F-9

Prior to 2011, we had restricted cash on deposit with various merchant processors. The majority of these funds are in non-interest bearing accounts. In 2011, we collected the remaining restricted cash from the merchant processors. In 2011, we established a restricted cash account with Bridge Bank that secures a letter of credit related to our headquarter lease (see Note 6). As of December 31, 2011 and 2010, we had approximately $476,000 and $140,000, respectively, of restricted cash.

c) Revenue recognition

We recognize revenue in accordance with Accounting Standards Codification (“ASC”) ASC 605-10 Revenue Recognition-General (“ASC 605-10”). Under ASC 605-10, we recognize revenue when the following criteria have been met: persuasive evidence of an arrangement exists, the fees are fixed and determinable, no significant obligations remain and collection of the related receivable is reasonably assured.

Performance Marketing

Affiliate Network - consistent with the provisions of ASC 605-45 Revenue Recognition-Principal Agent Considerations (“ASC 605-45”), we recognize revenue as an agent in affiliate marketing transactions in which we are not the primary obligor. Accordingly, service fee revenue is recognized on a net basis because any affiliate expenses are the responsibility of our advertising customer. In certain instances, we assume the position of primary obligor and thus recognize revenue on a gross basis. Revenue is recognized when the related services are performed.

Search Network - In accordance with ASC 605-45, we record as revenue the gross amount received from advertisers and the amount paid to the publishers placing the advertisements as cost of sales. Revenue our owned networks are based on “per click” basis and is recognized once the action is taken.

Affiliate Software - We recognize revenue the month in which the software is utilized. Customers are invoiced on the first of the month for the monthly services. All overages for the month are billed at the end of the month and are included in our unbilled revenue.

Hosting Arrangements – We recognize revenue through a monthly hosting fee and additional usage fees as provided.

Web Properties

Online Membership Income – We recognize revenue from online memberships when payment is received and the service date of providing membership benefits has taken place.

Lead Sales - For lead sales, our revenue recognition varies depending on the arrangement with the purchaser. Where the arrangement provides for delivery only, revenue is recognized when the lead information is provided to the purchaser. Where the arrangement provides for compensation based on sales generated by the purchaser from the lead, we recognize revenue in the period that the purchasing company makes a sale that was derived from the lead we provided.

List Management Services - Substantially all of our revenue from list management services is recorded at the net amount of our gross billings less pass-through expenses charged to a customer. In most cases, the amount that is billed to customers exceeds the amount of revenue that is earned and reflected in our consolidated financial statements, because of various pass-through expenses. In compliance with ASC 605-45, we assess whether we or a third-party supplier is the primary obligor. We have evaluated the terms of our customer agreements and considered other key indicators such as latitude in establishing price, discretion in supplier selection and credit risk to the vendor as part of this assessment. Accordingly, we generally record revenue net of pass-through charges.

F-10

Discontinued Operations

Product Sales - For product sales in RESO, we recognized revenue when payment was received and the goods were shipped.

Pay Per Click Management Fees – We recognized revenue on pay per click management services in the month the services were performed.

d) Accounts receivable

Accounts receivable are recorded at the net realizable value and do not bear interest. The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses on our existing accounts receivable. We review our allowance for doubtful accounts quarterly. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. In determining past due or delinquent status of a customer, the aged trial balance is continually reviewed by collections and generally any accounts older than 120 days are considered delinquent.

e) Advertising and search expenses

We expense advertising costs as incurred. Advertising costs from continuing operations as included in selling general and administrative expenses for the years ended December 31, 2011 and 2010 were approximately $119,000 and $126,000, respectively. In addition, we expense search costs as incurred. Search cost advertising is the purchase of key words and phrases from search engine operators that attracts web browsers to a web site. In 2011, we increased search costs by approximately $2.0 million to $7.4 million as we focused our revenue growth on our owned and operated websites.

f) Property and equipment

Property and equipment are stated at cost, net of accumulated depreciation and amortization. Major renewals and improvements are capitalized, while replacements, maintenance and repairs which do not improve or extend the life of the respective assets are expensed as incurred. Costs of assets sold or retired and the related accumulated depreciation and amortization are eliminated from accounts and the net gain or loss is reflected in the statement of operations.

Property and equipment are depreciated on a straight-line basis over 3 years for equipment, 5 to 7 years for furniture and fixtures and 3 to 5 years for software. Leasehold improvements are amortized over the lesser of the estimated useful life of the asset or the remaining term of the lease. Depreciation and amortization expense was approximately $1.5 million and $1.8 million, respectively, for the years ended December 31, 2011 and 2010.

g) Capitalized Software Costs

We capitalize certain costs related to the acquisition and internally developed software and amortize these costs using the straight-line method over the estimated useful life of the software. The Company utilizes all developed software for internal use. We do not sell developed software. Certain development costs not meeting the criteria for capitalization are expensed as incurred.

h) Goodwill and other intangible assets

Goodwill is recorded as the difference, if any, between the aggregate consideration paid for an acquisition and the fair value of the net tangible and intangible assets acquired. In accordance with ASC 350, Goodwill and Other Intangible Assets (“ASC 350”), we test goodwill for impairment at the reporting unit level (operating segment or one level below an operating segment) on an annual basis or more frequently if we believe indicators of impairment exist. The performance of the test involves a two-step process. The first step of the impairment test involves comparing the fair values of the applicable reporting units with their aggregate carrying value, including goodwill.

We generally determine the fair value of our reporting units using the income approach methodology of valuation that includes the undiscounted cash flow method as well as other generally accepted valuation methodologies. If the carrying amount of a reporting unit exceeds the reporting unit’s fair value, we perform the second step of the goodwill impairment test to determine the amount of impairment loss. The second step of the goodwill impairment test involves comparing the implied fair value of the affected reporting unit’s goodwill with the carrying value of that goodwill (See Note 5).

F-11

We amortize our identifiable intangible assets, which result from acquisitions accounted for under the purchase method of accounting, using the straight-line method over their estimated useful lives. Tradenames are not amortized as they are believed to have an indefinite life. Tradenames are reviewed annually for impairment under ASC 350.

For the year ended December 31, 2011, we had impairments of our goodwill and other intangible assets of approximately $2.6 million as a result of exiting our call center activities. In 2010, we wrote off $92,000 of tradenames as part of the sales of Real Estate School Online and recorded an impairment loss of $400,000 associated with the Morex and Primary Ads tradenames.

i) Income taxes

We utilize the liability method of accounting for income taxes as set forth in ASC 740, Income Taxes (“ASC 740”). Under the liability method, deferred taxes are determined based on the temporary differences between the financial statement and tax bases of assets and liabilities. A valuation allowance is recorded when it is more likely than not that some of the deferred tax assets will not be realized. In assessing the need for a valuation allowance, we must project future levels of taxable income. This assessment requires significant judgment. We examine evidence related to the history of taxable losses or income, the economic conditions in which we operate, organizational characteristics, our forecasts and projections, as well as factors affecting liquidity.

We have adopted certain provisions of ASC 740. This statement clarifies the criteria that an individual tax position must satisfy for some or all of the benefits of that position to be recognized in a company’s financial statements. ASC 740 prescribes a recognition threshold of more-likely–than-not, and a measurement attribute for all tax positions taken or expected to be taken on a tax return, in order to be recognized in the financial statements.

j) Impairment of long-lived assets

In accordance with ASC 360, Property, Plant and Equipment , long-lived assets, such as property and equipment, and purchased intangibles subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of the asset is measured by comparison of our carrying amount to future undiscounted cash flows the asset is expected to generate. If such assets are considered to be impaired, the impairment to be recognized is measured as the amount by which the carrying amount of the asset exceeds our fair value.

k) Share-based compensation

We recognize share based compensation at fair value pursuant to ASC 718, Compensation- Stock Compensation (“ASC 718”) using the modified prospective transition method. The fair value of units granted is determined using market value of our common stock on the date of the grant. We estimate the fair value of all stock option awards as of the grant date by applying the Black-Scholes-Merton option pricing model and recognizes the fair value as compensation expense in earnings over the requisite service period. The use of this valuation model involves assumptions that are judgmental and highly sensitive in the determination of compensation expense and include the expected life of the option, stock price volatility, risk-free interest rate, dividend yield, exercise price, and forfeiture rate. Under ASC 718, forfeitures are estimated at the time of valuation and reduce expense ratably over the vesting period. The forfeiture rate, which is currently estimated at a weighted average of 25 percent of unvested options outstanding, is adjusted periodically based on the extent to which actual forfeitures differ, or are expected to differ, from the previous estimate.

l) Treasury Stock

The cost method was used in recording the purchase of the treasury stock. Treasury stock changes as a result of common stock acquired in the market. During 2011, we retired 164,869 treasury shares.

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m) Net loss per share

During the periods presented, we had securities that could potentially dilute basic earnings per share in the future, but were excluded from the computation of diluted net loss per share, as their effect would have been anti-dilutive. Because we reported a net loss for all periods presented, shares associated with stock options, warrants and restricted stock are not included because they are anti-dilutive. Basic and diluted net loss per share is the same for all periods presented.

n) Operating segments

ASC 280, Segment Reporting, requires disclosures of certain information about operating segments, products and services, geographic areas in which we operate, and their major customers. We have evaluated the effect of this standard and have determined that we currently operate in two segments, as defined in this statement (See Note 16).

0) Concentration of credit risk

Financial instruments that potentially expose us to concentrations of risk consist primarily of cash and cash equivalents and accounts receivable, which are generally not collateralized. Our policy is to place our cash and cash equivalents with high credit quality financial institutions in order to limit the amount of credit exposure. We do not require collateral from our customers, but our credit extension and collection policies include monitoring payments and aggressively pursuing delinquent accounts. We maintain allowances for potential credit losses.

p) Risks and concentrations

When assessing credit risk, we consider whether the credit risk exists at both the individual and group level. Consideration is given to the activity, region and economic characteristics when assessing if there exists a group concentration risk. The following disclosures were calculated based on our entire results. At December 31, 2011 and 2010, we had one individual customer with accounts receivable balances greater than 10% of the gross accounts receivable from continuing operations. This customer owed approximately $4.8 million or 81.1% of gross accounts receivable from continuing operations at December 31, 2011 and approximately $3.0 million or 57.7% at December 31, 2010. This same customer contributed approximately $31.1 million or,86.6%, of total net revenue from continuing operations for year ended December 31, 2011 and approximately $39.3 million, or 80.3%, of our total net revenue from continuing operations for the year ended December 31, 2010.

q) Fair value of financial instruments

We have adopted ASC 820, Fair Value Measurements and Disclosures (“ASC 820”) for our financial assets and liabilities. Management uses the fair value hierarchy of ASC 820, which gives the highest priority to quoted prices in active markets. The fair value of financial instruments is estimated based on market trading information, where available. Absent published market values for an instrument or other assets, management uses observable market data to arrive at our estimates of fair value. Management believes that the carrying amount of accounts receivable, accrued expenses and long-term debt approximate fair value.

F-13

ASC 820 defines fair value as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, ASC 820 establishes a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. The three levels of inputs used to measure fair value are as follows:

Level 1

Quoted prices in active markets for identical assets or liabilities.

Level 2

Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted price for identical or similar assets and liabilities in markets that are not active; or other input that are observable or can be corroborated by observable market data.

Level 3

Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

As of December 31, 2011, we have no financial assets or liabilities that were measured at fair value on a recurring basis.

r) Use of estimates

The preparation of our consolidated financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the consolidated financial statements and the reported amounts of net revenue and expenses in the reporting period. We regularly evaluate estimates and assumptions related to allowances for doubtful accounts, useful lives of property and equipment, goodwill and purchased intangible asset valuations and lives, deferred income tax asset valuation allowances, stock compensation, and valuation of stock option and warrants. We base our estimates and assumptions on current facts, historical experience and on various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. The actual results experienced by us may differ materially and adversely from management’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.

s) Litigation and settlement costs

From time to time, we are involved in disputes, litigation and other legal actions. In accordance with ASC 450, Contingencies , we record a charge equal to at least the minimum estimated liability for a loss contingency when both of the following conditions are met: (i) information available prior to issuance of the consolidated financial statements indicates that it is probable that an asset had been impaired or a liability had been incurred as of the date of the consolidated financial statements and (ii) the range of loss can be reasonably estimated (See Note 15).

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t) Recent accounting pronouncements

ASU 2011-08 — In September 2011, the FASB issued “Intangibles-Goodwill and Other: Testing Goodwill for Impairment” to simplify the goodwill impairment test. The change allows companies to first decide whether they need to do the two-step test by allowing companies to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. This amendment also includes examples of how the amended test should be carried out. This amendment is effective for annual and interim tests performed for fiscal years beginning after December 15, 2011, although early adoption is permitted. The effect of adopting this statement is not expected to have an impact on our financial position or results of operations.

Other recent accounting pronouncements issued by the FASB, the AICPA, and the SEC did not or are not believed by management to have a material impact on our present or future consolidated financial statements.

N ote 3 – Allowance for Doubtful Accounts

The activity in the allowance for doubtful accounts was as follows during the years ended December 31, 2011 and 2010:

	2011			2010
Balance at the beginning of the year	$	450,634		$	1,344,648
Provision for bad debts		83,020			491,000
Charge-offs		(132,753	)		(1,385,014	)
Recoveries		76,388			-
Balance at the end of the year	$	477,289		$	450,634

Note 4– Property and Equipment

The net carrying value of property and equipment at December 31, 2011 and 2010 was as follows:

	2011			2010
Furniture and fixtures	$	427,121		$	427,121
Equipment		2,005,505			3,078,393
Software		5,469,804			5,514,375
Leasehold improvements		310,416			321,873
Subtotal		8,212,846			9,341,762
Less: accumulated depreciation and amortization		(6,622,835	)		(6,592,664	)
Total	$	1,590,011		$	2,749,098

F-15

Note 5 – Intangible Assets and Goodwill

During 2011, we tested all reporting units for potential impairment during step 1 of our analysis. Based on the results of step 1, there were indications of impairment within our web properties segment primarily due to the cessation of our call center activities in 2011. We completed step 2 of the analysis on the intangible assets in our web properties and we determined that there was an impairment of our goodwill and names database and consequently we recognized an impairment charge of approximately $2.6 million. Additionally, in fiscal 2012 we will amortize the names database costs over nine months as management has determined that the useful life for our names database has decreased due to the cessation of our call center operations. We will apply this change in estimate prospectively.

During 2010, we tested all reporting units for impairment. Based on the results of these tests, there were no indications of impairment. However in 2010, the tradenames associated with Morex and Primary Ads were impaired because we are no longer using these names and consequently, we recorded an impairment loss of $400,000.

The following is a schedule of our intangible assets from continuing operations as of December 31, 2011:

	Term	Carrying Value		Accumulated Amortization and Impairment			Net Carrying Value
Names database (1)	9 months	$	16,130,086	$	(15,182,204	)	$	947,882
Website development	5 Years		4,210,000		(4,210,000	)		-
Customer lists	5 Years		3,500,000		(3,500,000	)		-
Exclusivity agreement	1 Year		150,000		(150,000	)		-
Tradenames (1)	Indefinite		390,000		-			390,000
Total intangible assets		$	24,380,086	$	(23,042,204	)	$	1,337,882
Goodwill		$	3,893,405	$	(2,116,861	)	$	1,776,544

The following is a schedule of our intangible assets from continuing operations as of December 31, 2010:

	Term	Carrying Value		Accumulated Amortization and Impairment			Net Carrying Value
Names database (1)	1-2 Years	$	13,563,058	$	(11,600,097	)	$	1,962,961
Website development	5 Years		4,210,000		(4,110,729	)		99,271
Customer lists	5 Years		3,500,000		(3,477,814	)		22,186
Exclusivity agreement	1 Year		150,000		(112,500	)		37,500
Tradenames (1)	Indefinite		390,000		-			390,000
Total intangible assets		$	21,813,058	$	(19,301,140	)	$	2,511,918
Goodwill		$	3,893,405	$	(542,000	)	$	3,351,405

___________

(1)

Amortization of Names Database included in cost of revenue for the years ended December 31, 2011 and 2010 was approximately $2.5 million and $2.0 million, respectively. As of January 1, 2012, the names database will be amortized over nine months due to the change in our estimate of useful life. The change in estimate resulted in the names database being classified as current in the 2011 consolidated balance sheet. Per ASC 250, Accounting Changes and Error Corrections , this change in estimate does not require a restatement in amounts in prior periods and will only change classifications prospectively. We do not amortize the carrying value of our Tradenames.

Our amortization expense over the next five years is as follows:

2012	$	947,882
2013		-
2014		-
2015		-
2016		-
Total	$	947,882

F-16

Note 6 - Notes Payable

The following table summarizes our notes payable balance as of December 31, 2011 and 2010:

Lender	Due Date	Interest Rate	2011			2010
Bridge Bank – term note	February 2013	Prime + 2 percentage points	$	475,000		$	-
Bridge Bank – credit facility	February 2013	Prime + 2 percentage points		2,431,303			-
Wachovia Bank – credit note	March 2011	LIBOR + 7%		-			1,850,000
Totals				2,906,303			1,850,000
Less: Term and credit facility payable – current portion				(452,000	)		(1,850,000	)
Term and credit facility – long-term			$	2,454,303		$	-

Principal Payments Due

Principal payments due are as follows as of December 31, 2011:

2012	$	452,000
2013		1,333,333
2014		1,120,970
Total	$	2,906,303

Bridge Bank Credit and Term note Payable

On February 15, 2011, we entered into a two-year Business Financing Agreement (the “Agreement”) with Bridge Bank, N.A. (“Bridge Bank”). This Agreement provides for a revolving credit facility of up to $8.0 million and replaces the $5.0 million credit facility with Wachovia Bank, N.A. (“Wachovia”) that was scheduled to expire in March 2011. The Bridge Bank credit facility allows us to borrow against 80% of eligible accounts receivable balances, which are generally those balances owed by U.S. based customers that are less than 90 days from the date of invoice. In addition, the Bridge Bank facility provides an additional term note payable of $475,000 to collateralize a stand-by letter of credit required by our corporate headquarters lease. The $475,000 of proceeds from the term note payable is included in restricted cash as of December 31, 2011. Under the terms of the Agreement, we must maintain certain depository, operating and investment accounts at Bridge Bank; provide Bridge Bank a first priority perfected security interest in all of our accounts and personal property; provide various monthly, quarterly and annual reports; limit additional indebtedness to $500,000 of purchase money including capital leases and an additional $500,000 of all other indebtedness; and maintain “operating profit” of net income plus interest and taxes plus non-cash expenses for amortization, depreciation, stock based compensation, discontinued operations and non-recurring items of not less than $100,000 for the immediate proceeding three month period. At the closing of the Agreement several fees were paid including a facility fee of $20,000 (0.25% of the maximum credit limit), a due diligence fee of $800, a fee-in-lieu-of-warrant of $21,250 and a non-formula facility fee of $4,750. The facility fee is due annually. A maintenance fee of .125% of the average daily balance and the finance charge (Prime Rate plus 2 percentage points) are due monthly (5.25% at December 31, 2011). The Prime Rate was 3.25% at December 31, 2011. As of December 31, 2011, there was approximately $2,431,000 outstanding under the revolving credit facility and there was no additional availability under the Agreement.

On June 2, 2011, we entered into a Business Financing Modification Agreement with Bridge Bank effective May 25, 2011 pursuant to which $1.0 million of the revolving line of credit was converted to a nonformula sublimit of availability that would mature in 240 days. In order to secure this additional availability, a member of our board of directors, provided a backup letter of credit to Bridge Bank in the amount of $1.0 million. In connection therewith, we entered into a Reimbursement and Security Agreement with the same board member pursuant to which we granted him a second position security interest in and to our assets and agreed to reimburse him should Bridge Bank be required to draw against the backup letter of credit provided by him. We drew down on this additional availability and used it for our working capital needs. It was fully repaid on June 23, 2011.

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At June 30, 2011, we were not in compliance with the covenant to maintain an operating profit of not less than $100,000 (see above) required by the Bridge Bank credit facility primarily due to a one-time payment of $340,000 to exit our outsourcing call center contract (see Note 1). We received a waiver from Bridge Bank for non-compliance with the covenant for the months ending June 30, 2011, July 31, 2011 and August 31, 2011.

At December 31, 2011, we were not in compliance with the covenant to maintain operating profit of not less than $100,000 due to the costs we incurred with respect to the merger with Vertro. We were not in compliance with our debt covenants at December 31, 2011 due to the inclusion of our merger costs in our operating expenses. We renegotiated a new agreement with Bridge Bank (Note 17) on March 1, 2012 which negated a final waiver requirement from Bridge Bank on the non-compliance with the covenant as of December 31, 2011.

Wachovia Credit and Term Notes Payable

In December 2009, we entered into the Second Amended and Restated Loan Agreements with Wachovia pursuant to which we restructured our obligations with Wachovia to reallocate the amounts owed to the bank between the term note and the credit note and to extend the due date of the remaining portion of the obligations. Under the terms of the Second Amended and Restated Loan Agreements ("Amended Loan Agreement"), which superseded all prior loan agreements with Wachovia, we issued Wachovia the Second Amended and Restated Revolving Credit Promissory Note in the principal amount of $5.3 million (the “Credit Note”) and the Second Amended and Restated Term Promissory Note in the principal amount of approximately $4.1 million (the “Term Note”). Both the Credit Note and Term Note bore interest at the rate of LIBOR plus 7%, with a floor of 7%, (7.26% at December 31, 2010 and were due on March 31, 2011. Prior to the restructure, we owed Wachovia approximately $6.4 million under the previous credit note, with a maximum borrowing of $8,000,000. As described below, the maximum borrowing was reduced by $2.7 million and reallocated to the balance of the Term Note. We were permitted to have aggregate principal advances outstanding under this Credit Note of the lesser of (i) $5.3 million or (ii) 80% of eligible accounts receivable less reserves plus an “over-advance” of $2.1 million through May 31, 2010, after which the “over advance” was reduced to $700,000 at January 1, 2011, and remained at that level through the cancellation in February 2011. Prior to the restructure, we owed Wachovia approximately $1.4 million under the previous term note. As part of the restructure, this amount was increased by $2.7 million. Our obligations under the loan agreement and the notes were secured by a first priority lien, in favor of Wachovia, on all of our assets, including the stock of each of the operating subsidiaries, were subject to certain financial covenants.

We further agreed to reduce the amounts owed Wachovia by approximately $100,000 at closing, $400,000 on or before December 31, 2009 and $500,000 split between March 31, 2010 and July 31, 2010. In addition, 25% of all net proceeds from equity sales made by us after July 31, 2010 and 100% of the net proceeds from the sale of any collateral or subsidiary were used to further reduce our obligations to Wachovia. Under the terms of the loan agreement, we used funds from the exercise of warrants as previously disclosed and from the sale of our stock for these reductions, The amounts due under the notes could have been accelerated if an event of default had occurred as described in the notes, and our outstanding letter of credit of $475,000 would have been terminated or replaced by the maturity date of the notes. The availability under the Credit Note was reduced by the outstanding balance of any letters of credit.

Per the Amended Loan Agreement, we were required to calculate our borrowing base monthly based on eligible accounts receivable. Our outstanding balance on the Credit Note as of December 31, 2010 was approximately $1.9 million. In addition, we had $475,000 under a letter of credit with our landlord as of December 31, 2010. The Credit Note availability is calculated as principal less the outstanding balance less the outstanding letters of credit. As of December 31, 2010, our availability under our Credit Note was approximately $2,575,000. As of December 31, 2010, our outstanding balance on the Term Loan was $0.

In March 2010, we entered into a First Amendment to the Amended Loan Agreement and the Credit Note with Wachovia Bank, which modified certain terms including i) the acceleration of a scheduled principal payment of $250,000 due on July 31, 2010 to March 29, 2010, ii) reducing the $5.3 million Credit Note to $5.0 million over the term of the agreement, iii) reducing the over-advance provided in the Credit Note from $2.1 million to $700,000 over the term of the agreement ($1.3 million at December 31, 2010) and iv) changing to the covenants as reflected below.

In September 2010, we entered into a Second Amendment to the Amended Loan Agreement with Wachovia to add back any loss or closing expenses or deduct any gain, related to the sale of various discontinued operations, in the calculation of the financial covenants as defined below.

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Note 7 – Accrued Expenses and Other Current Liabilities

The accrued expenses and other current liabilities consist of the following at December 31, 2011 and 2010:

	2011		2010
Accrued expenses	$	1,401,521	$	748,515
Accrued search costs		109,706		697,510
Accrued affiliate expenses		16,570		11,949
Accrued payroll liabilities		8,370		13,927
Capital lease – current portion		57,581		127,724
Total	$	1,593,748	$	1,599,625

Note 8 – Other Long-Term Liabilities

Other long-term liabilities consist of the following at December 31, 2011 and 2010:

	2011		2010
Capital lease – net of current portion	$	16,655	$	71,356
Deferred rent		283,469		285,153
Total	$	300,124	$	356,509

Note 9 – Income Taxes

Provision (Benefit) for Income Taxes

The provision for income taxes consists of the following:

	2011		2010
Current tax provision	$	-	$	-
Deferred tax (benefit) provision		-		-
Total tax (benefit) provision	$	-	$	-

A reconciliation of the expected Federal statutory rate of 34% to our actual rate as reported for each of the periods presented is as follows:

	2011			2010
Expected statutory rate		(34	)%		(34	)%
State income tax rate, net of federal benefit		(4	)%		(4	)%
Permanent differences		2	%		4	%
Valuation allowance		36	%		34	%
		-			-

F-19

Deferred Income Taxes

Deferred income taxes are the result of timing differences between book and tax basis of certain assets and liabilities, timing of income and expense recognition of certain items and net operating loss carry-forwards.

We assess temporary differences resulting from different treatments of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are recorded in the consolidated balance sheets. We evaluate the realizability of our deferred tax assets and assess the need for a valuation allowance on an ongoing basis. In evaluating our deferred tax assets, we consider whether it is more likely than not that the deferred income tax assets will be realized. The ultimate realization of deferred tax assets depends upon generating sufficient future taxable income prior to the expiration of the tax attributes. In assessing the need for a valuation allowance we must project future levels of taxable income. This assessment requires significant judgment. We examined the evidence related to a recent history of tax losses, the economic conditions in which we operate, recent organizational changes and, our forecasts and projections. As a result, we were unable to support a conclusion that it is more likely than not that any of our deferred tax assets will be realized. We therefore have recorded a full valuation for the net deferred tax assets as of December 31, 2011 and 2010.

We will continue to evaluate our deferred tax assets to determine whether any changes in circumstances could affect the realization of their future benefit. If it is determined in future periods that portions of our deferred income tax assets satisfies the realization standard, the valuation allowance will be reduced accordingly. The 2011 net increase of approximately $3.5 million in valuation allowance related to deferred tax assets from operating loss carryforwards.

The following is a schedule of the deferred tax assets and liabilities as of December 31, 2011 and 2010:

	2011			2010
Deferred tax assets:
Net operating loss carry forward	$	8,331,000		$	5,871,000
Intangible assets		5,499,000			4,984,000
Deferred rent		177,000			381,000
Depreciation		299,000			272,000
Allowance for doubtful accounts		257,000			406,000
Accrued expense		257,000			-
Stock based expenses		942,000			324,000
Other		220,000			214,000
Subtotal		15,982,000			12,452,000
Less valuation allowance		(15,982,000	)		(12,452,000	)
Total		-			-
Less: current portion		-			-
Non-current portion		-			-

Deferred tax liabilities:
Depreciation		-			-
Intangibles		-			-
Total		-			-
Less: current portion		-			-
Non-current portion		-			-
Total deferred tax assets (liabilities)		-			-

The net operating losses amounted to approximately $21.8 million and expire beginning 2022 through 2031.

Under the Internal Revenue Code of 1986, as amended, these losses can be carried forward twenty years. We have approximately $2.5 million of carry forward deductions from 2006 relating to stock options exercised as of December 31, 2011.

The adoption of provisions, required by ASC 740, did not result in any adjustments.

We are currently open to audit under the statute of limitations by the Internal Revenue Service for the years ending December 31, 2007 through 2011. We and our subsidiaries state income tax returns are open to audit under the statute of limitations for the years ending December 31, 2007 through 2011.

We recognize interest and penalties related to income taxes in income tax expense. We have incurred no penalties and interest for the years ended December 31, 2011 and 2010.

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Note 10 - Stock-Based Compensation

The stock option program is a long-term retention program that is intended to attract, retain and provide incentives for talented employees, officers and directors, and to align stockholder and employee interests. We consider our option programs critical to our operation and productivity. Currently, we grant options and restricted stock awards ("RSAs") from the 2005 Long-Term Incentive Plan ("2005 LTIP") and the 2010 Equity Compensation Plan (“2010 ECP”), approved by the shareholders on June 18, 2010. Option and restricted stock unit vesting periods are generally zero to three years.

On September 23, 2011, all unexpired stock options had their expiration term extended by 5 years from the date of grant. The extension of the termination period for these stock options increased the expected life of the options by approximately one year and accordingly increased the fair market value of these stock options by approximately $283,000 of which $117,000 was related to fully vested stock options and was recorded as a charge during the year ended December 31, 2011. The remaining $166,000 will be expensed over the remaining vesting periods.

As of December 31, 2011, we reserved 785,588 shares of common stock for issuance under the 2010 ECP and 1.0 million shares of common stock under our 2005 LTIP

The following table summarizes all stock based compensation grants as of December 31, 2011:

	Stock Options		RSA's		Available Shares		Total
2010 ECP		667,705		109,796		8,087		785,588
2005 LTIP		691,012		216,754		92,234		1,000,000
Total		1,358,717		326,550		100,321		1,785,588

The fair value of restricted stock units is determined using market value of the common stock on the date of the grant. The fair value of stock options is determined using the Black-Scholes-Merton valuation model. The use of this valuation model involves assumptions that are judgmental and highly sensitive in the determination of compensation expense and include the expected life of the option, stock price volatility, risk-free interest rate, dividend yield, exercise price, and forfeiture rate. Under ASC 718, “Accounting for Stock Options and Other Stock Based Compensation,” forfeitures are estimated at the time of valuation and reduce expense ratably over the vesting period. The forfeiture rate, which is estimated at a weighted average of 25% of unvested options outstanding, is adjusted periodically based on the extent to which actual forfeitures differ, or are expected to differ, from the previous estimate.

In 2011, we granted options to purchase 40,000 shares of common stock under the 2005 LTIP with an average exercise price of $2.05 per share. We also granted options to purchase 300,000 shares of common stock under the newly adopted 2010 ECP with an average exercise price of $2.93 per share.

We recorded stock-based compensation expense for all equity incentive plans of approximately $957,000 and $790,000 for the years ended December 31, 2011 and 2010, respectively.

At December 31, 2011, the aggregate intrinsic value of all outstanding options was $0 with a weighted average remaining contractual term of 8.0 years, of which 629,043 of the outstanding options are currently exercisable with an aggregate intrinsic value of $0, a weighted average exercise price of $3.03 and a weighted average remaining contractual term of 7.4 years. There were no options exercised during the years ended December 31, 2011 and 2010. The total compensation cost at December 31, 2011 related to non-vested awards not yet recognized was approximately $1,144,000 that will be recognized over a weighted-average recognition period of .84 years. The total fair value of options vested during 2011 and 2010 was approximately $466,000 and $1.1 million, respectively.

F-21

The following table summarizes information about stock option activity during the years ended December 31, 2011 and 2010:

	2011					2010
	Options			Weighted Average Exercise Price		Options			Weighted Average Exercise Price
Outstanding, beginning of year		1,223,159		$	3.74		987,963		$	5.70
Granted		340,000		$	2.83		527,238		$	2.46
Forfeited or expired		(204,442	)	$	6.61		(292,042	)	$	4.47
Exercised		-		$	-		-		$	-
Outstanding, end of year		1,358,717		$	2.81		1,223,159		$	3.74
Exercisable, end of year		629,043		$	3.03		372,663		$	6.94

The weighted average grant date fair value of options granted during 2011 and 2010 were $2.83 and $2.46, respectively.

The following table summarizes information about stock options outstanding as of December 31, 2011, which includes 667,705 2010 ECP options, 691,012 2005 LTIP options:

Range of Exercise Price		Shares		Weighted Average Remaining Contractual Life ( Years)		Weighted Average Exercise Price
$	1.70 – $3.00		1,280,467		8.10	$	2.57
$	3.01 - $9.99		78,250		6.47		6.75
$	10.00 - $25.00		-		-		-
$	25.01 - $53.00		-		-		-
Total			1,358,717		8.00	$	2.81

In accordance with ASC 718, the fair values of options granted prior to adoption and determined for purposes of disclosure under ASC 718 have not been changed. The fair value of options granted was estimated assuming the following weighted averages:

	2011			2010
Expected life (in years)		4.90			5.00
Volatility		163.4	%		164.0	%
Risk free interest rate		1.96	%		1.82	%
Dividend yield		0.00	%		0.00	%

Expected volatility is based on the historical volatility of our common stock over the period commensurate with or longer than the expected life of the options. The expected life of the options is based on the vesting schedule of the option in relation to the overall term of the option. The risk free interest rate is based on the market yield of the U.S. Treasury Bill with a five year term. We do not anticipate paying any dividends so the dividend yield in the model is zero.

F-22

Deferred Compensation and Stock Compensation

During the year ended December 31, 2011, our executive officers, certain of our senior management and our board of directors, voluntarily elected to defer a portion of their compensation. The amount of the deferred compensation was approximately $418,000 for our executive officers and senior management and $72,000 for our board of directors. As an incentive for officers, management and directors to participate in the elected deferrals, we granted them RSAs with a fair value equal to the amount of the deferred compensation, with the exception of the board of directors as they received approximately $36,000 in RSA’s. We paid approximately $15,000 of these deferred amounts in 2012 with the remaining amounts paid in our common stock. The RSAs will vest upon the earlier of payment of the deferred compensation or one year from the date of grant. The number of RSAs granted in conjunction with the deferred compensation program was 326,291 for the year ended December 31, 2011 and were granted at an exercise price ranging from $1.09 per share to $2.94 per share on the date of each grant. As of December 31, 2011, none of the shares of restricted stock granted in connection with these elected deferrals were issued. Of these amounts, approximately $573,000 was recorded as stock compensation expense.

In 2010, we issued an aggregate of 112,422 shares of our common stock valued at approximately $232,500 to our executive officers and certain of our senior management in lieu of cash compensation. The value of the shares equaled the fair market value of our common stock on the date of issuance. Additionally in 2010, we issued an aggregate of 8,715 shares of our common stock valued at approximately $24,000 to our board of directors in lieu of cash compensation. The value of these shares equaled the fair market value of our common stock on the date of issuance. The recipients were accredited or otherwise sophisticated individuals who had such knowledge and experience in business matters that they were capable of evaluating the merits and risks of the prospective investment in our securities. The recipients had access to business and financial information concerning us. The securities were issued in reliance on an exemption from registration provided by Section 4(2) of the Securities Act of 1933.

Note 11 – Stockholder’s Equity

Stock Split

On December 10, 2010, we undertook a 1 for 10 reverse stock split of our common stock. As a result, we reduced the number of our authorized shares of common stock from 200,000,000 shares to 20,000,000 shares and reduced the number of authorized shares of “blank check” preferred stock from 5,000,000 shares to 500,000 shares.

Treasury Stock

At December 31, 2010, we had 551,696 shares of stock in our treasury at a combined total value of approximately $2.1 million. The cost method was used in recording the purchase of the treasury stock. During 2011, we retired 164,869 shares of our common stock held in treasury valued at approximately $627,000.

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Sale of Common Stock

On June 20, 2011, we entered into Subscription Agreements with 17 institutional and accredited investors, several of which are affiliated entities, for the sale of 1,350,000 shares of our common stock, together with immediately exercisable five year warrants to purchase up to an aggregate of 675,000 shares of common stock, resulting in gross proceeds to us of $2,700,000. Each warrant entitles the investor to purchase 0.50 shares of our common stock for every share of common stock purchased by such investor in the offering. The purchase price for each share of common stock and the related warrants was $2.00. Each warrant has an exercise price of $2.20 per share which is subject to adjustments in the case of stock splits, stock dividends, combinations of shares and similar recapitalization transactions. This offering was priced at the close of market on June 20, 2011 and was conducted as a takedown from our shelf registration statement which was declared effective by the SEC in April 2011. A portion of the proceeds from the sale the common stock were used to repay the $1 million non-formula revolving line of credit secured by a board member.

Warrants Outstanding

As of December 31, 2011, we had outstanding warrants for the potential issuance of 767,000 shares of common stock. Exercise price ranges from $1.50 to $32.80 as of December 31, 2011. These warrants were primarily issued in connection with private placements. All of these warrants are exercisable for five years from the date of grant.

The following table summarizes information about stock warrants outstanding as of December 31, 2011:

Range of Exercise Price		Shares		Weighted Average Remaining Contractual Life (Years)		Weighted Average Exercise Price
$	1.50 - $15.00		765,000		4.38	$	2.47
$	15.01 - $32.80		2,000		0.07		32.80
Total			767,000		4.38	$	2.55
Exercisable			767,000		4.38	$	2.55

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Note 12 – Discontinued Operations

During the second quarter of 2008, we made a decision to divest our MSA operations and ceased operations of our Web Diversity subsidiary. On March 1, 2010, we, as a result of market and strategic reasons, accelerated our decision to exit the negative-option marketing programs which was part of our web properties Segment with the acquisition of iLead in 2006. As a result in this change to the iLead business, we deemed all remaining intangible assets associated with this business as of December 31, 2009 to be impaired. On June 3, 2010, we entered into an Asset Purchase Agreement (the “Agreement”) with Omega Direct Marketing, LLC (“Omega”) to sell all of the gross assets of our Exact Supplements, LLC. Business (“Exact”). The purchase price is 50% of all monthly revenues for the immediate 12 months after the date of the Agreement, less specific costs as defined in the Agreement for revenue from the sold customer base. We shall recognize gains from the sale of Exact only upon receipt of monies per the Agreement. During the year ended December 31, 2011 and 2010, we did not recognize any gain or loss from this sale. Additionally, as all assets of Exact were written off as of December 31, 2009 and, therefore, no gain or loss was recognized on the sale of Exact.

On September 24, 2010, we sold the assets of MSA and our related companies Rightstuff, Inc. and Checkup Marketing, Inc., all North Carolina corporations which are wholly-owned subsidiaries of Inuvo, Inc. The purchase price of the assets was $766,636, of which $247,147 was paid at closing and the balance was paid in three equal installments of $173,163 each during the 90 days following the closing. Under the terms of the agreement, the purchaser also assumed certain liabilities related to the purchased assets. To ensure orderly transition of the business, we agreed to provide the purchaser with hosting services at no cost for 90 days following the closing. The agreement contains customary indemnification, non-disclosure and non-solicitation provisions. All the proceeds received from the sale of MSA were used to reduce the term note with Wachovia. Additionally, we reported a non-cash charge in discontinued operations of approximately $1.5 million for the loss on the sale for the year ended December 31, 2010.

In July 2010, the Board of Directors approved the plan to sell our RESO business unit. On December 10, 2010, we closed the sale of the assets of RESO. The purchase price of the assets was $750,000, of which all was paid at closing less $31,716 working capital adjustment and $50,000 held in escrow for a period of one year that was paid in December 2011. Earlier in 2010, we announced our intention to sell the business and we accounted for the subsidiary as a discontinued operation since that time. To ensure an orderly transition of the business, we agreed to provide transitional services until April 15, 2011 and received a fee of $107,204 paid in five equal monthly installments. The Asset Purchase Agreement contains customary indemnification, non-disclosure and non-solicitation provisions. All the proceeds from the sale were used to reduce the term note with Wachovia. In addition, we reported a gain on the sale of RESO in discontinued operations of approximately $500,000.

The table below summarizes unaudited financial results for the assets classified as held for sale which is comprised primarily of our MSA, iLead and RESO business units for the years ended December 31, :

	Years Ended
	2011		2010
Revenue	$	-	$	7,805,231
Income from discontinued operations before loss on sale		257,136		621,140
Loss on sale of discontinued operations		-		(989,364	)
Income (loss) from discontinued operations	$	257,136	$	(368,224	)

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Note 13 – Retirement Plan Costs

We sponsor a defined contribution plan to help eligible employees provide for retirement. We began matching employees’ contributions in 2007 up to 50% of employee eligible contributions up to 6%. During 2010, we suspended matching contributions. There were no matching contributions for the years ended December 31, 2011. Matching contributions for 2010 were approximately $43,000.

Note 14 - Leases

We lease certain office space and equipment. As leases expire, it can be expected that, in the normal course of business, certain leases will be renewed or replaced.

Rent expense from continuing operations was approximately $824,000 and $800,000 for the years ended December 31, 2011 and 2010, respectively.

Minimum lease payments under non-cancelable operating leases as of December 31, 2011 are:

2012	$	850,960
2013		880,271
2014		905,143
2015		692,422
2016		-
Thereafter		-

In 2010, we subleased a portion of our offices in our headquarters to a third-party telemarketing firm. The term of the sublease was for 36 months and required equal monthly payments of approximately $20,000 per month. In June 2011, we ceased our call center activities as part of our BabytoBee business and we cancelled the sublease agreement with the telemarketing firm.

Note 15 - Commitments and Contingencies

Litigation and Settlement

We were a party to litigation with a former director, John Giura, pursuant to which Mr. Giura filed an action alleging that we breached a consulting agreement. On April 1, 2011, we entered into an agreement to settle this litigation wherein we agreed to pay $25,000 and issue 40,000 shares of our common stock valued at $114,800 in full settlement of all claims in this lawsuit. We recorded a one-time charge of approximately $140,000 related to this settlement and it is included in litigation settlement in the 2011 consolidated statement of operations.

We were also a party to litigation with an owner of property leased by a subsidiary of Inuvo pursuant to which the owner alleged a breach of a lease agreement, in addition to claims of unfair and deceptive trade practices, fraud and misrepresentation were alleged. On April 6, 2011, we entered into an agreement to settle this litigation wherein we agreed to pay a total of $340,000 in installments over the next 2 years and issued 40,000 shares of the our common stock valued at $115,600 in full settlement of all claims in this lawsuit. We recorded a one-time credit of approximately $257,000 included in income from discontinued operations net of tax expense in the 2011 consolidated statement of operations, related to this settlement due to the write-off of accrued rent

We were a party to litigation with a former employee, for alleged breach of an employment agreement and other contract and tort claims. On April 7, 2011, we entered into an agreement to settle this litigation pursuant to which we agreed to pay an aggregate of $125,000, partially covered by insurance, over six months and issue 50,000 shares of the our common stock valued at approximately $135,000 in full settlement of this litigation. We recorded a one-time charge of $235,000 related to this settlement and it is included in litigation settlement in the 2011 consolidated statements of operations.

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Note 16 - Segment Analysis

We are an Internet marketing services business separated into two reporting segments: performance marketing and web properties. The performance marketing segment includes both the technologies and networks required to facilitate business to business transactions. The web properties segment includes both the products and websites required to market to consumers online, a lead generation business and data collection and distribution.

Listed below is a presentation of the unaudited revenue, gross profit and earnings (loss) before interest, taxes, depreciation and amortization and stock based compensation for all reportable industry segments for the years ended December 31, 2011 and 2010. We currently only track certain assets at the segment level and therefore assets by segment are not presented below. The Corporate category in the “Earnings (Loss) before Interest, Taxes, Depreciation and Amortization, and Stock Based Compensation” table consists of corporate expenses not allocated to any segment.

Net Revenue by Industry Segment

	2011					2010
Segment:	Amount		Percent			Amount		Percent
Performance marketing	$	24,251,457		67.7	%	$	35,449,250		72.4	%
Web properties		11,568,539		32.3	%		13,520,597		27.6	%
Total	$	35,819,996		100.0	%	$	48,969,847		100.0	%

Gross Profit by Industry Segment

Segment:	2011		2010
Performance marketing	$	6,092,315	$	8,562,958
Web properties		8,895,922		11,151,579
Total	$	14,988,237	$	19,714,537

Earnings (Loss) before Stock-Based Compensation, Interest, Taxes, Depreciation and Amortization and Impairment Charges by Industry Segment

Segment:	2011			2010
Performance marketing	$	3,511,387		$	6,443,806
Web properties		(42,609	)		2,764,050
Corporate		(3,738,504	)		(7,026,433	)
Total	$	(269,726	)	$	2,181,423

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Note 17 – Subsequent Events

Settlement

Hypertouch, Inc. v. ValueClick, Inc., E-Babylon, Inc., Hi-Speed Media, Inc., VC E-Commerce Solutions, Inc. Webclients, Inc. and Primary Ads, Inc., Case No. LC081000 in the Los Angeles Superior Court. On April 8, 2008, Hypertouch, Inc. filed an action against us and various other defendants in the same industry. The plaintiff sought recovery for purported violations of the California anti-“spam” statute and the California unfair competition statute, alleging that we had sent 4,000 “spam” e-mails. The plaintiff is seeking $1,000 per “spam” email. After summary judgment was entered against the plaintiff, the plaintiff appealed and obtained a partial reversal; however, the appeals court upheld the portion of the order limiting plaintiff’s potential recovery to a set of 34 “spam” e-mails. In January 2012, we settled this case for $40,000 cash and recorded the settlement as part of selling general and administrative expenses in 2012.

Microchannel Technologies Ltd. v. Think Partnership, Inc.; Case No. 08-08287-CI-20, in the Circuit Court for the Sixth Judicial Circuit of Florida. This action, instituted in 2008, involves a claim for unpaid license fees by a UK publisher against Inuvo’s former UK subsidiary, Web Diversity Limited. This suit was settled in February 2012 for $7,000.

New Credit Facility and Term Loan

On March 1, 2012 we entered into a new Business Financing Agreement with Bridge Bank, for a $10 million accounts receivable revolving credit facility (the “Revolving Credit Line”) and a $5 million term loan (the “Term Loan”) . The Revolving Credit Line replaced the Company’s then existing $8 million revolving credit facility. The new credit facility will be used primarily to satisfy the working capital needs of the Company following the closing of the merger with Vertro, Inc. described later in this report, . As of March 1, 2012, there was approximately $4.2 million credit available on the revolving credit facility and $0 on the term loan. Subject to the terms of the new agreement, the Company is entitled to obtain advances against the Revolving Credit Line up to 80% of eligible accounts receivable balances, which are generally those balances owed by U.S. based customers that are less than 90 days from the date of invoice, plus $1 million up to the credit limit of $10 million. In addition, subject to the terms of the agreement, the Company is entitled to borrow up to $5 million under the Term Loan portion of the credit facility, which is repayable in 45 equal monthly installments beginning June 2012. The Revolving Credit Line portion of the credit facility expires on February 28, 2014, at which time all loan advances under the Revolving Credit Line become due and payable. The Term Loan expires in February 2016. Under the terms of the new agreement, we must maintain certain depository, operating and investment accounts at Bridge Bank; provide Bridge Bank a first priority perfected security interest in all of our accounts and personal property; provide various monthly, quarterly and annual reports; and limit additional indebtedness to $500,000 of purchase money including capital leases and an additional $500,000 of all other indebtedness. In addition, the Company must maintain through May 2012 an “operating profit” of net income plus interest and taxes plus non-cash expenses for amortization, depreciation, stock based compensation, discontinued operations, non-recurring non-cash items and certain closing costs associated with the Merger Transaction with Vertro of not less than $200,000 for the immediate proceeding three month period; after May 2012 a Debt Service Coverage Ratio of at least 1.50 to 1.0 tested on the immediate proceeding three month period; and an Asset Coverage Ratio of not less tahn1.10 to 1. At all times until September 30, 2012 and 1.25 to 1.0 thereafter. Interest on the Revolving Credit Line is payable monthly at prime plus 0.5% plus a monthly maintenance fee of 0.125 percentage points on the average daily account balance. Interest on the Term Loan bears interest at prime plus 1%. In connection with establishing the credit facility, the Company incurred fees payable to Bridge Bank of approximately $100,000. The agreement calls for a termination fee until the first anniversary and prepayment fee on the Term Loan until the first anniversary.

Completion of Acquisition or Disposition of Assets

On March 1, 2012, we completed our merger with Vertro. Pursuant to the terms and conditions of the Agreement and Plan of Merger (the “Merger Agreement”) by and among us, Anhinga Merger Subsidiary, Inc., a Delaware corporation and our wholly owned subsidiary (“Merger Sub”), and Vertro, dated October 16, 2012, Merger Sub was merged with and into Vertro, with Vertro surviving the merger (the “Merger”) and becoming our wholly owned subsidiary.

Pursuant to the Merger Agreement, we issued to Vertro stockholders 1.546 shares of our common stock for each outstanding share of Vertro common stock. The total number of our common stock issued to the Vertro shareholders was 12,713,552 shares.

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Upon completion of the Merger, our stockholders hold approximately 47.2% of our outstanding common stock, and Vertro stockholders hold approximately 52.8% of our outstanding common stock. Assuming the exercise of all the outstanding options (whether or not vested) and warrants of both us and Vertro, prior Inuvo stockholders hold approximately 50.4% of our outstanding common stock, and the Vertro stockholders hold approximately 49.6% of our outstanding common stock. Additionally, pursuant to the terms of the Merger Agreement, we increased the size of our board of directors from five members to seven members, two members of the board of directors resigned, and three former members of the Vertro board of directors were appointed to our board of directors. The board of directors expects to identify a seventh director and make the appointment within the near future.

The total purchase price for Vertro was approximately $11.5 million. We are in the process of analyzing our purchase accounting adjustment to allocate the purchase price.

Litigation

Scott Mitchell v. Inuvo. In January 2012 we were named as a defendant in an action styled S cott Mitchell versus Inuvo, Inc., f/k/a Think Partnership Inc. and Kowabunga! Inc., Does I-X , Case No. A-11-653956-C in the District Court, Clark County, Nevada. The complaint is related to our alleged failure to fully indemnify Mr. Mitchell, our former chief executive officer and member of the board of directors, pursuant to the terms of an indemnification agreement entered into in connection with his employment agreement, for attorneys’ fees and costs incurred by him related to an investigation of insider trading brought against Mr. Mitchell by the Securities and Exchange Commission. The complaint alleges that Mr. Mitchell has subsequently received correspondence from the staff of the Securities and Exchange Commission that the Commission does not intend to make any recommendation for an enforcement action against him. Under the terms of Inuvo’s directors and officers liability policy, its insurer has already paid approximately $588,000 of attorneys’ fees and costs to Mr. Mitchell’s counsel. Mr. Mitchell is seeking an additional approximately $265,000 of fees and costs which he allegedly owes to his counsel. The complaint alleges breach of contract/indemnity agreement, breach of implied covenant of good faith and fair dealing, tortious breach of the implied covenant of good faith and fair dealing, and failure to indemnify pursuant to our bylaws and the Nevada statutes. The complaint seeks a judgment against us for actual, consequential and special damages in excess of $10,000, advances of fees, costs and expenses, punitive damages, attorney’s fees and costs, pre and post-judgment interest and a determination of his rights with respect to the indemnification agreement, our bylaws and the Nevada statutes. Given the amount of recovered funds received by Mr. Mitchell, and the position of Inuvo’s insurer that any reimbursement beyond what has already been paid is unwarranted, Inuvo intends to defend this lawsuit on the basis of the scope of the applicable indemnification and the reasonableness of the fees demanded.

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NEITHER THESE SECURITIES NOR THE SECURITIES FOR WHICH THESE SECURITIES ARE EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE ACT AND IN COMPLIANCE WITH APPLICABLE STATE SECURITIES OR BLUE SKY LAWS. THESE SECURITIES AND THE SECURITIES ISSUABLE UPON EXERCISE OF THESE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.

WARRANT TO PURCHASE COMMON STOCK

Date of Issuance: As of August 1, 2009

Warrant to Purchase an Aggregate of 400,000 shares of Common Stock

FOR VALUE RECEIVED, Inuvo, Inc., a Nevada corporation (the “Corporation”), pursuant to the terms and conditions of that certain Consulting Services Agreement effective August 1, 2009 by and between the Corporation and Genesis Select Corporation (the "Holder") promises to issue in the name of, and sell and deliver to the Holder a certificate or certificates for up to an aggregate of FOUR HUNDRED THOUSAND (400,000) shares of the Corporation’s common stock, par value $0.001 per share (the “Common Stock”), following the vesting thereof upon payment by the Holder of the Exercise Prices set forth as follows.

This Warrant shall vest in 24 equal monthly increments of 16,666 shares each on the last day of each month with the initial 1/24 th increment vesting on August 31, 2009. Of the total of 400,000 shares of the Corporation’s common stock which are issuable upon the exercise of this warrant following the vesting thereof, the first 100,000 shares shall be exercisable at $0.30 per share, the next 100,000 shares shall be exercisable at $0.50 per share, the next 100,000 shares shall be exercisable at $1.00 per share and the final 100,000 shares shall be exercisable at $1.50 per share, with each such the Exercise Price being subject to adjustment in the circumstances set forth below.

Section 1.

Exercise of Warrant

1.1 Exercise Period . The Holder may exercise this Warrant, in whole or in part (but not as to fractional shares), at any time and time to time following the vesting of the various tranches thereof as set forth above and ending at 5:00 p.m., Eastern Time, on August 1, 2014 (the “Exercise Period”).

1.2 Exercise Procedure .

a. This Warrant may be exercised in whole or in part at any time during the Exercise Period, provided however , if the last day of the Exercise Period is a day on which federal or state chartered banking institutions located in the State of Florida are authorized by law to close, then the last day of the Exercise Period shall be deemed to be the next succeeding day which shall not be such a day, by presentation and surrender to the Corporation at its principal office of this Warrant accompanied by the form of Exercise Agreement attached hereto as Exhibit 1 signed by the Holder and upon payment of the Exercise Price for the Common Stock purchased thereby, by cashier's check or by wire transfer of immediately available funds.

b. Certificates for the shares of Common Stock purchased upon exercise of this Warrant will be delivered by the Corporation to the Holder within five (5) business days after the Exercise Date. Unless this Warrant has expired or all of the purchase rights represented hereby have been exercised, the Corporation will prepare a new Warrant representing the rights formerly represented by this Warrant that have not expired or been exercised. The Corporation will, within such five (5) day period, deliver such new Warrant to the Holder at the address set forth in this Warrant.

c. The shares of Common Stock issuable upon the exercise of this Warrant will be deemed to have been transferred to the Holder on the Exercise Date, and the Holder will be deemed for all purposes to have become the record holder of such Common Stock on the Exercise Date.

d. The issuance of certificates for shares of Common Stock upon the exercise of this Warrant will be made without charge to the Holder of any issuance tax in respect thereof or any other cost incurred by the Corporation in connection with such exercise and related transfer of the shares; provided, however , that the Corporation shall not be required to pay any tax that may be payable in respect of any transfer involved in the issuance and delivery of any certificate or instrument in a name other than that of the Holder of this Warrant, and that the Corporation shall not be required to issue or deliver any such certificate or instrument unless and until the person or persons requiring the issue thereof shall have paid to the Corporation the amount of such tax or shall have established to the satisfaction of the Corporation that such tax has been paid.

e. Unless the shares of Common Stock issuable upon the exercise of this Warrant have been registered under the Securities Act of 1933, as amended (the “Act”) such shares will be “restricted securities” as that term is defined in the Act. The Corporation may insert the following or similar legend on the face of the certificates evidencing shares of Common Stock if required in compliance with state securities laws:

"These securities have not been registered under any state securities laws and may not be sold or otherwise transferred or disposed of except pursuant to an effective registration statement under any applicable state securities laws, or an opinion of counsel satisfactory to counsel to the Corporation that an exemption from registration under any applicable state securities laws is available."

1.3 Fractional Shares . If a fractional share of Common Stock would, but for the provisions of Subsection 1.1, be issuable upon exercise of the rights represented by this Warrant, the Corporation will, within 30 days after the Exercise Date, deliver to the Holder a check payable to the Holder, in lieu of such fractional share, in an amount equal to the market price of such fractional share as determined by the last sale price of the Corporation’s Common Stock as reported on the NYSE Amex or the principal exchange on which the Corporation’s Common Stock is then traded, as of the close of business on the Exercise Date.

Section 2.

Effect of Stock Dividends, Reorganization, Reclassification,

Consolidation, Merger or Sale

2.1 Stock Dividends, Recapitalization or Reclassification of Common Stock. In case the Corporation shall at any time prior to the exercise or termination of this Warrant (i) pay a dividend or make a distribution of its capital stock in shares of Common Stock to all holders of shares of Common Stock, or (ii) effect a recapitalization or reclassification of such character that its Common Stock shall be changed into or become exchangeable for a larger or smaller number of shares, then, upon the effective date thereof, the number of shares of Common Stock that the Holder of this Warrant shall be entitled to purchase upon exercise hereof shall be increased or decreased, as the case may be, in direct proportion to the increase or decrease in such number of shares of Common Stock by reason of such stock dividend, recapitalization or reclassification, and the Exercise Price of such dividend, recapitalized or reclassified Common Stock shall, in the case of an increase in the number of shares, be proportionately decreased and, in the case of a decrease in the number of shares, be proportionately increased.

2.2 Consolidation, Merger or Sale . In case the Corporation shall at any time prior to the exercise of this Warrant, or the expiration of the Exercise Period, whichever first occurs, consolidate or merge with any other corporation (unless the Corporation shall be the surviving entity) or transfer all or substantially all of its assets to any other corporation preparatory to a dissolution, then the Corporation shall, as a condition precedent to such transaction, cause effective provision to be made so that the Holder of this Warrant, upon the exercise thereof after the effective date of such transaction, shall be entitled to receive the kind and amount of shares, evidences of indebtedness, and/or other property receivable on such transaction by a holder of the number of shares of Common Stock as to which the Warrant was exercisable immediately prior to such transaction (without giving effect to any restriction upon such exercise); and, in any such case, appropriate provision shall be made with respect to the rights and interests of the Holder hereof to the effect that the provisions of this Warrant shall thereafter be applicable (as nearly as may be practicable) with respect to any shares, evidences of indebtedness, or other securities or assets thereafter deliverable upon exercise of this Warrant.

2.3 Notice of Adjustment. Whenever the number of shares of Common Stock purchasable upon exercise of this Warrant shall be adjusted as provided herein, the Corporation shall file with its corporate records a certificate of its Chief Financial Officer setting forth the computation and the adjusted number of shares of Common Stock purchasable hereunder resulting from such adjustments, and a copy of such certificate shall be mailed to the Holder. Any such certificate or letter shall be conclusive evidence as to the correctness of the adjustment or adjustments referred to therein and shall be available for inspection by the holders of the Warrants on any day during normal business hours.

Section 3.

Reservation of Common Stock

The Corporation will at all time reserve and keep available such number of shares of Common Stock as will be sufficient to permit the exercise in full of this Warrant. Upon exercise of this Warrant pursuant to its terms, the Holder will acquire fully paid and non-assessable ownership rights of the Common Stock, free and clear of any liens, claims or encumbrances.

Section 4.

No Stockholder Rights or Obligations

This Warrant will not entitle the Holder hereof to any voting rights or other rights as a stockholder of the Corporation. Until the shares of Common Stock issuable upon the exercise of this Warrant are recorded as issued on the books and records of the Corporation’s transfer agent, the Holder shall not be entitled to any voting rights or other rights as a stockholder; provided, however , that the Corporation shall use its bests efforts to ensure that, upon receipt of the Exercise Agreement and payment of the Exercise Price, the appropriate documentation necessary to effectuate the exercise of the Warrant and the issuance of the Common Stock is accomplished as expeditiously as possible. No provision of this Warrant, in the absence of affirmative action by the Holder to purchase Common Stock, and no enumeration in this Warrant of the rights or privileges of the Holder, will give rise to any obligation of such Holder for the Exercise Price or as a stockholder of the Corporation.

Section 5.

Transferability

This Warrant and any rights hereunder are transferable, in whole or in part, by the Holder with the prior written consent of the Corporation, which such consent shall not be unreasonably withheld. In the event the Corporation should consent to such transfer, this Warrant and the rights under shall be transferable upon surrender of this Warrant with a properly executed Assignment in the form of Exhibit 2 hereto at the principal offices of the Corporation. The Corporation has no obligation to recognize any purported transfer of this Warrant, and the transferee is not entitled to any rights under this Warrant, until such acknowledgment has been received by the Corporation. This Warrant and the underlying shares of Common Stock may not be offered, sold or transferred except in compliance with the Act, and any applicable state securities laws, and then only against receipt of an agreement of the person to whom such offer or sale or transfer is made to comply with the provisions of this Warrant with respect to any resale or other disposition of such securities; provided that no such agreement shall be required from any person purchasing this Warrant or the underlying shares of Common Stock pursuant to a registration statement effective under the Act. The Holder of this Warrant agrees that, prior to the disposition of any security purchased on the exercise hereof other than pursuant to a registration statement then effective under the Act, or any similar statute then in effect, the Holder shall give written notice to the Corporation, expressing his intention as to such disposition. Upon receiving such notice, the Corporation shall present a copy thereof to its securities counsel. If, in the sole opinion of such counsel, which such opinion shall not be unreasonably withheld, the proposed disposition does not require registration of such security under the Act, or any similar statute then in effect, the Corporation shall, as promptly as practicable, notify the Holder of such opinion, whereupon the Holder shall be entitled to dispose of such security in accordance with the terms of the notice delivered by the Holder to the Corporation.

Section 6.

Registration Rights

The Corporation hereby grants the following registration rights to Holder of this Warrant:

6.1 Demand Registration . On one occasion, for a period commencing on August 1, 2013 and continuing until the expiration date of this Warrant, upon a written request therefor from the Holder, the Corporation shall prepare and file with the United States Securities and Exchange Commission (the “Commission”) a registration statement under the Act registering the shares of Common Stock underlying any unexercised portion of this Warrant (the “Registerable Securities”) which are the subject of such request for unrestricted public resale by the Holder or any permitted assignee of this Warrant pursuant to the provisions of Section 5 hereof. For purposes of Section 6, Registerable Securities shall not include shares of Common Stock which are (A) registered for resale in an effective registration statement, (B) included for registration in a pending registration statement, (C) which have been issued without further transfer restrictions after a sale or transfer pursuant to Rule 144 under the Act or (D) which may be resold under Rule 144

6.2 Piggy-back Registration . If the Company at any time proposes to register any of its securities under the Act for sale to the public, whether for its own account or for the account of other security holders or both, except with respect to registration statements on Forms S-4, S-8 or another form not available for registering the Registerable Securities for sale to the public, each such time it will give at least ten (10) days' prior written notice to Holder of the Registerable Securities of its intention so to do. Upon the written request of the Holder, received by the Corporation within ten (10) days after the giving of any such notice by the Corporation, to register any of the Registerable Securities not previously registered, the Corporation will cause such Registerable Securities as to which registration shall have been so requested to be included with the securities to be covered by the registration statement proposed to be filed by the Corporation, all to the extent required to permit the sale or other disposition of the Registerable Securities so registered by the Holder of such Registerable Securities. In the event that any registration pursuant to this Section 6.2 shall be, in whole or in part, an underwritten public offering of common stock of the Corporation or securities convertible or exchangeable into shares of Common Stock of the Corporation, the number of shares of Registerable Securities to be included in such an underwriting may be reduced by the managing underwriter if and to the extent that the Corporation and the underwriter shall reasonably be of the opinion that such inclusion would adversely affect the marketing of the securities to be sold by the Corporation therein; provided, however , that the Corporation shall notify the Holder in writing of any such reduction. Notwithstanding the foregoing provisions, the Corporation may withdraw or delay or suffer a delay of any registration statement referred to in this Section 6.2 without thereby incurring any liability to the Holder.

6.3 Costs of Registration . The Corporation shall pay all costs associated with the preparation and filing of the registration statements pursuant to either Section 6.1 or 6.2 hereof, except that the Holder shall be obligated to pay the fees and costs of its counsel, if any, and any commissions or discounts incurred in the sale of the Registerable Securities.

Section 7.

Miscellaneous

7.1 Notices . Any notices, requests or consents hereunder shall be deemed given, and any instruments delivered, two days after they have been mailed by first class mail, postage prepaid, or upon receipt if delivered personally or by facsimile transmission, as follows:

If to the Corporation: 15550 Lightwave Drive

Third Floor

Clearwater, FL 33760

If to the Holder: 2005 10 th Street, Suite D

Boulder, CO 80302

except that any of the foregoing may from time to time by written notice to the other designate another address which shall thereupon become its effective address for the purposes of this paragraph.

7.2 Entire Agreement . This Warrant, including the exhibits and documents referred to herein which are a part hereof, contain the entire understanding of the parties hereto with respect to the subject matter and may be amended only by a written instrument executed by the parties hereto or their successors or assigns. Any paragraph headings contained in this Warrant are for reference purposes only and shall not affect in any way the meaning or interpretation of this Warrant.

7.3 Construction and Enforcement . This Warrant shall be governed by and construed under the laws of the State of Florida, without regard to principles of conflicts of laws and rules of such state. If it becomes necessary for any party to institute legal action to enforce the terms and conditions of this Warrant, and such legal action results in a final judgment in favor of such party ("Prevailing Party"), then the party or parties against whom said final judgment is obtained shall reimburse the Prevailing Party for all direct, indirect or incidental expenses incurred, including, but not limited to, all attorneys’ fees, court costs and other expenses incurred throughout all negotiations, trials or appeals undertaken in order to enforce the Prevailing Party's rights hereunder. Any suit, action or proceeding with respect to this Warrant shall be brought in the state or Federal courts located in Pinellas County in the State of Florida. The parties hereto hereby accept the exclusive jurisdiction and venue of those courts for the purpose of any such suit, action or proceeding. The parties hereto hereby irrevocably waive, to the fullest extent permitted by law, any objection that any of them may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Warrant or any judgment entered by any court in respect thereof brought in Pinellas County, Florida, and hereby further irrevocably waive any claim that any suit, action or proceeding brought in Pinellas County, Florida, has been brought in an inconvenient forum.

IN WITNESS WHEREOF , this Warrant has been duly executed and the corporate seal affixed hereto, all as of the day and year first above written.

INUVO, INC.

By:___ ________________

Richard K. Howe, President

ATTEST:

________________________

EXHIBIT 1

EXERCISE AGREEMENT

To: Dated:

The undersigned record Holder, pursuant to the provisions set forth in the within Warrant, hereby subscribed for and purchases shares of Common Stock covered by such Warrant and hereby makes full cash payment of $ for such shares at the Exercise Price provided by such Warrant.

____________________________

(Signature)

____________________________

(Print or type name)

____________________________

(Address)

NOTICE: The signature of this Exercise Agreement must correspond with the name as written upon the face of the within Warrant, or upon the Assignment thereof, if applicable, in every particular, without alteration, enlargement or any change whatsoever.

EXHIBIT 2

ASSIGNMENT

FOR VALUE RECEIVED, , the undersigned Holder hereby sell, assigns, and transfer all of the rights of the undersigned under the within Warrant with respect to the number of shares of Common Stock issuable upon the exercise of such Warrant set forth below, unto the Assignee identified below, and does hereby irrevocable constituted and appoint to effect such transfer of rights on the books of the Corporation, with full power of substitution:

Name of Assignee	Address of Assignee	Number of Shares of Common Stock

Dated: _________________________

(Signature of Holder)

______________________________________

(Print or type name)

CONSENT OF ASSIGNEE

I HEREBY CONSENT to abide by the terms and conditions of the within Warrant.

Dated:

_____________________________________

(Signature of Assignee)

_____________________________________

(Print or type name)

Nevada		87-0450450
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

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

Large accelerated filer	o	Accelerated filer	o
Non-accelerated filer	o	Smaller reporting company	þ

		Page No.
Part I

Item 1.	Business.		5
Item 1A.	Risk Factors.		11
Item 1B.	Unresolved Staff Comments.		22
Item 2.	Properties.		22
Item 3.	Legal Proceedings.		23
Item 4.	Mine Safety Disclosures		25

Part II

Item 5.	Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.		26
Item 6.	Selected Financial Data.		27
Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operation.		27
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk.		39
Item 8.	Financial Statements and Supplementary Data.		39
Item 9.	Changes In and Disagreements With Accountants on Accounting and Financial Disclosure.		40
Item 9A.	Controls and Procedures.		40
Item 9B.	Other Information.		41

Part III

Item 10.	Directors, Executive Officers and Corporate Governance.		42
Item 11.	Executive Compensation.		42
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.		42
Item 13.	Certain Relationships and Related Transactions, and Director Independence.		42
Item 14.	Principal Accountant Fees and Services.		42

Part IV

Item 15.	Exhibits, Financial Statement Schedules.		43

	High		Low
Year Ended December 31, 2010:
First Quarter	$	4.40	$	2.70
Second Quarter	$	3.00	$	1.30
Third Quarter	$	3.40	$	1.60
Fourth Quarter	$	6.60	$	2.80

Year Ended December 31, 2011:
First Quarter	$	5.85	$	2.58
Second Quarter	$	3.02	$	1.65
Third Quarter	$	4.49	$	1.02
Fourth Quarter	$	1.94	$	0.69

Title of each class		Name of each exchange on which registered
Common Stock		NYSE Amex

	●	In August 2004, we acquired 100% of the outstanding stock of WebCapades, Inc.,
	●	In January 2005, we acquired 100% of the outstanding stock of the Market Smart Advertising companies,
	●	In February 2005, we acquired 100% of the stock of Personals Plus, Inc.,
	●	In February 2005, we also acquired 100% of the stock of Ozona Online Network, Inc.,
	●	In March 2005, we acquired 100% of the stock of KowaBunga! Marketing, Inc.,
	●	In March 2005, we acquired the assets of Smart Interactive Ltd.,
	●	In April 2005, we acquired 100% of the stock of PrimaryAds Inc.,
	●	In July 2005, we acquired 100% of the stock of Real Estate School Online, Inc.,
	●	In December 2005, we acquired 100% of the stock of Vintacom, Inc.,
	●	In January 2006, we acquired 100% of the stock of Morex Marketing Group, LLC.
	●	In April 2006, we acquired 100% of the stock of the Litmus Media, Inc.,
	●	In April 2006, we also acquired 100% of the stock of Web Diversity Ltd.,
	●	In May 2006, we acquired 100% of the stock iLead Media, and
	●	In March 2012, we acquired Vertro, Inc. via a merger with a wholly-owned subsidiary

	●	We fail to have websites and applications approved;
	●	Our paid listings providers' performance deteriorates; or
	●	We violate our paid listings providers' guidelines or they change their implementation guidelines.

	●	we may incur substantial costs, delays, or other operational or financial problems in integrating acquired businesses, including integrating each company’s accounting, management information, human resource, and other administrative systems to permit effective management;
	●	we may not be able to identify, acquire, or profitably manage any additional businesses;
	●	with smaller acquired companies, we may need to implement or improve controls, procedures, and policies appropriate for a public company;
	●	the acquired companies may adversely affect Our consolidated operating results, particularly since some of the acquired companies may have a history of operating losses;
	●	acquisitions may divert management’s attention from the operation of Our businesses;
	●	we may not be able to retain key personnel of acquired businesses;
	●	there may be cultural challenges associated with integrating employees from acquired companies into Our organization; and
	●	We may encounter unanticipated events, circumstances, or legal liabilities.

	●	attract new clients and maintain current client relationships;
	●	achieve effective advertising campaign results for our clients;
	●	continue to expand the number of services and technologies we offer;
	●	successfully implement our business model, which is evolving;
	●	respond to pricing pressure in some of our lines of business;
	●	maintain our reputation and build trust with our clients;
	●	identify, attract, retain and motivate qualified personnel;
	●	accurately measure impressions, searches, clicks, or other online actions for our advertisers, publishers, or partners;
	●	adapt to changes in online advertising, email, and other filtering software; and
	●	manage online credit card billing and customer service concerns.

	●	user privacy;
	●	trespass;
	●	defamation;
	●	database and data protection;
	●	limitations on the distribution of materials considered harmful to children;
	●	liability for misinformation provided over the web;
	●	user protection, pricing, taxation, and advertising restrictions (including, for example, limitation on the advertising on Internet gambling websites or of certain products);
	●	delivery of contextual advertisements via connected desktop software;
	●	intellectual property ownership and infringement, including liability for listing or linking to third-party websites that include materials infringing copyrights or other rights;
	●	distribution, characteristics, and quality of products and services; and
	●	other consumer protection laws.

	●	decrease the demand for our services;
	●	increase our cost of doing business;
	●	preclude us from developing additional products or services;
	●	result in adverse publicity to us;
	●	subject us to fines, litigation, or criminal penalties; or
	●	enjoin us from conducting our business or providing any of our services;

	●	our ability to attract new clients, including the length of our sales cycles, or to sell increased usage of our service to existing clients;
	●	technical difficulties or interruptions in our services;
	●	changes in privacy protection and other governmental regulations applicable to the our industry;
	●	changes in our pricing policies or the pricing policies of our competitors;
	●	the financial condition and business success of our clients;
	●	purchasing and budgeting cycles of our clients;
	●	acquisitions of businesses and products by us or our competitors;
	●	competition, including entry into the market by new competitors or new offerings by existing competitors;
	●	discounts offered to advertisers by upstream advertising networks;
	●	our history of litigation;
	●	our history of uncollectable receivables;
	●	our ability to hire, train and retain sufficient sales, client management and other personnel;
	●	timing of development, introduction and market acceptance of new services or service enhancements by us or our competitors;
	●	concentration of marketing expenses for activities such as trade shows and advertising campaigns;
	●	expenses related to any new or expanded data centers; and
	●	general economic and financial market conditions.

	Year Ended December 31,
	2011 ($)		% of Revenue			2010 ($)		% of Revenue			$ Change			% Change
Performance marketing		24,251		67.7	%		35,449		72.4	%		(11,198	)		(31.6	)%
Web properties		11,569		32.3	%		13,521		27.6	%		(1,952	)		(14.4	)%
Total net revenue		35,820		100.0	%		48,970		100.0	%		(13,150	)		(26.9	)%

	Year Ended December 31,
	2011 % of Revenue			2010 % of Revenue			% Change
Affiliate expenses		50.6	%		54.7	%		(4.1	)%
Data acquisition		7.4	%		4.8	%		2.6	%
Merchant processing fees and product costs		0.2	%		0.2	%		-
Total cost of revenue		58.2	%		59.7	%		(1.5	)%

	Year Ended December 31,
	2011 ($)		% of Gross Profit			2010 ($)		% of Gross Profit			$ Change			% Change
Performance marketing		6,093		40.7	%		8,563		43.4	%		(2,470	)		(28.8	)%
Web properties		8,895		59.3	%		11,152		56.6	%		(2,257	)		(20.2	)%
Total gross profit		14,988		100.0	%		19,715		100.0	%		(4,727	)		(24.0	)%

	Year Ended December 31,
	2011 ($)		% of Revenue			2010 ($)		% of Revenue			$ Change			% Change
Search costs		7,446		20.8	%		5,418		11.1	%		2,028			37.4	%
Compensation and telemarketing		7,671		21.4	%		10,357		21.1	%		(2,686	)		(25.9	)%
Selling, general and administrative		5,567		15.5	%		7,628		15.6	%		(2,061	)		(27.0	)%
Total operating expenses		20,684		57.7	%		23,403		47.8	%		(2,719	)		(11.6	%)

Exhibit No.		Description of Exhibit
2.1		Agreement, entered into as of August 19, 2004, by and among Registrant, WebCapades Acquisition Sub, Inc., WebCapades, Inc., Scott Mitchell and Kristine E. Mitchell (Incorporated by reference and filed as an exhibit to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on August 25, 2004.)
2.2		Plan of Merger by Registrant, WebCapades Acquisition Sub, Inc., and WebCapades, Inc. (Incorporated by reference and filed as an exhibit to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on August 25, 2004.)
2.3		Agreement and Plan of Reorganization by and among Registrant and WorldMall Acquisition Corporation, WorldMall, Inc., S. Patrick Martin and the other stockholders of WorldMall, Inc. dated as of March, 2001 (Incorporated by reference and filed as an exhibit to the Registrant’s Annual Report on Form 10-KSB filed with the Securities and Exchange Commission on March 1, 2004.)
2.4		Agreement and Plan of Merger dated June 5, 2009 between Inuvo, Inc. and Kowabunga! Inc. (Incorporated by reference and filed as an exhibit to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on July 24, 2009.)
2.5		Agreement and Plan of Merger dated October 16, 2011 between Inuvo, Inc., Anhinga Merger Subsidiary, Inc. and Vertro, Inc. (Incorporated by reference to the Registrant’s Current Report on Form 8-K as fled on October 17, 2011.)
3(i).1		Articles of Incorporation, as amended)Incorporated by reference and filed as an exhibit to the Registrant’s Annual Report on Form 10-KSB filed with the Securities and Exchange Commission on March 1, 2004.)
3(i).2		Amended to Articles of Incorporation filed March 14, 2005 (Incorporated by reference and filed as an exhibit to the Registrant’s Annual Report on Form 10-KSB filed with the Securities and Exchange Commission on March 31, 2006.)
3(i).3		Articles of Merger between Inuvo, Inc. and Kowabunga! Inc. (Incorporated by reference and filed as an exhibit to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on July 24, 2009.)
3(i).4		Certificate of Change Filed Pursuant to NRS 78.209 (Incorporated by reference to the Registrant’s Current Report on Form 8-K as filed on September 30, 2010.)
3(i).5		Certificate of Merger as filed with the Secretary of State of Nevada on February 29, 2012 *
3(i).6		Articles of Amendment to Amended Articles of Incorporation as filed on February 29, 2012 *
3(ii).1		Amended and Restated By-Laws (Incorporated by reference to the Registrant’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 31, 2010.)
3(ii).2		Bylaw amendment adopted February 29, 2012 (Incorporated by reference to the Registrant’s Current Report on Form 8-K as filed on March 6, 2012.)
4.1		Form of warrant to purchase shares of Registrant for 2009 consultants.*
4.2		Form of warrant to purchase shares of Registrant for 2011 offering. (Incorporated by reference and filed as an exhibit to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on June 22, 2011.)
4.3		Rights Agreement dated February 14, 2008 (Incorporated by reference to the Current Report on Form 8-K as filed with the Securities and Exchange Commission on February 19, 2008).
4.4		Exchange Agent Agreement dated February 24 2012 between Inuvo, Inc. and Colonial Stock Transfer Co., Inc.*
4.5		Form of Amendment No. 1 to Rights Agreement (Incorporated by reference to the Registrant’s Current Report on Form 8-K as fled on October 17, 2011.)
4.6		Form of warrant to purchase 40,000 shares of common stock issued to Alliance Advisors, LLC *
4.7		Form of warrant to purchase 10,000 shares of common stock issued to Alliance Advisors, LLC *
10.1		2005 Long-Term Incentive Plan (Incorporated by reference to the Current Report on Form 8-K as filed on December 10, 2010.)
10.2		Specimen Stock Option Agreement between the Registrant and Optionees (Incorporated by reference and filed as an exhibit to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on July 1, 2008.)
10.3		Lease Agreement, dated August 10, 2007, by and between Lightwave Drive, LLC and Think Partnership, Inc., as amended *
10.4		Lease dated February 29, 2000 by and between Alot, Inc. (formerly Comet Systems, Inc.) and The Rector, Church-Wardens and Vestrymen of Trinity Church in New York, a religious corporation in the State of New York, including the previous amendment dated August 8, 2000. *
10.5		Lease Modification and Extension Agreement by and between Alot, Inc.(formerly known as MIVA Direct, Inc.) and The Rector, Church-Wardens and Vestrymen of Trinity Church in New York, dated February 23, 2006.*
10.6		Colonial Bank Plaza Office Building Lease, dated January 31, 2002, as amended.*
10.7		Third Amendment to Colonial Bank Plaza Office Building Lease, dated December 18, 2009.*

10.8		Fourth Amendment to Lease, dated March 31, 2010, between Vertro, Inc. and Mick Vorbeck, released from escrow April 13, 2010. Incorporated by reference to the exhibit previously filed on April 16, 2010 with Vertro’s Form 8-K*
10.9		Sublease, dated march 31, 2010, between Vertro, Inc. and MIVA AK, Inc., released from escrow April 13, 2010. Incorporated by reference to the exhibit previously filed on April 16, 2010 with Vertro’s Form 8-K.*
10.10		2010 Equity Compensation Plan (Incorporated by reference to the Registrant’s definitive proxy statement on Schedule 14A as filed on April 30, 2010.)
10.11		Asset Sale/Purchase Agreement dated September 24, 2010 by and between MarketSmart Advertising, Inc., Rightstuff, Inc., Checkup Marketing, Inc. and The Finch Agency, Inc. (Incorporated by reference to the Registrant’s Current Report on Form 8-K as filed on September 30, 2010.)
10.12		Asset Purchase Agreement dated December 10, 2010 by and between Real Estate School Online, Inc. and Inuvo, Inc. and DF Institute, Inc. (Incorporated by reference to the Registrant’s Current Report on Form 8-K as filed on December 13, 2010.)
10.13		Agreement dated June 15, 2011, executed October 20, 2011, between Inuvo, Inc. and Alliance Advisors, LLC *
10.14		Employment Agreement dated March 1, 2012 between Inuvo, Inc. and Richard K. Howe (Incorporated by reference to the Registrant’s Current Report on Form 8-K as filed on March 6, 2012.)
10.15		Employment Agreement dated March 1, 2012 between Inuvo, Inc. and Peter A. Corrao (Incorporated by reference to the Registrant’s Current Report on Form 8-K as filed on March 6, 2012.)
10.16		Employment Agreement dated March 1, 2012 between Inuvo, Inc. and Wallace D. Ruiz (Incorporated by reference to the Registrant’s Current Report on Form 8-K as filed on March 6, 2012.)
10.17		Employment Agreement dated March 1, 2012 between Inuvo, Inc. and John B. Pisaris (Incorporated by reference to the Registrant’s Current Report on Form 8-K as filed on March 6, 2012.)
10.18		Amendment dated February 29, 2012 to 2010 Equity Compensation Plan (Incorporated by reference to the Registrant’s Current Report on Form 8-K as filed on March 6, 2012.)
10.19		Business Financing Agreement, dated March 1, 2012, with Bridge Bank, National Association (Incorporated by reference to the Registrant’s Current Report on Form 8-K as filed on March 6, 2012.)
10.20		Intellectual Property Security Agreement, dated March 1, 2012, between Inuvo, Inc. and Bridge Bank, National Association (Incorporated by reference to the Registrant’s Current Report on Form 8-K as filed on March 6, 2012.)
10.21		Intellectual Property Security Agreement, dated March 1, 2012, between subsidiaries and Bridge Bank, National Association (Incorporated by reference to the Registrant’s Current Report on Form 8-K as filed on March 6, 2012.)
10.22		Amended and Restated Google Services Agreement dated November 10, 2008 between Vertro, Inc. (formerly known as MIVA, Inc.) and Google, Inc./
10.23		Google Services Agreement Order Form dated November 10, 2008 between Vertro, Inc. (formerly known as MIVA, Inc.) and Google, Inc./*
10.24		Amendment No. 1 to Google Services Agreement Order Form and Google Services Agreement. /*
21.1		Subsidiaries of the Registrant*
23.1		Consent of Mayer Hoffman McCann P.C.*
31.1		Rule 13a-14(a)/15d-14(a) certification of Chief Executive Officer *
31.2		Rule 13a-14(a)/15d-14(a) certification of Chief Financial Officer *
32.1		Section 1350 certification of Chief Executive Officer *
32.2		Section 1350 certification of Chief Financial Officer *

	Inuvo, Inc.

Date: March 27, 2012	By:	/s/ Wallace D. Ruiz
		Chief Financial Officer

Signature	Title	Date

/s/ Richard K. Howe	Executive Chairman of the Board of Directors	March 27, 2012
Richard K. Howe

/s/ Peter A. Corrao	Chief Executive Officer and director, principal executive officer	March 27, 2012
Peter A. Corrao

/s/ Wallace D. Ruiz	Chief Financial Officer, principal financial and accounting officer	March 27, 2012
Wallace D. Ruiz

/s/ Charles Pope	Director	March 27, 2012
Charles Pope

/s/ Adele Goldberg	Director	March 27, 2012
Adele Goldberg

/s/ Charles Morgan	Director	March 27, 2012
Charles Morgan

/s/ Joseph P. Durrett	Director	March 27, 2012
Joseph P. Durrett

DESCRIPTION OF SHARES SURRENDERED (Please fill in. Attach separate schedule if needed)
Name(s) and Address of Registered Holder(s) If there is any error in the name or address shown below, please make the necessary corrections	Certificate No(s)	Number of Shares



	TOTAL SHARES F

If your certificate(s) have been lost, stolen, misplaced or mutilated contact Colonial Stock Transfer at 801-355-5740.
SPECIAL ISSUANCE INSTRUCTIONS		SPECIAL DELIVERY INSTRUCTIONS
Complete ONLY if the Inuvo shares are to be issued in a name which differs from the name on the surrendered certificate(s) representing Vertro shares. Issue to: Name: ____________________________________________ Address: ____________________________________________ ____________________________________________ (Please also complete Substitute Form W-9 on the reverse AND see instructions regarding signature guarantee. See Instructions 3 ,4 and 6 )		Complete ONLY if the Inuvo shares are to be mailed to some address other than the address reflected above. Mail to: Name: _______________________________________ Address: _______________________________________ _______________________________________
YOU MUST SIGN IN THE BOX BELOW .	Also:		Sign and provide your tax ID number on the back of this form
SIGNATURE(S) REQUIRED Signature(s) of Registered Holder(s) or Agent		SIGNATURE(S) GUARANTEED (IF REQUIRED) See Instruction 3.
Must be signed by the registered holder(s) EXACTLY as name(s) appear(s) on stock certificate(s). If signature is by a trustee, executor, administrator, guardian, attorney-in-fact, officer for a corporation acting in a fiduciary or representative capacity, or other person, please set forth full title. See Instructions 2, 3, or 4 . ___________________________________________________ Registered Holder ___________________________________________________ Registered Holder ___________________________________________________ Title, if any Date: _________________ Phone No.: ___________________		Unless the shares are tendered by the registered holder(s) of the common stock, or for the account of a member of a “Signature Guarantee Program” (“STAMP”), Stock Exchange Medallion Program (“SEMP”) or New York Stock Exchange Medallion Signature Program (“MSP”) (an “ Eligible Institution ”), the above signature(s) must be guaranteed by an Eligible Institution. See Instruction 3. ______________________________________________ Authorized Signature ______________________________________________ Name of Firm ______________________________________________ Address of Firm - Please Print

SUBSTITUTE Form W-9 Department of the Treasury Internal Revenue Service	Part I - PLEASE PROVIDE YOUR TIN AND TAXPAYER NAME IN THE SPACE AT THE RIGHT AND CERTIFY BY SIGNING AND DATING BELOW		Social Security No. or Employer Identification No. Taxpayer Name
Payer’s Request for Taxpayer Identification Number (TIN)	Part II - For Payees exempt from backup withholding, see the enclosed Guidelines For Certification of Taxpayers Identification Number on Substitute Form W-9 and complete as instructed therein.			Part III Awaiting TIN : ¨
Certification - Under penalties of perjury, I certify that: (1) The number shown on this form is my correct Taxpayer Identification Number (or I am waiting for a number to be issued to me), and (2) I am not subject to backup withholding either because I have not been notified by the Internal Revenue Service (IRS) that I am subject to backup withholding as a result of a failure to report all interest or dividends, or the IRS has notified me that I am no longer subject to backup withholding, and (3) I am a U.S. person (including a U.S. resident alien). Certification Instructions - You must cross out item (2) above if you have been notified by the IRS that you are subject to backup withholding because of underreporting interest or dividends on your tax return. However, if after being notified by the IRS that you were subject to backup withholding, you received another notification from the IRS that you were no longer subject to backup withholding, do not cross out item (2).
PLEASE SIGN HERE F		Signature ________________________________________________ Date _________________

If to the Corporation:		15550 Lightwave Drive
		Suite 300
		Clearwater, FL 33760
		Attention: Wallace D. Ruiz, Chief Financial Officer

If to the Holder:		to the address set forth in the Agreement

	INUVO, INC.

	By:
		Wallace D. Ruiz, Chief Financial Officer

ATTEST:

________________________

ARTICLE ONE	TERM;RENT;FREE RENT	(1	)

ARTICLE TWO	USE	(3	)

ARTICLE THREE	REPAIRS;NOISE;AND VIBRATION	(3	)

ARTICLE FOUR	ALTERATIONS AND FIXTURES	(4	)

ARTICLE FIVE	COMPLIANCE WITH GOVERNMENTAL RULES AND REGULATIONS	(6	)

ARTICLE SIX	RULES AND REGULATIONS	(7	)

ARTICLE SEVEN	PLATE GLASS	(7	)

ARTICLE EIGHT	CARE OF SIDEWALKS	(7	)

ARTICLE NINE	LANDLORD’S ACCESS TO THE PREMISES	(8	)

ARTICLE TEN	ELECTRIC CURRENT, LIVE STEAM	(8	)

ARTICLE ELEVEN	CONDEMNATION AND DEMOLITION	(10	)

ARTICLE TWELVE	MECHANIC’S LIENS	(11	)

ARTICLE THIRTEEN	SUBORDINATION	(11	)

ARTICLE FOURTEEN	CERTIFICATE OF OCCUPANCY	(12	)

ARTICLE FIFTEEN	INTENTIONALLY OMITTED	(12	)

ARTICLE SIXTEEN	FIRE AND OTHER CASUALTY	(13	)

ARTICLE SEVENTEEN	CHANGE IN USE OF PREMISES, SUBLETTING AND ASSIGNMENT	(14	)

ARTICLE EIGHTEEN	WAIVER AND SURRENDER; REMEDIES CUMULATIVE	(18	)

ARTICLE NINETEEN	NO REPRESENTATIONS AS TO PREMISES, CERTIFICATE OF OCCUPANCY AND USE	(19	)

ARTICLE TWENTY	LIMITATION OF LANDLORD’S LIABILITY	(19	)

ARTICLE TWENTY-ONE	INDEMNITY BY TENANT	(21	)

ARTICLE TWENTY-TWO	NOTICES	(21	)

ARTICLE TWENTY-THREE	INSOLVENCY	(22	)

ARTICLE TWENTY-FOUR	REMEDIES OF THE LANDLORD ON DEFAULT IN PERFORMANCE BY THE TENANT	(23	)

ARTICLE TWENTY-FIVE	DEFAULT	(23	)

ARTICLE TWENTY-SIX	REMEDIES AND DAMAGES	(25	)

ARTICLE TWENTY-SEVEN	SURRENDER AT EXPIRATION	(26	)

ARTICLE TWENTY-EIGHT	QUIET ENJOYMENT	(27	)

ARTICLE TWENTY-NINE	SECURITY DEPOSIT	(27	)

ARTICLE THIRTY	REAL ESTATE TAX AND CPI ESCALATION	(29	)

ARTICLE THIRTY-ONE	SERVICES	(32	)

ARTICLE THIRTY-TWO	INSURANCE	(33	)

ARTICLE THIRTY-THREE	INTENTIONALLY OMITTED	(34	)

ARTICLE THIRTY-FOUR	WORK TO BE DONE BY LANDLORD	(34	)

ARTICLE THIRTY-FIVE	CONSENT TO JURISDICTION	(34	)

ARTICLE THIRTY-SIX	TENANT LIABILITY	(34	)

ARTICLE THIRTY-SEVEN	ADJACENT EXCAVATION-SHORING	(35	)

ARTICLE THIRTY-EIGHT	FAILURE TO GIVE POSSESSION	(35	)

ARTICLE THIRTY-NINE	BROKER	(35	)

ARTICLE FORTY	RENT RESTRICTIONS	(36	)

ARTICLE FORTY-ONE	CERTIFICATES BY TENANT	(36	)

ARTICLE FORTY-TWO	RESTRICTIONS ON TENANT’S USE	(36	)

ARTICLE FORTY-THREE	HAZARDOUS MATERIALS	(37	)

ARTICLE FORTY-FOUR	MISCELLANEOUS	(37	)

ARTICLE FORTY-FIVE	CONSTRUCTION OF OFFICE IMPROVEMENTS	(37	)

ARTICLE FORTY-SIX	EXISTING LEASE	(39	)

	(i.)	During the period commencing on the Commencement Date and ending on three months and fifteen days after the Commencement Date, the annual rent shall be Three Hundred Thirty Seven Thousand Two Hundred Sixty and 00/100 Dollars ($337,260.00), payable in equal monthly installments of Twenty Eight Thousand One Hundred Five and 00/100 Dollars ($28,105.00).

	(ii.)	During the period commencing three months and sixteen days after the Commencement Date and ending on the day immediately preceding the first anniversary of the Commencement Date, the annual rent shall be Six Hundred Eighty Three Thousand Seven Hundred Sixty and 00/100 Dollars ($683,760.00) payable in equal monthly installments of Fifty Six Thousand Nine Hundred Eighty and 00/100 Dollars ($56,980.00).

	(iii.)	During the period commencing on the first anniversary of the Commencement Date and ending on the day immediately preceding the second anniversary of the Commencement Date, the annual rent shall be Seven Hundred Eight Thousand One Hundred Eighty and 00/100 Dollars ($59,015.00).

	(iv.)	During the period commencing on the second anniversary of the Commencement Date and ending on the day immediately preceding the fourth anniversary of the Commencement Date, the annual rent shall be Seven Hundred Fifty Seven Thousand Twenty and 00/100 Dollars ($757,020.00), payable in equal monthly installments of Sixty Three Thousand Eighty Five and 00/100 Dollars ($63,085.00);

	(v.)	During the period commencing on the fourth anniversary of the Commencement Date and ending on the day immediately preceding the fifth anniversary of the Commencement Date, the annual rent shall be Seven Hundred Eighty One Thousand Four Hundred Forty and 00/100 Dollars ($781,440.00), payable in equal monthly installments of Sixty Five Thousand One Hundred Twenty and 00/100 Dollars ($65,120.00); and

	(vi.)	During the period commencing on the fifth anniversary of the Commencement Date and ending on the Expiration Date, the annual rent shall be Eight Hundred Five Thousand Eight Hundred Sixty and 00/100 ($805,860.00), payable in equal monthly installments of Sixty Seven Thousand One Hundred Fifty Five and 00/100 Dollars ($67,155.00).

	(i.)	Prior to the commencement of any alteration, The Tenant shall, except in an emergency give at least 30 days notice to Landlord for all alterations and shall obtain the Landlord’s prior approval of the licensed architect and/or licensed professional engineer and the contractors and/or mechanics selected by the Tenant. The Tenant shall obtain the Landlord’s written approval of detailed plains and specifications prepared by the approved architect and/or engineer and reimburse the Landlord for its out of pocket expense n reviewing such plans and specifications, and no alterations shall be made except as are in all material respects in accordance with such plans and specifications or any approved changes thereto. If requested by the Landlord, the Tenant shall submit a copy of the general contractor’s contract or other contract for the alterations which shall show the cost thereof.

	(ii.)	No alteration shall be commenced until the Tenant shall have obtained and paid for all required permits and authorizations of any City, State or Federal government agency or any board, bureau, department or body there of, having or asserting jurisdiction, copies which shall be supplied to the Landlord.

	(iii.)	Prior to the commencement of any alteration, the Tenant shall submit to the Landlord duplicate original policies or certificates thereof of worker’s compensation insurance covering all persons employed in connection with the work and builder’s all risk and comprehensive general public liability insurance in such amounts and with such companies as may be approved by the Landlord and such coverage shall be maintained until all such alterations have been completed. Such policies shall name the Landlord and any mortgagee or holder of any ground or underlying lease as additional named insureds.

	(iv.)	Upon completion of the alterations, the Tenant, at the Tenant’s expense shall obtain certificates of final approval as may be required by any governmental agency, board, bureau, depart or body thereof, and shall deliver such approvals to the Landlord, together with “s built” plans and specifications for such alterations. In addition, one copy of final drawings shall be delivered to the Landlord in AutoCad, Release 14 format, either on a 3.5 disk or CD Rom, or such other format as shall from time to time be reasonably designated by the Landlord.

	(v.)	The cost of all alterations shall be paid hen due so that the premises shall at all times be free of liens for labor and materials supplies or claimed to have been supplies to the premises and free from any encumbrances, or security interests.

	(vi.)	All alterations, additions or improvements shall be made and installed in a good womanlike manner and shall comply with all requirements, by law, regulation or rule, of the Federal, State and City Governments and all subdivisions and agencies thereof, and with the requirements of the New York Fire Insurance Exchange, New York Board of Fire Underwriters and all other bodies exercising similar functions, and shall conform to any particular requirements of the Landlord expressed in its consent for the making of any such alterations, additions, and improvements. The Landlord’s review and approval of the Tenant’s plans shall not constitute, nor be deems to constitute a representation or agreement by the Landlord that such plans and specifications comply with such requirements. Such compliance shall be the sole responsibility of the Tenant.

Anniversary of the Commencement Date	Amount of Security Deposit
1 st Anniversary	$	300,000
2 nd Anniversary	$	250,000
3 rd Anniversary	$	200,000
4 th Anniversary	$	150,000
5 th Anniversary	$	100,000

	THE RECTOR, CHURCH-WARDENS AND VESTRYMEN OF TRINITY CHURCH IN THE CITY OF NEW YORK

	By:
		Director of Leasing

	By:
		Executive Vice President of Real Estate

	By:
		John A. McKegny
		Finance Department

Attest:		COMET SYSTEMS, INC.
As to the Tenant:

Nicholas Corman/ Witness	By:
		James Rosen
		Chairman

Periods	Month	Year	Annual Base Rent	Percentage Escalation	Escalated Rent
1	8	2000	$200,000.00	0	$200,000.00
2	8	2001	$200,000.00	6,000	$206,000.00
3	8	2002	$200,000.00	12,180	$212,180.00
4	8	2003	$200,000.00	18,545	$218,545.00
5	8	2004	$200,000.00	25,102	$225,102.00
6	8	2005	$200,000.00	31,855	$231,855.00
7 mos	8	2006	$200,000.00	38,810	$238,810.00

	THE RECTOR, CHURCH-WARDENS AND VESTRYMEN OF TRINITY CHURCH IN THE CITY OF NEW-YORK

	By:	/Executed/
		President of Real Estate

	By:	/Executed/
		Director of Commercial Leasing

	By:	/Executed/
		Chief Financial Officer

	MIVA DIRECT, INC.

	By:	/s/ John Pisaris
		Name: John Pisaris
		Title: General Counsel