UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

x	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

December 31, 2011 For the fiscal year ended: December 31, 2011

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 001-33074

BANKS.COM, INC.

(Exact name of registrant as specified in its charter)


Florida		59-3234205
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

425 Market Street, Suite 2200 San Francisco, California		94105
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (415) 962-9700

Securities registered pursuant to Section 12(b) of the Act:


Title of each class		Name of each exchange on which registered
Common Stock, par value $.001 per share		OTCQB

Securities registered pursuant to Section 12(g) of the Act:

None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No x

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨ No x

The aggregate market value of the common stock, par value $.001 per share (“Common Stock”), held by non-affiliates of the registrant (assuming for these purposes, but without conceding that all executive officers, directors and greater than 5% shareholders are “affiliates” of the registrant) as of June 30, 2011 was approximately $1,342,952 based upon the last sale price for the Common Stock on the NYSE Amex on such date.

The number of shares of the registrant’s Common Stock outstanding as of March 30, 2012 was 26,003,009.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant’s Proxy Statement for the 2012 Annual Meeting of Shareholders are incorporated herein by reference in Part III of this Annual Report on Form 10-K to the extent stated herein.

BANKS.COM, INC.

TABLE OF CONTENTS

FORM 10-K-ANNUAL REPORT

For the Fiscal Year Ended December 31, 2011


	PART I

Item 1.	Business	1
Item 1A.	Risk Factors	9
Item 1B.	Unresolved Staff Comments	21
Item 2.	Properties	21
Item 3.	Legal Proceedings	21
Item 4.	Mine Safety Disclosures	21

	PART II

Item 5.	Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	22
Item 6.	Selected Financial Data	23
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	30
Item 8.	Financial Statements and Supplementary Data	30
Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.	30
Item 9A(T).	Controls and Procedures	30
Item 9B.	Other Information	31

	PART III

Item 10.	Directors, Executive Officers and Corporate Governance	32
Item 11.	Executive Compensation	32
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	32
Item 13.	Certain Relationships and Related Transactions, and Director Independence	32
Item 14.	Principal Accountant Fees and Services	32

	PART IV

Item 15.	Exhibits and Financial Statement Schedules	33
	SIGNATURES
	POWER OF ATTORNEY

PART I

When reading this Annual Report on Form 10-K, it is important that you also read the financial statements and related notes thereto. This Annual Report on Form 10-K, including the sections entitled “Business,” “Properties,” “Legal Proceedings,” “Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and certain information incorporated herein by reference contain forward-looking statements within the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. All forward-looking statements, including, but not limited to, statements regarding our future operating results, financial position, and growth strategy, expectations regarding our growth and the growth of the industry in which we operate, and plans and objectives of management for future operations, are inherently uncertain as they are based on our expectations and assumptions concerning future events. Any or all of our forward-looking statements in this report may turn out to be inaccurate. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. They may be affected by inaccurate assumptions we might make or by known or unknown risks and uncertainties, including the risks, uncertainties and assumptions described in “Risk Factors” and elsewhere in this report. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this report may not occur as contemplated and actual results could differ materially from those anticipated or implied by the forward-looking statements. All forward-looking statements in this report are made as of the date hereof, based on information available to us as of the date hereof, and we assume no obligation to update any forward-looking statement.

References herein to “we”, “us” or “our” refer to Banks.com, Inc. and its wholly-owned subsidiaries unless the context specifically states or implies otherwise.

Item 1.

Business

Overview

We own and operate Internet media properties including: banks.com, irs.com, filelater.com and mystockfund.com. Our properties provide users with relevant finance-related content and services and provide vendors targeted online advertising opportunities. Through banks.com, we provide access to current financial content, including financial news, business articles, interest-rate tables, stock quotes, stock tracking and financial calculators. We also provide users access to tax related financial services including online tax preparation through irs.com and online tax extensions through filelater.com, a business we acquired in late 2010, as well as online stock brokerage services through mystockfund.com. We believe that focusing our content and services in the high-traffic financial services vertical will allow us to provide our advertisers operating in that vertical access to highly relevant, typed in and search engine optimization (“SEO”) generated traffic. Although search services is a diminishing part of our business, we continue to operate the proprietary search and shopping website, searchexplorer.com, and operated the proprietary website, look.com, until it was sold in October 2011. We generate revenue on these sites primarily through search engine marketing efforts. Also in connection to search services, we operate a premium pay-per-click advertising network known as the InterSearch AdNet. . In addition, we provide Internet technology professional services to Fortune 500 and other companies operating in the financial services sector.

Since changing our name to Banks.com in late 2007, we have shifted our business focus to the high value, financial services vertical. With this shift, we have exited some low margin business lines, such as domain parking, steadily deemphasized our search services business line and have sold the web properties camps.com, summercamp.com, greatcruises.com and look.com, as we divested ourselves of non-core and non-finance related assets. We have also taken measures to mitigate our reliance on Internet advertising revenue by transitioning toward a multi channel revenue strategy consisting of customer acquisition, proprietary financial services, an expanded direct advertiser base, and third party advertising networks. In connection with our aforementioned change in business strategy, in January, 2008 we acquired the web properties mystockfund.com and mystockfundkids.com, and all of the issued and outstanding securities of MyStockFund Securities, Inc., an online broker/dealer offering a variety of financial services products. In December, 2010, we acquired the online tax extension business, FileLater.com. Acquisitions constitute an important part of our corporate history and our growth strategy.

In addition, we continue to operate the search related website searchexplorer.com, which we monetize through InfoSpace, as well as the InterSearch AdNet. Although these sites and business lines are not a key part of our growth strategy, they continue to be important, but diminishing revenue streams, especially outside of the tax preparation season. We have continued to deemphasize this sector of our business but intend to continue to operate these sites as long as they remain viable.

Recent Developments

Pending Merger Transaction

On February 26, 2012, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Remark Media, Inc. (“Remark”) where the Company will become a wholly owned subsidiary of Remark (the “Merger”). Pursuant to the terms of the Merger Agreement, all outstanding shares of the Company’s common stock and a warrant to purchase 2,083,333 shares of the Company’s common stock will be automatically converted into the right to receive shares of Remark’s common stock. In addition, a convertible promissory note (held by Kimberly & Daniel O’Donnell) will be cancelled, exchanged for and converted into a new promissory note that is not convertible. Finally, the Company’s Series C Preferred Stock and the accrued and unpaid dividends thereon will be automatically converted into the right to receive shares of Remark common stock and cash in the aggregate amount of $300,000. The maximum aggregate number of shares of Remark common stock issuable as a result of the Merger shall be 702,784, subject to adjustment based on the Company’s net working capital as of the closing of the Merger. Each share of the Remark common stock outstanding immediately prior to the effective time will remain outstanding and will not be affected by the Merger.

The consummation of the Merger is subject to certain conditions, including: the approval of the Merger Agreement by the Company’s shareholders; the Company’s net working capital (as of the last calendar day of the month end preceding the closing or, if closing occurs on the last calendar day of the month, on the closing date and estimated 3 business days prior to the closing of the Merger), shall not be less than negative $570,000; if any of the Company’s shareholders indicate that they will assert appraisal rights, such shareholders own less than 5% of all of the Company’s issued and outstanding common stock; Remark’s receipt, through the closing of equity financing, of at least $2.0 million of net cash proceeds; Remark’s filing of an application for the shares of Remark common stock (issued as merger consideration to the Company’s shareholders) to be listed on the NASDAQ Capital Market; the absence of any injunction or order of any court, arbitrator, mediator, tribunal, administrative agency, or other governmental authority that prohibits, restrains, or makes illegal the completion of the Merger; the receipt of all regulatory consents required to complete the Merger and the expiration of all waiting periods required by law; and the effectiveness of Remark’s registration statement on Form S-4 registering the shares of Remark common stock to be issued to the Company’s shareholders in the Merger.

The Merger Agreement contains customary representations and warranties for a transaction of this type. The Merger Agreement also contains customary covenants, including covenants providing for each of the parties to use reasonable best efforts to cause the transactions to be consummated. The Merger Agreement also contains covenants requiring the Company to call and hold a shareholder meeting and recommend adoption of the Merger Agreement, subject to applicable fiduciary duties. The Merger Agreement also requires the Company to, among other things, conduct its business in all material respects in the ordinary course consistent with past practice during the period between the execution of the Merger Agreement and the closing of the Merger. The Company is subject to customary “no-shop” restrictions on its ability to solicit alternative acquisition proposals from third parties and to provide information to and engage in discussions with third parties regarding alternative acquisition proposals, subject to a “fiduciary duty” exception in certain circumstances.

Should the Merger Agreement be terminated, neither party will be required to pay the other party a termination fee or reimburse the other party for its expenses.

In connection with the Merger Agreement, holders of a majority of the voting rights of the Company’s capital stock, including the common stock and Series C Preferred Stock, voting together as a single class, have entered into Stockholders’ Support Agreements pursuant to which they agree to vote their shares of the Company in favor of the Merger at the special meeting of the Company’s shareholders. Also in connection with the Merger Agreement and as a condition to the closing of the Merger, Daniel O’Donnell will enter into an employment agreement with Remark.

NYSE Amex Delisting

The Company received notice from NYSE Amex LLC by letter dated June 20, 2011, indicating that the Company was not in compliance with Section 1003(f)(v) of the Exchange’s Company Guide in that the Company’s securities had been selling at a low price per share for a substantial period of time. The Company’s continued listing was predicated on it effecting a reverse stock split of its common stock within a reasonable amount of time, which Exchange had determined to be no later than November 18, 2011. This deadline for compliance reflected a truncation under Section 1009(h) of the Company Guide, which provides that Staff may truncate the continued listing evaluation and follow-up procedures if a company, within 12 months of the end of a plan period, is again determined to be below continued listing standards.

Then on November 22, 2011, the Company received notice from the Exchange indicating that the Company no longer complied with the Exchange’s continued listing standards due to the low selling price of its common stock, as set forth in Section 1003(f)(v) of the Company Guide and that its securities were, therefore, subject to being delisted from the Exchange.

The Company requested an appeal hearing before a Listing Qualifications Panel (the “Panel”) and the hearing was held on January 19, 2012. On January 23, 2012, the Company was notified by the Exchange that the Panel had affirmed the Exchange’s determination to delist the common stock of the Company, and that trading in its common stock would be suspended on NYSE Amex, with formal delisting to follow. The Company was entitled to request that the full Committee on Securities review the decision of the Panel, although a request for review does not operate as a stay of the Panel’s decision. The Company decided not to request a review of the Panel’s decision.

The Company transitioned trading in its common stock to the OTCQB Marketplace, where its common stock began trading under the “BNNX” symbol on the computerized OTCQB system on January 30, 2012. Operated by OTC Markets Group Inc., the OTCQB is a market tier for OTC traded companies that are registered and reporting with the Securities and Exchange Commission.

Industry Overview

The Internet and Online Commerce

The Internet continues to develop as a significant global medium for communication, content and commerce and has led to substantial growth in online shopping for goods and services. As use of the Internet to research and purchase products and services increases, businesses are seeking ways to more effectively reach consumers online. As a result, both online and traditional retail businesses are increasingly using the Internet to advertise their products and services.

The advertising industry, and specifically online advertising, is evolving to meet the increasing online demands of both consumers and businesses. We believe the high-traffic financial services vertical reflects one of the most significant growth opportunities in the online advertising industry. We expect to leverage these favorable market trends through our Banks.com network.

Paid Search Advertising

Paid search or pay-per-click advertising displays advertisers’ product and service listings to online consumers in response to their keyword search queries. This feature gives advertisers the ability to target their online advertisements to individuals with specific and immediate interests in their products or services. These pay-per-click listings generally appear in the search results in an order that is based on the amount the advertisers pay for the targeted listing. Because advertisers pay only when an Internet user actually clicks-through on the advertiser’s listing, pay-per-click advertising allows online advertisers to accurately measure the effectiveness and response rates of advertisements and adjust their advertising campaigns accordingly. If necessary, advertisers can change listings rapidly and cost-effectively in response to information, such as consumer behavior, product pricing or product availability. Unlike pay-per-click advertising, traditional forms of advertising, such as television and radio, are not targeted to consumers who have demonstrated an interest in the advertised product or service. In addition, traditional forms of advertising do not permit quick and accurate measurement of their effectiveness. Consequently, we believe that Internet advertising generally, and pay-per-click advertising in particular, will continue to grow as consumers become increasingly confident that they can find comprehensive product information and securely conduct transactions online.

Our Services and Products

Our Internet advertising services are designed to enable advertisers to sell their products and services online to a large base of potential, targeted customers through our distribution network which consists of search engines and selected web properties. We currently provide these services through the continued development of our flagship web property www.banks.com, through which we offer online users an online consumer banking one-stop marketplace built around a domain name that is synonymous with that offering. Users can find information on a broad range of financial products and services, from mortgage rates & providers and financial calculators. On irs.com, users find ready access to tax preparation and other tax related information and services and on filelater.com, users can file online business and personal tax extensions in a matter of minutes. On mystockfund.com, they are offered niche stock brokerage services such as fractional share investing. The Banks.com network of web properties also features a wealth of resources and advice on personal finance topics in a convenient user format. We also provide these types of services for those consumers and advertisers searching for more general goods and services through our search and shopping related website, searchexplorer.com. In addition, through our consultants, we provide professional and technical solutions to the financial services industry through our operating subsidiary InterSearch Corporate Services, Inc.

Internet Advertising Services

By providing consumers access to relevant products and services, in response to their targeted Internet searches, we offer businesses an effective method of driving qualified prospects for their products and services to their websites. We accomplish this by distributing the listings of our advertising network partners and direct advertisers throughout our network of web properties, search engines and traffic partners. Advertisers pay our advertising network partners only when an Internet user clicks-through on the advertisers’ listing. When an Internet user clicks-through on an advertiser’s listing on any of our web properties, our advertising network partner generates revenue that they then share with us.

We also provide direct advertisers with highly motivated and relevant traffic. We typically collect revenue from our direct advertisers based on one of the following three methods: (1) “CPM”, or “cost per thousand impressions,” whereby the direct advertiser pays us for each 1,000 impressions an advertisement appears on one of our web properties; (2) “CPC”, or “cost–per-click,” whereby the direct advertiser pays us each time a user clicks on an advertisement listed on one of our web properties and then redirects the user to the advertisers website; and (3) “CPA”, or “cost per acquisition,” whereby the direct advertiser pays us for each customer who completes a desired action such as registering and/or purchasing goods or services through the advertiser’s website.

In 2007 and 2008, we entered into advertising partnership agreements with InfoSpace, Inc., whereby InfoSpace provides paid search results on various, company owned, web properties. On December 31, 2011, these agreements automatically renewed for one year. In addition, in 2010, we began utilizing Google’s AdSense for Content and AdSense for Search products on banks.com and irs.com.

Product Offerings

Banks.com is a financial services portal providing users and subscribers with relevant financial information on the web and provides free tools to assist visitors with financial decision-making. Banks.com is an online consumer finance marketplace aggregating information on a range of products: mortgages, taxes, saving accounts, auto loans, college financing, debt management, retirement, and more. The web property features a wealth of resources and advice on personal finance topics in a convenient user format. Also included on the site is an expansive array of popular financial calculators and a library of useful articles and blogs, providing users with insight into pertinent topics.

Irs.com provides consumers with access to online tax preparation and other tax related information and services, as well as a localized search initiative that allows users to browse a comprehensive directory to identify and compare local tax preparers.

FileLater.com provides taxpayers with an online platform to file business and personal tax extensions with the IRS and receive acknowledgment of that filing from the IRS in a matter of minutes.

MyStockFund.com offers fractional share investing and dollar cost averaging brokerage product that allows investors to build a diversified portfolio in stocks, index funds and bond funds without incurring the high fees and trading costs of traditional brokerage firms.

Search Services

Although we have continued to deemphasize Search Services as a business line and plan to exit it entirely, we continue to operate proprietary search related website, searchexplorer.com. We generate traffic to these sites primarily via search engine marketing efforts and revenue is derived when a consumer clicks on a sponsored search result of either a direct advertiser or an advertiser provided to us by our advertising partners such as InfoSpace. Although not our focus, these websites continue to represent a meaningful, but declining, percentage of our revenue and gross profit throughout the year. In the third and fourth quarters (off season for the U.S. tax industry), these sites represent a substantial majority of our revenue and gross profits. In addition, we receive varying revenue through our Settlement Agreement with ProStream Media, Inc, et al (“ProStream”) where we receive 50% of ProStream’s net monthly profits, as defined in our Assignment of Profits agreement.

Corporate Services

Through our InterSearch Corporate Services, Inc. subsidiary, we provide technology professional services in the areas of information and Internet technology, staffing and consulting to companies primarily in the financial services industry including Wells Fargo and Fidelity Investments. We endeavor to provide clients with qualified individuals on a contractual basis with the appropriate skills and experience to service their employee resource needs.

Our Advertiser Network

Advertiser listings displayed on our distribution network are derived from our advertising network partners and direct advertisers on certain of our web properties, including, www.banks.com and the InterSearch AdNet.

Our advertising network partners currently consist of leading search providers including InfoSpace, which provides us a comprehensive meta search solution that includes paid results from Google, Yahoo!, Microsoft and Ask.com, Local.com and Business.com. Paid search engines, such as these, partner with us in order to gain access to the users of our network for their advertisers. Access to search requests on our network increases the potential for paid click revenue because their advertisers’ listings are distributed in response to a larger number of search queries. Generally, our arrangements with our advertising network partners provide that we receive a fixed percentage of their advertising revenue per paid click. In the year ending December 31, 2011, InfoSpace was our largest advertising network partner and represented a material, but shrinking, portion of our revenue.

Our Distribution Network

Our distribution network consists of our web properties and search engines, including, banks.com, irs.com, searchexplorer.com and the InterSearch AdNet. When a consumer initiates an Internet search on one of our web properties, we deliver relevant listings from our advertising network partners and our direct advertisers. In most cases, when a user clicks on one of these advertisements, we receive a pay-per-click fee. During the year ended December 31, 2011, we received approximately 21 million paid clicks from our distribution network, as compared to approximately 72 million for the year ended December 31, 2010. This decrease was a result of the reduced emphasis on the search services business. During the year ended December 31, 2011, we serviced approximately 14,000 online tax preparation customers compared to 2,000 in the year ended December 31, 2010. This increase was primarily attributable to the fact that we sold much of this advertising inventory to a major online tax preparation service in 2010. We also serviced approximately 15,000 online tax extension customers during the year ended December 31, 2011 compared to 4,500 in 2010. This increase was attributable to our acquisition of Filelater.com in 2010. Any increase in customer acquisitions will come at the expense of paid advertiser clicks and vice versa, but we believe a multi channel revenue strategy of customer acquisitions, in addition to Internet advertising, will allow us to build a more sustainable long term business model. Therefore, future comparisons of the number of paid clicks we generate year over year may not be a reliable measure of the overall success of our business when viewed in isolation.

Internet users can navigate our web properties in various ways, including direct navigation. For example, an online user who is specifically interested in obtaining information about finance-related goods and services may arrive at one of our web properties via direct navigation through the web address bar of their Internet browser. Once the user has arrived at the web property they will find relevant product listings and information. As the user finds relevant information and clicks on a particular listing, we typically receive a pay-per-click fee, which we call a paid click, or we may share in revenues generated by the sponsored listing.

Information Technology and Systems

We strive to maintain technologies that are compatible with and/or compliment the systems used by our advertising and distribution network partners. By utilizing open standards it allows us to maintain open connectivity amongst heterogeneous networks. We rely on our proprietary technology platform combined with commercially available technology from industry-leading providers to deliver real-time customer support and interactive reporting for our advertising and distribution network partners. We employ Open Source Software (OSS) technologies and products distributed by various companies and organizations. We also utilize commercially available technologies and products.

Our technology platform enables us to rapidly deliver listings from our advertising network partners in response to search requests by Internet users made in our distribution network. Our technology is designed to gather information from multiple data points and compile the results according to a proprietary set of rules that we have developed. Each query or click-through from our distribution network is subject to a filtering process in order to minimize costs and to improve advertiser return on investment by minimizing such things as double-clicks and other illegitimate click-throughs. Our technology incorporates an accounting system that provides our advertising and distribution network partners with the information they need to manage their relationships with us.

We rely upon third parties to provide hosting services, including hardware support and service, and network coordination. Our servers are configured for high availability and large volumes of Internet traffic and are located in leased third-party facilities. Back-end databases make use of redundant servers and data storage arrays. We also have standby servers that provide for additional capacity as necessary. The facilities housing our servers provide redundant HVAC, power and Internet connectivity and are SAS 70 Type II certified.

We continue to build and innovate additional functionality to attempt to meet the quickly evolving demands of the marketplace. The cost of developing our technology solutions is included in the overall cost structure of our services and is not separately funded by any individual advertisers or distribution network partners.

Competition

Internet Advertising Services

Despite the anticipated growth possibilities, the Internet advertising market is expected to remain intensely competitive and has been negatively impacted by the recent economic downturn. We believe that the principal competitive factors in our market are the quality and volume of our organic traffic, the quality and effectiveness of our search engine marketing efforts, network size, revenue sharing arrangements, services, convenience, relevant content, accessibility, customer service, quality of search tools, reliability and speed of fulfillment of paid search listings across the Internet infrastructure. While not of the scale of many in our industry, we believe we are well positioned to compete in our industry based on the size and quality of our organic traffic flow and our search engine marketing infrastructure. This coupled with an ongoing strategy of providing relevant and quality content makes us an attractive alternative financial destination for Internet users. Nearly all of our competitors have longer operating histories, larger distribution networks, greater brand recognition and significantly greater financial, marketing and other resources than we do. Although we partner with some of the most predominant search engines to provide paid search results on our distribution networks, we also compete with those search engines for Internet search traffic. Our primary competitors in the Internet advertising and financial services spaces include BankRate, TheStreet.com, TurboTax, TaxAct, H&R Block, Yahoo!, Google, Bing, Ask.com and Marchex. In addition, we believe that more competitors will enter into the online media and paid search advertising market. The Internet industry continues to experience consolidation, including the acquisitions of online media sites and companies offering paid search services. Industry consolidation may result in larger, more established and well-financed competitors with a greater focus on paid search services. If this trend continues, we may be unable to compete in these markets and our financial results may suffer.

Additionally, larger companies such as Google and Microsoft may implement policies and/or technologies into their search engines or software that make it less likely that consumers will reach, or execute searches on, our distribution network. If we are unable to successfully evolve and compete against current and future competitors or if our current advertising network partners choose to rely more heavily on their own distribution networks in the future, our operating results will be adversely affected.

We are also affected by the competition among destination websites that reach users or customers of search services. In light of our decision to primarily focus on the financial services vertical of online advertising, we currently compete for Internet advertising revenues with the personal finance sections of general interest sites such as Bankrate.com, Yahoo! Finance, and TheStreet.com. While thousands of smaller outlets are available to customers, several large media and search engine companies, such as AOL, Google, Microsoft through Bing and Yahoo!, through its subsidiaries, dominate online user traffic. The online search industry continues to experience consolidation of major media sites and search engines, which has the effect of increasing the negotiating power of these parties in relation to smaller providers. The major destination websites and distribution providers may have leverage to demand more favorable contract terms, such as pricing, renewal and termination provisions.

Financial Services

The online financial services market continues to evolve rapidly and we expect it to remain highly competitive. Our MyStockFund subsidiary competes with full commission, discount and online brokerage firms. Some of these competitors provide Internet trading and banking services, investment advisor services, touchtone telephone and voice response banking services, electronic bill payment services and a host of other financial products. Our tax preparation and tax extension businesses compete with the much larger firms such as Intuit and H&R Block. Almost all of our competitors have longer operating histories and greater resources than we do and offer a wider range of financial products and services. Most have greater name recognition, greater market acceptance and larger customer bases. In recent years, the financial services industry has become more concentrated, as companies involved in a broad range of financial services have been acquired, merged or have declared bankruptcy. In the aftermath of the financial crisis of 2008, this trend accelerated considerably, as a significant number of U.S. financial institutions consolidated, were forced to merge, or received substantial Government assistance. These developments could result in our remaining competitors having greater capital and other resources, such as the ability to offer a broader range of products and services.

We believe we can continue to attract customers by appealing to retail investors in the niche of fractional share investing by providing them with low-cost, easy to use online investing platform where they can buy fractions of a share of most common stocks on a regular investing schedule. We also believe we can continue to attract customers to our tax preparation and tax extension sites through traffic originated from irs.com and by virtue of our strong rankings in the organic listings of the major search engines. We also face intense competition in attracting and retaining qualified employees. Our ability to compete effectively in financial services will depend upon our ability to attract new employees and retain and motivate our existing employees while efficiently managing compensation related costs.

Intellectual Property

When necessary, we seek to protect our intellectual property through existing laws and regulations, as well as through contractual restrictions. We rely on trademark, patent and copyright law, trade secret protection and confidentiality and license agreements with our employees, customers, partners and others to protect our intellectual property.

Our technologies involve a combination of proprietary rights, owned and developed by us, commercially available software and hardware elements that are licensed or purchased by us from various providers and public domain software. We continue to develop additional technologies to update, replace or supplement our technology platform. We may seek to protect these additional rights through patent applications and trade secret enforcement.

Government Regulation

Like many companies, we are subject to existing and potential government regulation. There are, however, comparatively few laws or regulations specifically applicable to Internet businesses. Accordingly, the application of existing laws to Internet businesses, including ours, is unclear in many instances. There remains significant legal uncertainty in a variety of areas, including, but not limited to: user privacy, the use of Internet domain names, the positioning of sponsored listings on search results pages, defamation, taxation, the provision of paid search advertising to online gaming sites, the legality of sweepstakes, promotions and gaming sites generally, and the regulation of content in various jurisdictions. Compliance with federal laws relating to the Internet and Internet businesses may impose upon us significant costs and risks, or may subject us to liability if we do not successfully comply with their requirements, whether intentionally or unintentionally.

The application of new and existing laws and regulations to the Internet or other online services could also have a material adverse effect on our business, prospects, financial condition and results of operations. Several federal laws that could have an impact on our business have already been adopted. The Digital Millennium Copyright Act is intended to reduce the liability of online service providers for listing or linking to third party web properties that include materials that infringe copyrights or rights of others. Because we do not meet the safe harbor requirements of the Digital Millennium Copyright Act, we could be exposed to copyright actions, which could be costly and time-consuming. The Children’s Online Privacy Protection Act is intended to restrict the distribution of certain materials deemed harmful to children and impose additional restrictions on the ability of online services to collect user information from minors. In addition, the Protection of Children from Sexual Predators Act requires online services providers to report evidence of violations of federal child pornography laws under certain circumstances. The foregoing legislation may impose significant additional costs on our business or subject us to additional liabilities, if we were not to comply fully with their terms, whether intentionally or not. We intend to fully comply with the laws and regulations that govern our industry, and we employ internal resources and incur outside professional fees to establish, review and maintain policies and procedures to reduce the risk of noncompliance.

The acquisition of Internet domain names generally is governed by Internet regulatory bodies, predominantly the Internet Corporation for Assigned Names and Numbers (ICANN). The regulation of Internet domain names in the United States and in foreign countries is subject to change. ICANN and other regulatory bodies could establish additional requirements for previously owned Internet domain names or modify the requirements for holding Internet domain names.

Privacy concerns relating to the disclosure of consumer financial information have drawn increased attention from federal and state governments. For example, the IRS generally prohibits the use or disclosure by tax return preparers of taxpayers’ information without the prior written consent of the taxpayer. In addition, other regulations require financial service providers to adopt and disclose consumer privacy policies and provide consumers with a reasonable opportunity to “opt-out” of having personal information disclosed to unaffiliated third-parties for marketing purposes. Although we have procedures to protect against identity theft, breaches of our clients’ privacy may occur. To the extent the measures we have taken prove to be insufficient or inadequate, we may become subject to litigation or administrative sanctions, which could result in significant fines, penalties or damages and harm to our brand and reputation. In addition, changes in these federal and state regulatory requirements could result in more stringent requirements and could result in a need to change business practices, including how information is disclosed. Establishing systems and processes to achieve compliance with these new requirements may increase costs and/or limit our ability to pursue certain business opportunities.

We post our privacy policy and practices concerning the use and disclosure of any user data on our web properties and our distribution applications. Any failure by us to comply with posted privacy policies, Federal Trade Commission requirements or other domestic or international privacy-related laws and regulations could result in proceedings by governmental or regulatory bodies that could potentially harm our businesses, results of operations and financial condition. In this regard, there are a large number of legislative proposals before the United States Congress and various state legislative bodies regarding privacy issues related to our businesses. It is not possible to predict whether or when such legislation may be adopted, and certain proposals, if adopted, could harm our business through a decrease in user registrations and revenue. These decreases could be caused by, among other possible provisions, the required use of disclaimers or other requirements before users can utilize our services.

There are a growing number of legislative proposals before Congress and various state legislatures regarding privacy issues related to the Internet generally, and some of these proposals apply specifically to paid search businesses and ownership rights of Internet domain properties. We are unable to determine if and when such legislation may be adopted. If certain proposals were to be adopted, our business could be harmed by increased expenses or lost revenue opportunities, and in other unforeseen ways.

We anticipate that new laws and regulations affecting us will be implemented in the future. Those new laws, in addition to new applications of existing laws, could expose us to substantial liabilities and compliance costs.

In addition, because our services are available over the Internet in multiple states, certain states may claim that we are required to qualify to do business in such state. Currently, we are qualified to do business only in the States of Florida, California, and Pennsylvania. Our failure to qualify to do business in a jurisdiction where we are required to do so could subject us to taxes and penalties. It could also hamper our ability to enforce contracts in these jurisdictions. The application of laws or regulations from jurisdictions whose laws do not currently apply to our business could harm our business and results of operations.

As part of our initiative to make www.banks.com a preferred destination for personal finance and consumer banking information and services, we have focused our efforts on enhancing the content and usability of the site. In January 2008, we acquired MyStockFund Securities, Inc., a broker-dealer registered with the SEC and in all 50 states, the District of Columbia, and Puerto Rico, and a member of a self-regulatory organization, the Financial Industry Regulatory Authority (“FINRA”). Broker-dealers are subject to federal and state laws and regulations covering all aspects of the securities business, including sales and trading practices, securities offerings, publication of research reports, use of customers’ funds and securities, minimum net capital requirements, record-keeping and retention, anti-money laundering, privacy laws, and the conduct of their directors, officers, employees and other associated persons. Violations of the federal and state laws and regulations governing a broker-dealers actions could result in civil and criminal liability and administrative liability in the form of censures, fines, the issuance of cease-and-desist orders, revocation of licenses or registrations, the suspension or expulsion from the securities industry of such broker-dealer or its officers or employees, or other similar consequences by both federal and state securities administrators.

Employees

We continued reducing our employee headcount throughout 2011 and as a result as of March 30, 2012, we had 10 employees. This number includes employees of our MyStockFund subsidiary, as well as the billable consultants in our professional services group, InterSearch Corporate Services. None of our employees are represented by a labor union. We have not experienced any work stoppages, and we consider our relations with our employees to be good.

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1A. Risk Factors.

In addition to the factors discussed elsewhere in this report and our other reports filed with the Securities and Exchange Commission, the following are important factors that could cause actual results or events to differ materially from those contained in any forward-looking statements made by us or on our behalf. The risks and uncertainties described below are not the only ones facing our company. Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business operations. If any of the following risks or such other risks actually occurs, our business could be harmed.

RISKS RELATING TO OUR COMPANY, OUR BUSINESS, AND OUR INDUSTRY

We may require additional funding, which may not be available on favorable terms or at all.

Our future capital requirements will depend on the amount of cash generated or required by our current operations, as well as additional funds which may be needed to finance future acquisitions. Future cash needs are subject to substantial uncertainty. We cannot guarantee that adequate funds will be available when needed, and if we do not receive sufficient capital, we may be required to alter or reduce the scope of our operations. If we raise additional funds by issuing equity securities, our existing shareholders may be diluted. Additionally, we are incurring substantial expense in connection with our pending merger transaction with Remark Media, Inc and failure to complete that transaction would have an adverse impact on our business and financial condition.

We have incurred losses and may incur losses in the future, which may impact our ability to implement our business strategy and adversely affect our financial condition.

We cannot assure you that we will be profitable or generate sufficient profits from operations in the future. If our revenue growth does not resume, we may experience a loss in one or more future periods. We may not be able to sufficiently reduce our expenses in response to any decrease in our revenue, which may impact our ability to implement our business strategy and adversely affect our financial condition.

We face intense competition from larger, more established companies, and we may not be able to compete effectively, which could reduce demand for our services.

We compete for Internet advertising revenues with the personal finance sections of general interest sites such as Bankrate.com, Yahoo! Finance, and TheStreet.com. In addition, the online paid search market is intensely competitive. Our primary current competitors include Yahoo!, Google, Bing, Ask.com and Marchex. Although we currently pursue a strategy that allows us to partner with owners of web properties and search engines, our current and future advertising and distribution network partners, including InfoSpace and their paid search providers, Google, Yahoo! Search Marketing and Ask.com, may view us as a threat to their own internal paid search services.

Nearly all our competitors have longer operating histories, larger customer bases, greater brand recognition and significantly greater financial, marketing and other resources than we do. Our competitors may secure more favorable revenue sharing arrangements with network distributors, devote greater resources to marketing and promotional campaigns, adopt more aggressive growth strategies and devote substantially more resources to website and systems development than we do. In addition, the Internet media and search industries continue to experience consolidation, including the acquisitions of companies offering finance related content and services and paid search services. Industry consolidation has resulted in larger, more established and well-financed competitors with a greater focus. If these industry trends continue, or if we are unable to compete in the Internet media and paid search markets, our financial results may suffer.

Additionally, larger companies may implement policies and/or technologies into their search engines or software that make it less likely that consumers can reach, or execute searches on, our distribution network partners’ websites and less likely that consumers will click-through on sponsored listings from our advertising network partners. The implementation of such technologies could result in a decrease in our revenues. If we are unable to successfully compete against current and future competitors or if our current advertising network partners choose to rely more heavily on their own distribution networks in the future, our operating results will be adversely affected.

We rely on our advertising network partners to provide us access to their advertisers, and if they do not or they exert significant pricing pressure on us, it could have an adverse impact on our business.

We rely on our advertising network partners to provide us with advertiser listings so that we can distribute these listings through our distribution network in order to generate revenue when a consumer click-through occurs on our advertiser network partners’ sponsored listings. For the year ended December 31, 2011, a substantial majority of our revenue was derived from our primary advertising network partner, InfoSpace, Inc. Our success depends, in part, on the maintenance and growth of our advertising network. If we are unable to develop or maintain relationships with our advertising network partners or if one or more of them exert significant pricing pressure on us, our operating results and financial condition will suffer.

We generate a substantial majority of our revenue through InfoSpace, who provides us with Google, Yahoo and other paid search results, and cannot be assured that we will ultimately collect on all of the revenue we produce.

InfoSpace provides us with paid search results from Google, Yahoo and other providers and is the source of a substantial majority of our revenue. We have had instances in the past where we have not been paid for all of the revenue we generate and we cannot assure you that this will not happen in the future. In these instances, Google, Yahoo and others have retroactively charged us back for revenue generated that they deemed to be questionable. Although we take proactive measures to mitigate these instances through the use of tools to gauge our traffic quality, these credits to our revenue come with little or no substantiation and/or support and our recourse options are limited. In these instances, we likely have already incurred traffic acquisition costs that in all probability will not be recoverable. These revenue credits and the corresponding traffic acquisition costs have adversely impacted our financial performance in the past and may again in the future.

Historically, a few of our advertising network partners and direct advertisers have provided a substantial portion of our revenue; the loss of one of these partners may have a material adverse effect on our operating results.

InfoSpace was our largest advertising network partner, accounting for a substantial percentage of our total revenue for the year ended December 31, 2011. Our agreements with InfoSpace currently run through December 31, 2012, with provisions for automatic renewals for successive one year terms, unless terminated by either party. We cannot assure you that, should these agreements fail to renew or should the contracts be terminated or modified in advance of that date, we will be able to timely replace the sponsored listings they provide us from Google, Yahoo and Ask.com. We have had similar agreements in the past that have failed to renew or been modified prior to their termination where our financial results were harmed.

If we do not maintain and grow a critical mass of advertising network partners, the value of our services could be adversely affected.

Our success depends, in part, on the maintenance and growth of a critical mass of advertising network partners and a continued interest in our performance-based advertising and search marketing services. We currently have a small number of advertising network partners. If our business is unable to achieve a growing base of advertisers through our advertising network partners, our current distribution partners may be discouraged from continuing to work with us, which may create obstacles for us to enter into agreements with new distribution partners. Any decline in the number of advertising network partners could adversely affect the value of our services and lead to a loss of revenue.

We expect that our anticipated future growth, including through potential acquisitions, may strain our management, administrative, operational and financial infrastructure, which could adversely affect our business.

A key component of our business strategy includes strengthening our competitive position in the market through potentially pursuing select strategic merger and acquisition alternatives including the acquisition of additional web properties, specifically in the financial services sector. Furthermore, we may expand our operations or market presence by pursuing acquisitions of complementary businesses, services or technologies or engaging in other strategic alliances with third parties. Integrating any newly acquired web property or company may be expensive and time-consuming. To finance any acquisition, it may be necessary for us to raise additional funds through public or private financings. Additional funds may not be available on terms that are favorable to us, and, in the case of equity financings, would result in dilution to our shareholders. Any such transactions would be accompanied by the risks commonly encountered in such transactions, including, among others, the difficulty of assimilating operations, technology and personnel of the combined companies, the potential disruption of our ongoing business, the inability to retain key technical and managerial personnel, the inability of management to maximize our financial and strategic position through the successful integration of acquired businesses, additional expenses associated with amortization of acquired intangible assets, the maintenance of uniform standards, controls and policies, the impairment of relationships with existing employees and customers, and potential overpayment for a company or its assets. We have limited experience in these types of acquisitions, and we may not be successful in overcoming these risks or any other potential problems. We cannot assure you that we will be able to consummate any acquisitions or, if consummated, successfully integrate the operations and management of future acquisitions. If we are unable to attract and consummate acquisitions, our growth could be adversely impacted.

We may experience unforeseen liabilities in connection with acquisitions of Internet web properties, which could negatively impact our financial results.

We intend in the future to continue to acquire additional previously-owned Internet web properties. In some cases, these acquired web properties may have trademark significance that is not readily apparent to us or is not identified by us in the purchasing process. As a result we may face demands by third party trademark owners asserting infringement or dilution of their rights and seeking transfer of acquired Internet web properties under the Uniform Domain Name Dispute Resolution Policy administered by ICANN or actions under the United States Anti-Cybersquatting Consumer Protection Act.

We intend to review each claim or demand which may arise from time to time on its merits on a case-by-case basis with the assistance of counsel and we intend to transfer any rights acquired by us to any party that has demonstrated a valid prior right or claim. We cannot, however, guarantee that we will be able to resolve these disputes without litigation. The potential violation of third party intellectual property rights and potential causes of action under consumer protection laws may subject us to unforeseen liabilities including injunctions and judgments for money damages.

Regulation could reduce the value of the Internet web properties acquired or negatively impact the Internet domain acquisition process, which could significantly impair the value of acquisitions.

The acquisition of Internet web properties generally is governed by regulatory bodies. The regulation of Internet web properties in the United States and in foreign countries is subject to change. Regulatory bodies could establish additional requirements for previously-owned Internet web properties or modify the requirements for holding Internet web properties. As a result, we might not acquire or maintain web properties that contribute to our financial results in the same manner as reflected in the historical financial results of the acquired businesses. A failure to acquire or maintain such Internet web properties once acquired could adversely affect our financial results and our growth. Any impairment in the value of acquired businesses could have a material adverse effect on our operating results.

Our quarterly results of operations might fluctuate due to seasonality, which could adversely affect our growth rate and in turn the market price of our securities.

Our quarterly results have fluctuated in the past and will likely fluctuate in the future due to seasonal fluctuations in the level of Internet usage. As is typical in the Internet search industry, the second and third quarters of the calendar year generally experience relatively lower usage than the first and fourth quarters. It is generally understood that during the spring and summer months of the year, Internet usage is lower than during other times of the year, especially in comparison to the fourth quarter of the calendar year. The extent to which usage may decrease during these off-peak periods is difficult to predict. Prolonged or severe decreases in usage during these periods may adversely affect our growth rate and in turn the market price of our securities. In addition, we expect the revenues associated with our website www.irs.com to be largely seasonal in nature, with peak revenues occurring during January through April, corresponding to the U.S. tax season.

If we fail to detect click-through fraud, we could lose the confidence of our advertising network partners, thereby causing our business to suffer.

We are exposed to the risk of fraudulent or illegitimate clicks on our direct ads and our sponsored listings. If fraudulent clicks are not detected, the affected advertisers may experience a reduced return on their investment in pay-per-click advertising programs because the fraudulent clicks will not lead to revenue for the advertisers. As a result, our advertising network partners may become dissatisfied with us, which could lead to loss of advertising network partners and revenue.

We could be liable for breaches of security on our website.

A fundamental requirement for e-commerce is the secure transmission of confidential information over public networks. Although our systems and processes are designed to protect consumer information and other security breaches, failure to mitigate such fraud or breaches may adversely affect our operating results.

If the market for our services decreases it will have a material adverse effect on our business, prospects, financial condition and results of operations.

Internet marketing and advertising, in general, and paid search advertising, in particular, are in the early stages of development. Our future revenue and profits are substantially dependent upon the continued widespread acceptance, growth, and use of the Internet and other online services as effective advertising mediums. Many of the largest advertisers have generally relied upon more traditional forms of media advertising and have only limited experience advertising on the Internet. Paid search, in particular, is still in an early stage of development and may not be accepted by consumers for many reasons including, among others, that consumers may conclude that paid search results are less relevant and reliable than non-paid search results, and may view paid search results less favorably than search results generated by non-paid search engines. If consumers reject our paid search services, or commercial use of the Internet generally, and the number of click-throughs on listings in our distribution network decreases, the commercial utility of our search services could be adversely affected.

We face significant competition from traditional media companies which could adversely affect our future operating results.

We also compete with traditional media companies for advertising. Most advertisers currently spend only a small portion of their advertising budgets on Internet advertising. If we fail to persuade existing advertisers to retain and increase their spending with us and if we fail to persuade new advertisers to spend a portion of their budget on advertising with us, our revenues could decline and our future operating results could be adversely affected.

If we do not continue to innovate and provide products and services that are useful to users, we may not remain competitive, and our revenues and operating results could suffer.

Our success depends on providing products and services that people use for a high quality Internet experience. Our competitors are constantly developing innovations in web search, online advertising and providing information to people. As a result, we must continue to invest significant resources in research and development in order to enhance our web search technology and our existing products and services and introduce new high-quality products and services that people can easily and effectively use. If we are unable to ensure that our users and customers have a high quality experience with our products and services, then they may become dissatisfied and move to competitors’ products and services. In addition, if we are unable to predict user preferences or industry changes or if we are unable to modify our products and services on a timely basis, we may lose users and advertisers. Our operating results would also suffer if our innovations are not responsive to the needs of our users and advertisers, are not appropriately timed with market opportunity or are not effectively brought to market. As search technology continues to develop, our competitors may be able to offer search results that are, or that are perceived to be, substantially similar to or better than those generated by our search services. This may force us to compete in different ways with our competitors and to expend significant resources in order to remain competitive.

Our technical systems are vulnerable to interruption and damage that may be costly and time-consuming to resolve and may harm our business and reputation.

A disaster could interrupt our services for an indeterminate length of time and severely damage our business, prospects, financial condition and results of operations. Our systems and operations are vulnerable to damage or interruption from:

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fire;

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floods;

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network failure;

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hardware failure;

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software failure,

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power loss;

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telecommunications failures;

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break-ins;

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terrorism, war or sabotage;

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computer viruses;

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denial of service attacks;

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penetration of our network by unauthorized computer users and “hackers” and other similar events;

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natural disaster; and

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other unanticipated problems.

We may not have developed or implemented adequate protections or safeguards to overcome any of these events. We also may not have anticipated or addressed many of the potential events that could threaten or undermine our technology network. Any of these occurrences could cause material interruptions or delays in our business, result in the loss of data or render us unable to provide services to our customers. In addition, if a person is able to circumvent our security measures, he or she could destroy or misappropriate valuable information or disrupt our operations. We have deployed firewall hardware intended to thwart hacker attacks. Although we maintain property insurance and business interruption insurance, our insurance may not be adequate to compensate us for all losses that may occur as a result of a catastrophic system failure or other loss, and our insurers may not be able or may decline to do so for a variety of reasons.

If we fail to address these issues in a timely manner, we may lose the confidence of our advertising network partners, our revenue may decline and our business could suffer. In addition, as we expand our service offerings and enter into new business areas, we may be required to significantly modify and expand our software and technology platform. If we fail to accomplish these tasks in a timely manner, our business and reputation will likely suffer.

New technologies could block our ads, which would harm our business.

Technologies may be developed that can block the display of our ads. Most of our revenues are derived from fees paid to us by advertisers in connection with the display of ads on web pages. As a result, ad-blocking technology could, in the future, adversely affect our operating results.

We rely on third party technology, server, software and hardware providers, and a failure or termination of services by these providers could adversely affect our business and reputation.

We rely upon third party dedicated server hosting providers to host our main servers, network infrastructure, and security infrastructure and expect to continue to do so. We also rely on third party providers for components of our technology platform, such as software providers, software libraries, outsourced software development, domain name registrars and Domain Name Server (DNS) services. Our systems and operations are vulnerable to damage or interruption from human error, fire, flood, power loss, telecommunications failure, terrorist attacks, acts of war, break-ins, and similar events. While the facilities housing our servers provide redundant HVAC, power and Internet connectivity, in the past, we have experienced short-term outages in the service maintained by certain of our current dedicated hosting and co-location providers. A failure or limitation of service or available capacity by any of these third party providers could adversely affect our business and reputation. We do not presently have multi-location redundancy and our business interruption insurance may be insufficient to compensate us for losses that may occur.

In addition, if any of these third party providers cease operations for any reason or if we are unable to agree on satisfactory terms for continued hosting relationships, we would be forced to enter into a relationship with other service providers or assume hosting responsibilities ourselves. If we are forced to switch hosting facilities, we may not be successful in finding an alternative service provider on acceptable terms or in hosting the computer servers ourselves. We may also be limited in our remedies against these providers in the event of a failure of service, failure of their infrastructure and/or failure of their security systems.

We also rely on third party software providers to develop, support and maintain some of our core systems. If our relationships with any of these third party software providers is disrupted or terminated, we would be forced to seek new providers who offer similar services. There is no guarantee that we’ll be able to secure such services in a timely manner and business disruptions could ensue as a result.

We depend on the growth of the Internet and Internet infrastructure for our future growth and any decrease or less than anticipated growth in Internet usage could adversely affect our business prospects.

Our future revenue and profits, if any, depend upon the continued widespread use of the Internet as an effective commercial and business medium. Factors which could reduce the widespread use of the Internet include:

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possible disruptions or other damage to the Internet or telecommunications infrastructure;

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failure of the individual networking infrastructures of our advertising network and distribution network partners to alleviate potential overloading and delayed response times;

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a decision by merchant advertisers to spend more of their marketing dollars in offline areas;

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increased governmental regulation and taxation; and

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actual or perceived lack of security or privacy protection.

In particular, concerns over the security of transactions conducted on the Internet and the privacy of users may inhibit the growth of the Internet and other online services, especially online commerce. In order for the online commerce market to develop successfully, we and other market participants must be able to transmit confidential information, including credit card information, securely over public networks. Any decrease or less than anticipated growth in Internet usage could have a material adverse effect on our business prospects.

Our executive officers and certain key personnel are critical to our success, and the loss of these officers and key personnel could harm our business.

Our performance is substantially dependent on the continued services and performance of our executive officers and other key personnel, including Daniel M. O’Donnell, our Chief Executive Officer, and Steven Ernst, our Chief Technology Officer. Our performance also depends on our ability to retain and motivate our officers and key employees. The loss of the services of any of our officers or other key employees could have a material adverse effect on our business, prospects, financial condition and results of operations.

Our future success also depends on our ability to identify, attract, hire, train, retain and motivate other highly skilled technical, managerial and marketing personnel. Competition for such personnel is intense, and we cannot assure you that we will be successful in attracting and retaining such personnel. The failure to attract and retain our officers or the necessary technical, managerial and marketing personnel could have a material adverse effect on our business, prospects, financial condition and results of operations.

We anticipate that significant expansion of our present operations will be required to capitalize on potential growth in market opportunities. This expansion has placed, and is expected to continue to place, a significant strain on our management, operational and financial resources. We expect to add a significant number of additional key personnel in the future, including key managerial and technical employees who will have to be fully integrated into our operations. In order to manage our growth, we will be required to continue to implement and improve our operational and financial systems, to expand existing operations, to attract and retain superior management, and to train, manage and expand our employee base. We cannot assure you that we will be able to effectively manage the expansion of our operations, that our systems, procedures or controls will be adequate to support our operations or that our management will be able to successfully implement our business plan. If we are unable to manage growth effectively, our business, financial condition and results of operations could be materially adversely affected.

We may be subject to intellectual property claims that create uncertainty about ownership of technology essential to our business and divert our managerial and other resources.

There has been a substantial amount of litigation in the technology industry regarding intellectual property rights. We cannot assure you that third parties will not, in the future, claim infringement by us with respect to our current or future services, trademarks or other proprietary rights. Our success depends, in part, on our ability to protect our intellectual property and to operate without infringing on the intellectual property rights of others in the process. There can be no guarantee that any of our intellectual property will be adequately safeguarded, or that it will not be challenged by third parties. We may be subject to patent infringement claims or other intellectual property infringement claims that would be costly to defend and could limit our ability to use certain critical technologies.

We may also become subject to interference proceedings conducted in the patent and trademark offices of various countries to determine the priority of inventions. The defense and prosecution, if necessary, of intellectual property suits, interference proceedings and related legal and administrative proceedings is costly and may divert our technical and management personnel from their normal responsibilities. We may not prevail in any of these suits. An adverse determination of any litigation or defense proceedings could cause us to pay substantial damages, including treble damages if we willfully infringe, and, also, could put our patent applications at risk of not being issued.

Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation. In addition, during the course of this kind of litigation, there could be public announcements of the results of hearings, motions or other interim proceedings or developments in the litigation. If investors perceive these results to be negative, it could have an adverse effect on the trading price of our common stock.

Any intellectual property litigation could negatively impact our business by diverting resources and management attention away from other aspects of our business and adding uncertainty as to the ownership of technology and services that we view as proprietary and essential to our business. In addition, a successful claim of patent infringement against us and our failure or inability to obtain a license for the infringed or similar technology on reasonable terms, or at all, could have a material adverse effect on our business.

Failure to adequately protect our intellectual property and proprietary rights could harm our competitive position.

Our success is substantially dependent upon our proprietary technology. We rely on a combination of patent, trademark, copyright and trade secret laws, as well as confidentiality agreements and technical measures, to protect our proprietary rights. Although we have filed patent applications and provisional patents on certain parts of our technology, much of our proprietary information may not be patentable, and we do not currently possess any patents. We cannot assure you that we will develop proprietary technologies that are patentable or that any pending patent applications will be issued or that their scope is broad enough to provide us with meaningful protection. We cannot assure you that we will be able to secure significant protection for our trademarks. Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy aspects of our services or to obtain and use information that we regard as proprietary. We cannot assure you that our means of protecting our proprietary rights will be adequate or that our competitors will not independently develop similar technology or duplicate our services or design around patents issued to us or our other intellectual property rights. If we are unable to adequately protect our intellectual property and proprietary rights, our business and our operations could be adversely affected.

We are susceptible to general economic conditions, and a downturn in advertising and marketing spending by merchants could adversely affect our operating results.

Our operating results will be subject to fluctuations based on general economic conditions, in particular those conditions that impact merchant-consumer transactions. If there were to be a general economic downturn that affected consumer activity in particular, however slight, then we would expect that business entities, including merchant advertisers, could substantially and immediately reduce their advertising and marketing budgets. We believe that during periods of lower consumer activity, merchant spending on advertising and marketing is more likely to be reduced, and more quickly, than many other types of business expenses. These factors could cause a material adverse effect on our operating results.

We may be subject to lawsuits for information displayed on our websites and the websites of advertisers displayed on our distribution network, which may affect our business.

Laws relating to the liability of providers of online services for activities of their advertisers and for the content of their advertisers’ listings are currently unsettled. It is unclear whether we could be subjected to claims for defamation, negligence, copyright or trademark infringement or claims based on other theories relating to the information we publish on our websites or the information that is published across our distribution network. These kinds of claims have been brought, sometimes successfully, against online services as well as other print publications in the past. We may not successfully avoid civil or criminal liability for unlawful activities carried out by advertisers displayed on our distribution network. Our potential liability for unlawful activities of advertisers or for the content of advertisers’ listings displayed on our distribution network could require us to implement measures to reduce our exposure to such liability, which may require us, among other things, to spend substantial resources or to discontinue certain service offerings. Our insurance may not adequately protect us against these kinds of claims and the defense of such claims may divert the attention of our management from our operations. If we are subjected to such lawsuits, it may adversely affect our business.

In addition, much of the information on www.banks.com that is provided by advertisers and collected from third parties relates to the rates, costs and features for various loan, depositary, personal credit and investment products offered by financial institutions, mortgage companies, investment companies, insurance companies and others participating in the consumer financial marketplace. We are exposed to the risk that some advertisers may provide us, or directly post on our websites, (i) inaccurate information about their product rates, costs and features, or (ii) rates, costs and features that are not available to all consumers. This could cause consumers to lose confidence in the information provided by advertisers on our websites, and cause certain advertisers to become dissatisfied with our websites, and result in lawsuits being filed against us.

If we are unable to obtain and maintain adequate insurance, our financial condition could be adversely affected in the event of uninsured or inadequately insured loss or damage.

We may not be able to obtain and maintain insurance policies on terms affordable to us that would adequately insure our business and property against damage, loss or claims by third parties. To the extent our business or property suffers any damages, losses or claims by third parties that are not covered or adequately covered by insurance, our financial condition may be materially adversely affected.

Impairment of intangible assets has decreased our earnings in the past and may do so again in the future.

Current accounting rules require that intangible assets with indefinite useful lives be tested for impairment at least annually. These rules also require that intangible assets with definite useful lives be amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. To the extent such evaluation indicates that the useful lives of intangible assets are different than originally estimated, the amortization period is reduced or extended and, accordingly, the quarterly amortization expense is increased or decreased.

We have substantial intangible assets on our balance sheet, and have taken significant impairment charges to earnings in the past. We recorded impairment charges of $6.7 million in 2011 and may be required to record additional charges to earnings in the future in our financial statements during the period in which any additional impairment of our amortizable intangible assets is determined. Any additional impairment charges or changes to the estimated amortization periods could have a material adverse effect on our financial results.

Impairment of the deferred tax assets recorded on our balance sheet has decreased our earnings in the past and may do so again in the future.

We periodically review the probability of the realization of our deferred tax assets on our balance sheet based on forecasts of taxable income. As part of this review, we utilize historical results, projected future operating results, eligible carryforward periods, tax planning opportunities, and other relevant considerations. Adverse changes in our profitability have required changes in the valuation allowances that reduced our deferred tax assets on our balance sheet in the past and this may occur again in the future. Such changes have triggered material non-cash expenses to be recorded in the period in which the changes were made and had a material adverse impact on our results of operations or financial condition. We recorded a valuation allowance charge of $1.2 million in 2011 and may be required to record additional charges to earnings in the future.

Government and legal regulations have damaged our business in the past and may damage it in the future.

We are subject to general business regulations and laws, as well as regulations and laws specifically governing the Internet and e-commerce. Such existing and future laws and regulations may impede the growth of the Internet or other online services. These regulations and laws may cover taxation, user privacy, data protection, pricing, content, copyrights, distribution, electronic contracts and other communications, consumer protection, the provision of online payment services, broadband residential Internet access, and the characteristics and quality of products and services.

The Federal Trade Commission has recently reviewed the way in which search engines disclose paid search practices to Internet users. In 2002, the FTC issued guidance recommending that all search engine companies ensure that all paid search results are clearly distinguished from non-paid results, that the use of paid search is clearly and conspicuously explained and disclosed and that other disclosures are made to avoid misleading users about the possible effects of paid search listings on search results. The adoption of laws or regulations relating to placement of paid search advertisements or user privacy, defamation or taxation may inhibit the growth in use of the Internet, which in turn, could decrease the demand for our services and increase our cost of doing business or otherwise have a material adverse effect on our business, prospects, financial condition and results of operations. Any new legislation or regulation, or the application of existing laws and regulations to the Internet or other online services, could have a material adverse effect on our business, prospects, financial condition and results of operations.

The application of new and existing laws and regulations to the Internet or other online services has had a material adverse effect on our business, prospects, financial condition and results of operations in the past. For example, on April 17, 2007, the U.S. House of Representatives passed H.R. 1677, The Taxpayer Protection Act of 2007(“H.R. 1677”). Section 8 of H.R. 1677 would have amended Section 333, Title 31 of the U.S. Code to include Internet domain addresses in the prohibition on misuse of the U.S. Department of the Treasury names and symbols. Although the legislation was never passed by the Senate or signed into law and the bill died with the ending of the 110th Congress in January 2009, there is no guarantee that similar legislation won’t be introduced and passed into law by the current or future Congress. While the ultimate impact of any such proposed legislation is not presently determinable, if enacted, such legislation may adversely impact our overall operations. We own the Internet domain address www.irs.com, which is an acronym commonly associated with the Internal Revenue Service, a division of the U.S. Department of the Treasury. While the bill was never passed into law, if enacted, the passage of such legislation could have severely adversely affected our use of our Internet domain address www.irs.com as well as our overall operations. In the event a bill such as H.R. 1677 were to become law , we intend to be continue to be diligent in our communications with the Internal Revenue Service and Congress in an effort to mitigate any potential negative effects of such legislation.

We may be subjected to large scale advertiser defections due to external organizations exerting influence.

The passage of H.R. 1677 in April 2007 resulted in a modification of the 2008 Operating Agreement of the Free File Alliance and prohibited their members from advertising on the domain irs.com. The Free File Alliance is a public/private cooperative of nineteen online tax providers who provide certain U.S. citizens with access to free online tax preparation in cooperation with the Internal Revenue Service. Their members represent the vast majority of the online tax preparation market including TurboTax, H&R Block and TaxAct and the unexpected loss of their advertising dollars had an adverse affect on our business in 2008. We have been diligent in mitigating the adverse affects of this and have historically taken such steps as redirecting the traffic from irs.com to banks.com. We have also increased the prominence of our disclaimer that we are not the Internal Revenue Service to help minimize the possibility of any user confusion, as well as providing users links to irs.gov. The Free File Alliance no longer prohibits their members from advertising on the banks.com domain but we cannot assure you that they will continue allow their members to advertise with us or that individual members will not decide on their own not to advertise with us.

State and local governments may be able to levy additional taxes on Internet access and electronic commerce transactions, which could result in a decrease in the level of usage of our services.

Beginning in 1998, the federal government imposed a moratorium on state and local governments’ imposition of new taxes on Internet access and eCommerce transactions, which has now expired. State and local governments may be able to levy additional taxes on Internet access and eCommerce transactions unless the moratorium is reinstituted. Any increase in applicable taxes may make eCommerce transactions less attractive for businesses and consumers, which could result in a decrease in eCommerce activities and the level of usage of our services.

As a result of our acquisition of MyStockFund Securities, Inc., we are subject to the extensive regulations that govern a broker-dealer.

MyStockFund Securities, Inc., a broker-dealer registered with the SEC and in all 50 states, the District of Columbia, and Puerto Rico, and a member of a self-regulatory organization, the Financial Industry Regulatory Authority (“FINRA”). Broker-dealers are subject to federal and state laws and regulations covering all aspects of the securities business, including sales and trading practices, securities offerings, publication of research reports, use of customers’ funds and securities, minimum net capital requirements, record-keeping and retention, anti-money laundering, privacy laws, and the conduct of their directors, officers, employees and other associated persons. Violations of the federal and state laws and regulations governing a broker-dealers actions could result in civil and criminal liability and administrative liability in the form of censures, fines, the issuance of cease-and-desist orders, revocation of licenses or registrations, the suspension or expulsion from the securities industry of such broker-dealer or its officers or employees, or other similar consequences by both federal and state securities administrators.

The cost of compliance with Section 404 of the Sarbanes-Oxley Act of 2002 may negatively impact our income.

We are subject to the rules and regulations of the SEC, including those rules and regulations mandated by the Sarbanes-Oxley Act of 2002. Section 404 of the Sarbanes-Oxley Act requires all reporting companies to include in their annual report a statement of management’s responsibilities for establishing and maintaining adequate internal control over financial reporting, together with an assessment of the effectiveness of those internal controls. The costs to comply with these requirements will likely be significant and may adversely affect our operating results. Section 404 further requires that the reporting company’s independent auditors attest to, and report on, this management assessment. As of December 31, 2011, the Company was not yet subject to the auditor attestation requirement of Section 404; however, the Company expects its expenses related to its internal and external auditors to increase significantly. If we fail to maintain a system of adequate controls, it could have an adverse effect on our business and stock price.

Failure to comply with laws and regulations that protect our customers’ personal and financial information could result in significant fines, penalties and damages and could harm our brand and reputation.

If insolvency laws or actions of our lessor prevent us from exercising our rights under our option agreement entered into in connection with our sale/leaseback transaction relating to our banks.com domain name, it could have a material adverse impact on our business, results of operation and financial condition.

We entered into a sale-leaseback arrangement whereby we assigned our domain name, banks.com, in exchange for a cash payment and entered into a lease agreement to lease back the domain name for a five year term. At the same time, the lessor of the domain name granted us an option to purchase the domain for a nominal amount at the end of the lease. If the lessor of the domain name were to become subject to any insolvency law, the lessor or its trustee-in-bankruptcy may attempt to reject the option agreement or provisions of the United States Bankruptcy Code may materially limit or prevent the enforcement of the lessor’s obligations under the option agreement. If a court were to limit or prevent enforcement of the option agreement or if an attempt were made to litigate any of the foregoing issues, then we may lose our right to exercise the option or such right could be delayed or the exercise price of the option could be increased. In addition, if, through inadvertence or fraud, the lessor transfers only the domain, but not the option agreement, to a purchaser who purchases in good faith without knowledge that the purchase violates our rights in the domain name, the purchaser could defeat our ownership interest in the domain pursuant to the exercise of its purchase option. We and the lessor have taken certain steps in structuring the sale-leaseback transaction in an effort to mitigate the occurrence of the foregoing. However, there is no assurance that these measures will be respected by a court if the lessor seeks bankruptcy protection or otherwise transfers the domain in violation of the option agreement. Our loss of the banks.com domain name or any substantial increase in the price we must pay to exercise our purchase option for the domain would likely have a material adverse affect on our business, results of operation and financial condition.

RISKS RELATING TO OWNERSHIP OF OUR COMMON STOCK

Trading of our common stock is limited, which may make it difficult for you to sell your shares at times and prices that you feel are appropriate.

Trading of our common stock is conducted on the OTCQB and a substantial percentage of our outstanding shares are held by officers, directors and affiliates and as a result, trading in our common stock has historically been limited. This limited trading adversely effects the liquidity of our common stock, not only in terms of the number of shares that can be bought and sold at a given price, but also through delays in the timing of transactions and reduction in security analysts’ and the media’s coverage of us. As a result, you may obtain lower prices for our common stock than might otherwise be obtained.

The market price of our common stock has been and is likely to continue to be highly volatile, which could cause investment losses for our shareholders and result in shareholder litigation with substantial costs, economic loss and diversion of our resources.

We cannot predict the extent to which investor interest will support an active and liquid trading market for our common stock. In addition, the trading price of our common stock has been and is likely to continue to be highly volatile and could be subject to wide fluctuations as a result of various factors, many of which are beyond our control, including:

•

developments concerning proprietary rights, including patents, by us or a competitor;

•

market acceptance of our new and existing services and technologies;

•

announcements by us or our competitors of significant contracts, acquisitions, commercial relationships, joint ventures or capital commitments;

•

actual or anticipated fluctuations in our operating results;

•

continued growth in the Internet and the infrastructure for providing Internet access and carrying Internet traffic;

•

introductions of new services by us or our competitors;

•

enactment of new government regulations affecting our industry;

•

changes in the number of our advertising network partners;

•

seasonal fluctuations in the level of Internet usage;

•

loss of key employees;

•

institution of intellectual property litigation by or against us;

•

changes in the market valuations of similar companies; and

•

changes in our industry and the overall economic environment.

Due to the emerging nature of the paid search market, we have historically had difficulty in predicting our results and may, in the future, not be able to accurately predict our operating results on a quarterly basis, if at all, which may lead to further volatility in the trading price of our common stock. In addition, the stock market in general, and the market for online commerce companies in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of the listed companies. These broad market and industry factors may seriously harm the market price of our common stock, regardless of our operating performance. In the past, following periods of volatility in the market, securities class action litigation has often been instituted against these companies. Litigation against us, whether or not a judgment is entered against us, could result in substantial costs, and potentially, economic loss, and a diversion of our management’s attention and resources. As a result of these and other factors, you may not be able to resell your shares above the price you paid and may suffer a loss on your investment.

If the ownership of our common stock continues to be highly concentrated, it may prevent you and other stockholders from influencing significant corporate decisions and may result in conflicts of interest that could cause our stock price to decline.

As of February 29, 2012, our executive officers and directors (including affiliates of such executive officers and directors) beneficially owned or controlled approximately 40% of the outstanding shares of our common stock. Our Chief Executive Officer and his spouse beneficially own an additional 3 million shares of preferred stock which is convertible to common stock on at 3:1 basis. In total, on February 29, 2012, our executive officers and directors (including affiliates of such executive officers and directors) beneficially owned or controlled approximately 50% of the outstanding shares of our common stock and preferred stock (on an as-converted basis). Accordingly, these executive officers and directors, acting as a group, will have substantial influence and may control the outcome of corporate actions requiring shareholder approval, including the election of directors, any merger, consolidation or sale of all or substantially all of our assets or any other significant corporate transactions. These shareholders may also delay or prevent a change of control of our company, even if such a change of control would benefit our other shareholders. The significant concentration of stock ownership may adversely affect the trading price of our common stock due to investors’ perception that conflicts of interest may exist or arise.

Anti-takeover provisions may limit the ability of another party to acquire us, which could cause our stock price to decline.

Our articles of incorporation, our bylaws and Florida law contain provisions that could discourage, delay or prevent a third party from acquiring us, even if doing so may be beneficial to our shareholders. In addition, these provisions could limit the price investors would be willing to pay in the future for shares of our common stock. The following are examples of such provisions in our articles of incorporation and in our bylaws:

•

special meetings of our stockholders may be called by our Chairman of the Board, by our Chief Executive Officer, by our President, by the board of directors or by the holders of not less than ten percent (10%) of all the shares entitled to vote at the meeting (when requested in a written, signed and dated demand);

•

newly-created directorships and vacancies on our board of directors may be filled by an affirmative vote of a majority of the remaining directors, or by our shareholders;

•

a director may be removed with or without cause, at a meeting of the shareholders called expressly for that purpose, as provided in Section 607.0808, Florida Statutes;

•

our bylaws may be further amended by a majority of the shareholders entitled to vote thereon present at any shareholders’ meeting if notice of the proposed action was included in the notice of the meeting or is waived in writing by a majority of the shareholders entitled to vote thereon;

•

our board of directors is authorized to issue, without further action by our shareholders, up to 2,000,000 shares of preferred stock in one or more series and to fix the rights, preferences, privileges, qualifications and restrictions granted or imposed on such preferred stock, including dividend rights, conversion rights, voting rights, rights and terms of redemption, liquidation preference and sinking fund terms, any or all of which may be greater than the rights of the common stock;

•

holders of Series C Preferred Stock as a separate class shall be entitled to elect one (1) member of our board of directors (but only if Daniel M. O’Donnell is not then serving in the position of director of the Company); and

•

without a vote of 75% of our outstanding Series C Preferred Stock, our board of directors may not be increased to more than five directors and we may not incur additional indebtedness.

Item 1B.

Unresolved Staff Comments.

None.

Item 2.

Properties.

Our corporate headquarters are currently located at 425 Market Street, Suite 2200, San Francisco, CA 94105. On March 16, 2011, we entered into a service agreement with HQ Global Workplaces, LLC, (“Regus”) to share the use of its facility. The service payments were $2,005 per month commencing April 1, 2011 increasing to $3,420 per month on June 1, 2011 through November 30, 2011. On November 9, 2011, we entered into a new service agreement with Regus effective December 1, 2011through February 29, 2012 with service payments of $2,200 per month. Effective March 1, 2012 through May 31, 2012, our service payments are $2,332 per month pursuant to a renewal agreement. Our corporate headquarters were previously located at 222 Kearny Street, Suite 550, San Francisco, California, where we leased approximately 7,615 square feet of space. The term of the lease commenced on November 1, 2005 and expired on April 15, 2011.

Item 3.

Legal Proceedings.

We are subject to routine litigation arising in the normal course of business from time to time. Beginning in November 2009, we were involved in legal proceedings which were settled during 2010.

Although the results of litigation and claims cannot be predicted with certainty, we do not believe the results of such litigation would have a material adverse effect on our business, financial condition or results of operations. However, should such litigation arise, defending such proceedings could be costly and may result in the diversion of management’s attention.

Item 4.

Mine Safety Disclosures

Not Applicable.

PART II

Item 5.

Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Market Information

Our shares of common stock currently trade on the OTCQB under the symbol “BNNX”, and traded on the NYSE Amex (the “Exchange”) under the symbol “BNX” during 2011 and 2010.

The following table sets forth the high and low sales prices for our common shares as reported on the Exchange for the periods indicated:


	High		Low
Year Ending December 31, 2011:
First Quarter	$	.39	$	.21
Second Quarter	$	.24	$	.10
Third Quarter	$	.16	$	.04
Fourth Quarter	$	.10	$	.03
Year Ending December 31, 2010:
First Quarter		.51		.22
Second Quarter	$	.80	$	.32
Third Quarter	$	.43	$	.25
Fourth Quarter	$	.41	$	.16

Holders

At the close of business on March 30, 2012, there were 26,003,009 outstanding common shares, which were held by approximately 140 shareholders of record.

Dividend Policy

Prior Distributions

The Company has not declared or paid any distributions during the last three fiscal years.

Future Earnings

We currently intend to retain any future earnings to finance the growth and development of our business and therefore do not anticipate paying any cash dividends on common stock in the foreseeable future. Any future determination to pay cash dividends will be at the discretion of our board of directors and will depend upon our financial condition, operating results, capital requirements, and such other factors as our board of directors deems relevant.

On January 6, 2009 and January 9, 2009, the Company amended the Articles of Incorporation of the Company to designate a series of preferred stock of the Company to be designated as Series C Preferred Stock. Each share of the Series C Preferred Stock will be entitled to receive a 10% annual cumulative dividend, compounded annually. These dividends will be payable only upon a liquidation or redemption. For any other dividends or distributions, the Series C Preferred Stock will participate with the common stock.

Equity Compensation Plan Information

Please see Part III, Item 12 of this Annual Report on Form 10-K for disclosure relating to our equity compensation plans.

Unregistered Sales of Equity Securities

Not Applicable.

Item 6.

Selected Financial Data.

Not Applicable.

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Statement Regarding Forward—Looking Statements

When reading this section of this Annual Report on Form 10-K, it is important that you also read the financial statements and related notes thereto. This Annual Report on Form 10-K, including the sections entitled “Business,” “Properties,” “Legal Proceedings,” “Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and certain information incorporated herein by reference contain forward-looking statements within the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. All statements contained in this Annual Report on Form 10-K, other than statements that are purely historical, are forward-looking statements and are based upon management’s present expectations, objectives, anticipations, plans, hopes, beliefs, intentions or strategies regarding the future. We use words such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could,” and similar expressions to identify forward-looking statements. Forward-looking statements in this Annual Report on Form 10-K include, without limitation: (1) projections of revenue, earnings, capital structure and other financial items, (2) statements of our plans, objectives, and intentions, (3) statements regarding the capabilities, capacities, and expected development of our business operations, (4) statements of expected future economic performance, and (5) assumptions underlying statements regarding us or our business.

It is important to note that our actual results could differ from information included in such forward looking-statements for many reasons, including those described below and in the section of this Annual Report on Form 10-K entitled “Item 1A. Risk Factors”.

The risks described in this Annual Report on Form 10-K are not the only risks facing our company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or operating results. We do not undertake, and expressly disclaim, any obligation to update this forward-looking information, except as required under applicable law.

Overview

We review our operations based on both our financial results and non-financial measures. Our primary source of revenue is our Internet advertising services; although we continue to seek to expand our other revenue we derive from sources such as online tax preparation, tax extension and stock brokerage services. For our Internet advertising services we review revenue-per-click and cost-per-click. When an Internet user clicks-through on a sponsored listing through our distribution network, our arrangements with our advertising network partners and direct advertisers provide that we receive a fixed percentage of their related advertising revenue. A further significant reduction in click-throughs or in advertising network partners exerting significant pricing pressures on us would have a material adverse effect on our results of operations. Our largest direct expense is traffic acquisition costs, which consist primarily of Internet advertising costs. We seek to decrease our cost-per-click through continuing optimization efforts and increasing page yield through the use of our proprietary analytics.

We currently depend, and expect to continue to depend for the foreseeable future, upon a relatively small number of advertising network partners and direct advertisers for a significant percentage of our revenues. InfoSpace represented 29% of our total 2011 revenue, although they represented only 8% of our revenue in Q4 of 2011. While these percentages will vary quarter to quarter, we plan to continue our efforts to mitigate our reliance on the revenue we derive from InfoSpace. We evaluate our business by measuring our total number of paid clicks, as well as other metrics related to customer acquisitions such as number of new customers and length of time we retain existing customers.

In 2011, we received approximately 21 million paid clicks from our distribution network, as compared to approximately 72 million for the year ended December 31, 2010. In 2011, we serviced approximately 15,000 online tax preparation customers compared to 2,000 in 2010. This increase was primarily attributable to the fact that we sold much of this advertising inventory to a major online tax preparation service in 2010. We also serviced approximately 14,000 online tax extension customers in the year ended December 31, 2011 compared to 4,500 in 2010. This increase was attributable to our acquisition of Filelater.com in 2010. Any increase in customer acquisitions will come at the expense of paid advertiser clicks and vice versa, but we believe a multi channel revenue strategy of customer acquisitions, in addition to Internet advertising, will allow us to build a more sustainable long-term business model. Therefore, future comparisons of the number of paid clicks we generate year over year may not be a reliable measure of the overall success of our business when viewed in isolation.

During 2009, we expanded the number of relationships with advertising network partners. Although only a nominal percentage of our 2009 revenues, this business line represented 23% of our revenue in 2011 compared to 13% in 2010. We plan to maintain our distribution network while maintaining a high quality of traffic by continuing to exclusively enter into agreements with partners who have existing tier one search relationships with providers such as: Google, Yahoo and/or Bing.

Our financial performance was negatively impacted by a series of revenue charge backs totaling $605,000 in 2011 and $610,000 in 2010. The revenue associated with these charge backs also had significant corresponding traffic acquisition costs that were not recoverable from our distribution network partners. As a result, we have drastically reduced our search engine marketing efforts and reassessed our strategy for this business line. Although we are engaging in search engine marketing efforts on a limited basis and have implemented additional traffic quality monitoring, we have made the strategic decision to continue to align our cost structure so that it does not rely on these search marketing efforts. In addition, through staff reductions and attrition, we have significantly reduced our overall employee headcount. We have also reduced other SG&A expenses in an effort to better align our cost structure to be less reliant on search marketing.

In late 2010, we acquired the online tax extension business, Filelater.com, as a complimentary business to irs.com. This acquisition included an existing client base, technology platform and a niche, tax extension related, domain portfolio. We believe we are well positioned to become a dominant player in the largely untapped market for online tax extensions.

Recent Developments

Pending Merger Transaction

Should the Merger Agreement be terminated, neither party will be required to pay the other party a termination fee or reimburse the other party for its expenses.

NYSE Amex Delisting

Seasonality

Our quarterly results have fluctuated in the past and will continue to do so in the future due to seasonal fluctuations in the level of Internet usage and our online tax related businesses. Our reliance on revenues generated through our ownership of the Internet domain irs.com and filelater.com will further cause our revenues to be largely seasonal in nature, with peak revenues occurring during the U.S. tax filing season of January through April. Therefore, our first and second quarter results should not be viewed as indicative of anticipated results for the entire fiscal year.

Critical Accounting Policies and Estimates

Our management’s discussion and analysis of our financial condition and results of operations is based on our audited financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The preparation of these audited financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported net sales and expenses during the reporting periods. On an ongoing basis, we evaluate our estimates and assumptions. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

Our significant accounting policies are described in Note 2 to our audited consolidated financial statements appearing at the end of this report for the year ended December 31, 2011.

Consolidated Results of Operations

The following table sets forth information for the years ended December 31, 2011 and 2010, derived from our consolidated financial statements (dollars in thousands, except per share data).


	Years Ended December 31,
	2011			2010
Revenues	$	4,433		$	9,549

Operating expenses:
Traffic acquisition costs		1,611			4,021
Depreciation and amortization		1,571			1,714
Sales and marketing		524			1,049
General and administrative		2,484			3,878
Impairment of domains		6,653			—

Total operating expenses		12,843			10,662

Loss from operations		(8,410	)		(1,113	)
Gain on legal settlement		—			224
Other gain		6			—
Interest expense		(107	)		(385	)

Loss before income taxes		(8,511	)		(1,274	)
Income tax (expense) benefit		(1,151	)		330

Net loss		(9,662	)		(944	)
Preferred stock dividends		(39	)		(30	)

Net loss available to common stockholders	$	(9,701	)	$	(974	)

Basic net loss per common share	$	(.37	)	$	(.04	)

Diluted net loss per common share	$	(.37	)	$	(.04	)

Basic weighted average common shares outstanding		25,931,361			26,093,681

Diluted weighted average common shares outstanding		25,931,361			26,093,681

The following table sets forth our operating results as a percentage of revenue for the periods indicated:


	Years ended December 31,
	2011			2010
Revenues		100	%		100	%

Operating Expenses:
Traffic acquisition costs		36			42
Depreciation and amortization		35			18
Sales and marketing		12			11
General and administrative		56			41
Impairment of domains		150			—

Total operating expenses		289			112

Loss from operations		(189	)		(12	)
Gain on legal settlement		—			2
Other gain		—			—
Interest expense		(2	)		(4	)

Loss before income taxes		(191	)		(14	)
Income tax (expense) benefit		(26	)		4

Net loss		(217	)		(10	)

Year Ended December 31, 2011 Compared to Year Ended December 31, 2010

Revenues. Revenue decreased 54% to $4.4 million for the year ended December 31, 2011 from $9.5 million for the year ended December 31, 2010. This decrease was primarily attributable to advertising network partner charge backs and a decrease in search related advertiser revenue that resulted from a reduction in our search engine marketing efforts.

Traffic acquisition costs. Traffic acquisition costs decreased 60% to $1.6 million for year ended December 31, 2011 from $4.0 million for the year ended December 31, 2010. This decrease was primarily attributable to a reduction in our search engine marketing efforts resulting from our decision to substantially reduce our emphasis and reliance on our search business, which also resulted in an increase in gross profit margin due to higher margin tax related business representing a greater portion of our revenue.

Depreciation and amortization. Depreciation and amortization decreased 8% to $1.6 million for the year ended December 31, 2011 from $1.7 million for the year ended December 31, 2010. The decrease was primarily attributable certain assets being fully depreciated in 2010.

Sales and marketing. Sales and marketing expense decreased to $524,000 for the year ended December 31, 2011 from $1 million for the year ended December 31, 2010. This decrease was mainly attributable to a decrease in sales commission and salary expenses.

General and administrative. General and administrative expenses decreased to $2.5 million for the year ended December 31, 2011 from $3.9 million for the year ended December 31, 2010. This decrease is due primarily to the reduction in personnel headcount and in other general and administrative expenses we initiated in the fourth quarter of 2010 to better align our cost structure with our reduced emphasis and reliance on our search business.

Impairment of domains. In 2011, the Company recorded impairment charges totaling $6.7 million on its domain names, look.com, and irs.com. In management’s opinion, the fair value of the domain name, irs.com, no longer exceeded the carrying value of the asset resulting in an impairment charge of $6.6 million. The impairment charge of $63,000 recorded on the look.com domain name represents the difference between the sale price of the look.com domain name and the carrying value of the asset at the time of the sale in October 2011.

Gain on legal settlement. In 2010, the Company entered into a Settlement Agreement of a lawsuit, resulting in the transfer of 622,673 shares of Company common stock to the Company as part of the settlement, resulting in a gain on legal settlement of $224,000. Included in general and administrative expenses were legal expenses that offset the gain.

Other gain. In 2011, the Company recorded a gain of $6,000 on the sale of miscellaneous office furniture and computer equipment.

Interest expense. Interest expense was $107,000 for the year ended December 31, 2011 compared to $385,000 for the year ended December 31, 2010. The decrease was primarily due to the paying off the remaining principal balance on our notes payable in March, 2010.

Income taxes. In 2011, the Company recorded a valuation allowance of $1.2 million against deferred tax assets previously recognized resulting in income tax expense of $1.2 million for the year ended December 31, 2011, compared to an income tax benefit of $330,000 for the year ended December 31, 2010. Pretax loss was $8.5 million for the year ended December 31, 2011 compared to a pretax loss of $1.3 million for the year ended December 31, 2010. In 2010, any differences from the statutory federal income tax rate are a result of state taxes and permanent tax differences, such as stock compensation and an income tax valuation allowance where management believed that a tax benefit was more likely than not to be realized.

Net loss. Net loss available to common stockholders for the year ended December 31, 2011 was $9.7 million or $.37 per basic and diluted share compared to net income of $974,000 or $.04 per basic and diluted share for the year ended December 31, 2010. This decrease was primarily attributable to impairment charges recorded on the Company’s domain names.

Liquidity and Capital Resources

Since inception, we have primarily financed our operations through internally generated funds and the use of our line of credit. We have engaged in private sales of our common stock and debt financing in order to fund the purchase price of some of our acquisitions. As of December 31, 2011, we had $112,000 in cash compared to $107,000 at December 31, 2010. As of December 31, 2011, our current liabilities exceeded our current assets resulting in a working capital deficit of $781,000 compared to a working capital deficit of $555,000 on December 31, 2010.

We generated a negative $239,000 in operating cash flow during 2011. Our liquidity was negatively impacted by a series of revenue charge backs totaling $605,000. As such, the company completed the transactions described below to improve its liquidity position.

On October 24, 2011, we completed the sale of the domain name, look.com, to Quidsi, Inc., pursuant to the terms of the Domain Name Transfer Agreement between the parties dated October 18, 2011. The purchase price of $400,000 was payable to the Company upon successful completion of transfer of the domain name to the Buyer.

On December 28, 2011, we entered into a financing transaction (the “Transaction”) with our Chief Executive Officer, Daniel O’Donnell, and his wife, Kimberly O’Donnell (collectively, the “Purchasers”), pursuant to which we issued and sold to the Purchasers in a private placement a convertible promissory note in the principal amount of $125,000 (the “Convertible Note”) and a warrant (the “Warrant”) to purchase an aggregate of 2,083,333 shares of our common stock. The offer and sale of the Convertible Note and the Warrant in the Transaction were made in reliance upon the exemption from registration provided by Section 4(2) of the Securities Act of 1933, as amended, as the offering was not a public offering. The aggregate gross proceeds to us from the Transaction were $125,000, excluding any proceeds from the exercise of the Warrant. The exercise price of the Warrant is $0.06 per share (subject to adjustment for stock splits, dividends and combinations, recapitalizations and the like). The Warrant is exercisable on or after December 28, 2011 and expires on December 28, 2016.

The Convertible Note bears interest commencing December 28, 2011 at the rate of 10.0% per annum. All outstanding principal of and accrued interest on the Convertible Note shall be due and payable on June 26, 2012. If the Convertible Note remains unpaid from and after the maturity date, the Convertible Note may be converted into shares of our common stock at a conversion price of $0.04 per share, in whole or in part, at any time at the option of the holder(s) of the Convertible Note, subject to approval of our shareholders, if required. If, while any principal of or accrued interest on the Convertible Note is outstanding, we enter into any consolidation or merger whereby we are not the surviving or continuing corporation or upon the sale of all or substantially all of our assets, for consideration to us (or our shareholders) of less than $0.04 per share (the “Sales Price”), then, at the election of the holder(s) of the Convertible Note, we shall pay to such holder(s) within 30 days of the consummation of any such transaction, an amount equal to $0.04 per share less the Sales Price multiplied by 3,125,000 shares (subject to adjustment for stock splits, dividends and combinations, recapitalizations and the like), provided that such payment shall not exceed $125,000. The foregoing payment is in addition to any outstanding principal or accrued interest owed to the holder(s) pursuant to the Convertible Note. We may elect to prepay all or any portion of the Convertible Note without penalty upon 30 days advance written notice to the holder(s) of the Convertible Note, provided that such holder(s) may convert the Convertible Note during such period. The Convertible Note contains various events of default, such as failing to timely make any payment under the Convertible Note when due, which may result in all outstanding obligations under the Convertible Note becoming immediately due and payable.

On December 7, 2010, we entered into a sale-leaseback arrangement with Domain Capital, LLC, (“Domain Capital”) consisting of an agreement to assign the domain name, banks.com, to Domain Capital in exchange for $600,000 in cash and a Lease Agreement to lease back the domain name from Domain Capital for a five year term. At the same time, the parties also entered into an Exclusive Option to Purchase whereby Domain Capital granted us an option to purchase the banks.com domain name for a nominal amount at the end of the lease. The lease agreement was effective as of the close of the assignment of the domain and provides for monthly rent payments of $14,274. The lease agreement provides for customary events of default, including, among other things, nonpayment, failure to comply with the other agreements in the lease agreement within certain specified periods of time, and events of bankruptcy, insolvency and reorganization. We may pre-pay the balance of the lease payments at any time by paying to Domain Capital the pre-payment amount as described in the lease agreement, provided that if certain events of default have occurred and are continuing, we must exercise our right to pre-pay within 15 days following its receipt of notice of such default from Domain Capital and must also pay any then outstanding lease payments.

On December 21, 2010, we issued an unsecured promissory note in the amount of $100,000 (the “Note”) pursuant to which our Chief Executive Officer, Daniel M. O’Donnell, and his wife, Kimberly L. O’Donnell loaned such amount to us. The Note bears interest commencing December 1, 2010, at the following rates: 20.00% per annum during the first six month period (December 2010 – May 2011); 15.00% per annum during the second six month period (June – November 2011); and 17.50% per annum during the third six month period (December 2011 – May 2012).

Commencing December 31, 2010 and ending May 31, 2011, we made monthly payments of approximately $1,667, consisting solely of accrued interest on the outstanding principal amount of the Note. On May 31, 2011, a principal payment of $25,000 was due and paid on the Note. During the period commencing June 1, 2011 and ending May 31, 2012, we must make monthly principal payments averaging approximately $4,167 plus accrued interest on the outstanding principal amount of the Note. On May 31, 2012, the remaining unpaid principal balance of the Note shall be due and payable. The Note is unsecured and subordinated to all of our existing and future indebtedness to Silicon Valley Bank (“SVB”).

As of December 31, 2011, we had no capital lease commitments, with the exception of the sale-leaseback arrangement with Domain Capital previously described above. We had no operating lease commitments at December 31, 2011.

In March 2010, we established a $2.5 million revolving line of credit with SVB for a term of one year. This agreement was executed and effective on March 3, 2010 and initially funded on March 5, 2010 and the proceeds were utilized to retire the outstanding principal balance of approximately $1.92 million on our senior debt. Under the terms of the Agreement with SVB (the “Loan Agreement”) may advance funds to us to finance certain Eligible Accounts (as defined in the Loan Agreement). When SVB makes an advance, the Eligible Account becomes a Financed Receivable (as described in additional detail in the Loan Agreement). The aggregate face amount of all Financed Receivables outstanding at any time under the Loan Agreement may not exceed $3,125,000 (the “Facility Amount”). An amendment to the Loan Agreement on November 24, 2010, among other things, decreased the Facility Amount to $1,250,000. On March 2, 2011, the term of the Loan Agreement was extended to April 1, 2011, at which point the facility terminated, and the facility amount decreased to $175,000. As of March 31, 2011, we had no balance on our revolving line of credit with SVB.

We continually review our capital requirements to ensure that we have sufficient funding available to support our anticipated levels of operations, obligations and growth strategies. We believe cash flow will be sufficient to fund anticipated levels of operations for the next twelve months. In the event our cash flow becomes insufficient to fund our ongoing operations, we anticipate utilizing a line of credit, if available, selling non-core assets or alternatively, raising new equity and/or debt capital. We have been exploring various strategic alternatives culminating in our recent agreement, described previously under “Recent Developments – Pending Merger Transaction”. We are incurring substantial expense in connection with this transaction, and if we are unable to complete the transaction, achieve sufficient cash flows from operations, or obtain adequate financing from lenders, our ability to continue normal business operations may be substantially limited.

Cash flows for the year ended December 31, 2011

Net cash used by operating activities for the year ended December 31, 2011 was $239,000 consisting primarily of a net loss of $9.7 million increased by impairment of domains of $6.7 million, depreciation and amortization of $1.6 million, deferred income taxes of $1.1 million, and a decrease in accounts receivable of $377,000, partially offset by a $307,000 decrease in accounts payable.

Net cash provided by investing activities for the year ended December 31, 2011 of $360,000 was primarily from the sale of the look.com domain name.

Net cash used in financing activities for the year ended December 31, 2011 of $116,000, was mainly attributable to a decrease in notes payable of $140,000 through payment of principal and repayment of the line of credit of $106,000.

Cash flows for the year ended December 31, 2010

Net cash provided by operating activities for the year ended December 31, 2010 was $1.6 million consisting primarily of a net loss of $944,000 increased by depreciation and amortization of $1.7 million, stock compensation of $208,000, and a decrease in accounts receivable of $1.4 million, partially offset by a $244,000 decrease in accounts payable and deferred income tax benefits of $317,000.

Net cash used in investing activities for the year ended December 31, 2010 of $256,000 was primarily for the acquisition of FileLater.com.

Net cash used in financing activities for the year ended December 31, 2010 of $1.5 million, was mainly attributable to a decrease in notes payable of $2.2 million through payment of principal, offset by loan proceeds of $700,000.

Item 7A.

Quantitative and Qualitative Disclosures About Market Risk.

Not Applicable.

Item 8.

Financial Statements and Supplementary Data.

Our consolidated financial statements, including the auditors’ report, are included beginning on page F-1 immediately following the signature page of this report.

Item 9.

Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.

None.

Item 9A (T).

Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company in the reports it files or submits under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including the Chief Executive Officer (our principal executive officer and principal financial officer) and the Chairman of the Audit Committee of our Board of Directors, as appropriate to allow timely decisions regarding required disclosure.

As required by the Exchange Act, our management, including the Chief Executive Officer (our principal executive officer and principal financial officer), conducted an evaluation as of December 31, 2011, of the effectiveness of our “disclosure controls and procedures” as defined in the Exchange Act. Based on that evaluation, our Chief Executive Officer (our principal executive officer and principal financial officer), concluded that, as of December 31, 2011, our disclosure controls and procedures were effective to ensure that information required to be disclosed in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported in accordance with and within the time periods specified in the rules and forms of the SEC and that such information is accumulated and communicated to management as appropriate to allow timely decisions regarding required disclosure.

In designing and evaluating the disclosure controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and our management necessarily was required to apply its judgment in evaluating the costs and benefits of possible controls and procedures.

Management’s Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Our internal control over financial reporting includes policies and procedures designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with United States generally accepted accounting principles. Management, under the supervision and with the participation of our Chief Executive Officer (our principal executive officer and principal financial officer) assessed the effectiveness of our internal control over financial reporting as of December 31, 2011. Management made this assessment in accordance with the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control—Integrated Framework . Based on its evaluation, management concluded that there are no material weaknesses in our internal control over financial reporting and that, accordingly, the Company’s internal control over financial reporting was effective as of December 31, 2011.

This Annual Report on Form 10-K does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the SEC that permit us to provide only management’s report in this Annual Report on Form 10-K.

Changes in Internal Control over Financial Reporting

No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the fourth quarter of 2010 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Item 9B.

Other Information.

None.

PART III

Item 10.

Directors, Executive Officers and Corporate Governance.

The information required by this Item 10 is incorporated by reference to the information in our Proxy Statement for the 2012 Annual Meeting of Shareholders to be filed with the SEC within 120 days after the end of the fiscal year ended December 31, 2010, included under the captions: (i) “Proposal 1: Election of Directors,” as it relates to members of our Board, (ii) “Corporate Governance,” as it relates to our Audit Committee and our Audit Committee Financial Expert, and as it relates to any changes to procedures by which our shareholders may recommend nominees to our Board, (iii) “Executive Officers,” as it relates to our executive officers, and (iv) “Section 16(a) Beneficial Ownership Reporting Compliance” as it relates to information concerning Section 16(a) beneficial ownership reporting compliance.

Code of Business Conduct and Ethics

We adopted a Code of Business Conduct and Ethics on July 10, 2006 that applies to all directors, officers, and employees of the Company, including our principal executive officer, principal financial officer, principal accounting officer and other senior executive officers, as required by applicable SEC rules and NYSE Amex listing standards. A copy of the Code of Business Conduct and Ethics is posted on the Investor Relations section of our website located at www.banks.com. In addition, a copy of the Code of Business Conduct and Ethics will be provided without charge upon request to Mark A. Schwerin, Secretary, c/o Banks.com, Inc., 425 Market Street, Suite 2200, San Francisco, California 94105. We intend to timely disclose any amendments to or waivers of certain provisions of our Code of Business Conduct and Ethics that apply to our principal executive officer, principal financial officer, principal accounting officer and other senior executive officers on the Investor Relations section of our website located atwww.banks.com.

Item 11.

Executive Compensation.

The information required by this Item 11 is incorporated by reference to the information in our Proxy Statement for the 2012 Annual Meeting of Shareholders to be filed with the SEC within 120 days after the end of the fiscal year ended December 31, 2011, included under the caption “Executive and Director Compensation” as it relates to compensation of our executive officers and directors.

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

The information required by this Item 12 is incorporated by reference to the information in our Proxy Statement for the 2012 Annual Meeting of Shareholders to be filed with the SEC within 120 days after the end of the fiscal year ended December 31, 2011, included under the captions: (i) “Security Ownership of Certain Beneficial Owners and Management” as it relates to security ownership of certain beneficial owners and management and (ii) “Securities Authorized for Issuance Under Equity Compensation Plans” as it relates to our equity compensation plans.

Item 13.

Certain Relationships and Related Transactions, and Director Independence.

The information required by this Item 13 is incorporated by reference to the information in our Proxy Statement for the 2012 Annual Meeting of Shareholders to be filed with the SEC within 120 days after the end of the fiscal year ended December 31, 2011, included under the captions: (i) “Certain Relationships and Related Transactions” as it relates to related party transactions and (ii) “Corporate Governance” as it relates to director independence.

Item 14.

Principal Accountant Fees and Services.

The information required by this Item 14 is incorporated by reference to the information in our Proxy Statement for the 2012 Annual Meeting of Shareholders to be filed with the SEC within 120 days after the end of the fiscal year ended December 31, 2011, included under the caption “Audit and Non-Audit Fees.”

PART IV

Item 15.

Exhibits and Financial Statement Schedules.

The following documents are filed as a part of this report:

1. Financial Statements. The consolidated financial statements required to be filed in this report are listed on the Index to Financial Statements immediately preceding the financial statements.

2. Financial Statement Schedules. Separate financial statement schedules have been omitted either because they are not applicable or because the required information is included in the consolidated financial statements or the notes thereto.

3. Exhibits. See the Exhibit Index for a list of the exhibits being filed or furnished with or incorporated by reference into this report.

SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Dated: March 30, 2012


BANKS.COM, INC.

By:		/s/ DANIEL M. O’DONNELL
		Daniel M. O’Donnell, President and Chief Executive Officer

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Daniel M. O’Donnell, his attorney-in-fact, with the power of substitution, for him in any and all capacities, to sign any amendments to this Report on Form 10-K, and to file the same, with Exhibits thereto and other documents in connection therewith with the Securities and Exchange Commission, hereby ratifying and confirming all that said attorney-in-fact, or substitute may do or cause to be done by virtue hereof.

In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.


/s/ DANIEL M. O’DONNELL Daniel M. O’Donnell, President and Chief Executive Officer; Chairman of the Board (Principal Executive Officer, Principal Financial and Accounting Officer)		March 30, 2012

/s/ FRANK J. MCPARTLAND Frank J. McPartland, Vice Chairman of the Board		March 30, 2012

/s/ LAWRENCE J. GIBSON Lawrence J. Gibson, Director		March 30, 2012

/s/ CHARLES K. DARGAN II Charles K. Dargan II, Director		March 30, 2012

/s/ STEVEN L. ERNST Steven L. Ernst, Chief Technology Officer and Director		March 30, 2012

INDEX TO FINANCIAL STATEMENTS


	Page
Banks.com, Inc. and subsidiaries

Report of Independent Registered Public Accounting Firm		F-1
Consolidated Balance Sheets as of December 31, 2011 and 2010		F-2
Consolidated Statements of Operations for the Years Ended December 31, 2011 and 2010		F-3
Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2011 and 2010		F-4
Consolidated Statements of Cash Flows for the Years Ended December 31, 2011 and 2010		F-5
Notes to Consolidated Financial Statements		F-6

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders

Banks.com, Inc.

San Francisco, California:

We have audited the accompanying consolidated balance sheets of Banks.com, Inc. and Subsidiaries (the “Company”) at December 31, 2011 and 2010, and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the two years in the period ended December 31, 2011. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these 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 financial statements are free of material misstatement. The Company is not required to have, nor have we been engaged to perform, an audit of the Company’s internal control over financial reporting. An audit includes 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 on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall 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 the Company at December 31, 2011 and 2010, and the results of their operations and their cash flows for each of the two years in the period ended December 31, 2011, in conformity with United States generally accepted accounting principles.

/s/ Burr Pilger Mayer, Inc.

San Francisco, California

March 30, 2012

F-1

BANKS.COM, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

(in thousands, except share and par value data)


	At December 31,
	2011			2010
Assets
Current assets:
Cash	$	112		$	107
Accounts receivable		279			656
Prepaid expenses and other		114			167
Deferred income taxes		62			316

Total current assets		567			1,246
Property and equipment, net		62			277
Domains and other intangibles, net		2,249			10,618
Other assets		68			88
Deferred income taxes		—			890

Total assets	$	2,946		$	13,119

Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	710		$	1,017
Accrued liabilities		312			461
Accrued dividends		99			60
Deferred revenue		24			16
Revolving line of credit		—			106
Notes payable, current portion, net of discount		203			141

Total current liabilities		1,348			1,801
Notes payable, less current portion		412			559

Total liabilities		1,760			2,360

Commitments and contingencies
Stockholders’ equity:
Preferred stock, $.001 par value, 5,000,000 shares authorized, 3,000,000 and 3,000,000 shares issued and outstanding		3			3
Common stock, $.001 par value; 125,000,000 shares authorized, 26,003,009 and 25,814,103 shares issued and outstanding		26			26
Additional paid-in capital		10,952			10,824
Accumulated deficit		(9,795	)		(94	)

Total stockholders’ equity		1,186			10,759

Total liabilities and stockholders’ equity	$	2,946		$	13,119

See accompanying notes to consolidated financial statements.

F-2

BANKS.COM, INC. AND SUBSIDIARIES

Consolidated Statements of Operations

(in thousands, except share and per share data)


	Years Ended December 31,
	2011			2010
Revenues	$	4,433		$	9,549

Operating expenses:
Traffic acquisition costs		1,611			4,021
Depreciation and amortization		1,571			1,714
Sales and marketing		524			1,049
General and administrative		2,484			3,878
Impairment of domains		6,653			—

Total operating expenses		12,843			10,662

Loss from operations		(8,410	)		(1,113	)
Gain on legal settlement		—			224
Other gain		6			—
Interest expense		(107	)		(385	)

Loss before income taxes		(8,511	)		(1,274	)
Income tax (expense) benefit		(1,151	)		330

Net loss		(9,662	)		(944	)
Preferred stock dividends		(39	)		(30	)

Net loss available to common stockholders	$	(9,701	)	$	(974	)

Net loss per common share available to common stockholders:
Basic	$	(.37	)	$	(.04	)

Diluted	$	(.37	)	$	(.04	)

Weighted-average common shares outstanding:
Basic		25,931,361			26,093,681

Diluted		25,931,361			26,093,681

See accompanying notes to consolidated financial statements.

F-3

BANKS.COM, INC. AND SUBSIDIARIES

Consolidated Statements of Stockholders’ Equity

For the Years Ended December 31, 2011 and 2010

(dollars in thousands)


	Preferred Stock				Common Stock					Additional Paid-In Capital			Retained Earnings (Accumulated Deficit)			Total Stockholders’ Equity
	Shares		Amount		Shares			Amount
Balance at December 31, 2009		3,000,000	$	3		26,113,651		$	26	$	10,831		$	880		$	11,740
Preferred stock dividends		—		—		—			—		—			(30	)		(30	)
Exercise of common stock options		—		—		73,125			—		9			—			9
Common stock issued for services		—		—		100,000			—		39			—			39
Common stock issued to directors for services		—		—		150,000			—		54			—			54
Retirement of 622,673 shares of common stock		—		—		(622,673	)		—		(224	)		—			(224	)
Stock-based compensation		—		—		—			—		115			—			115
Net loss		—		—		—			—		—			(944	)		(944	)

Balance at December 31, 2010		3,000,000		3		25,814,103			26		10,824			(94	)		10,759
Preferred stock dividends		—		—		—			—		—			(39	)		(39	)
Exercise of common stock options		—		—		38,906			—		5			—			5
Common stock issued to directors for services		—		—		150,000			—		20			—			20
Common stock warrant issued in connection with issuance of convertible note payable		—		—		—			—		55			—			55
Beneficial conversion feature in connection with issuance of convertible note payable		—		—		—			—		15			—			15
Stock-based compensation		—		—		—			—		33			—			33
Net loss		—		—		—			—		—			(9,662	)		(9,662	)

Balance at December 31, 2011		3,000,000	$	3		26,003,009		$	26	$	10,952		$	(9,795	)	$	1,186

See accompanying notes to consolidated financial statements.

F-4

BANKS.COM, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(in thousands)


	Years Ended December 31,
	2011			2010
Cash flows from operating activities:
Net loss	$	(9,662	)	$	(944	)
Adjustment to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation and amortization		254			414
Amortization of domains and other		1,317			1,300
Amortization of debt issuance costs		—			258
Impairment of domains		6,653			—
Deferred income taxes		1,144			(317	)
Gain on legal settlement		—			(224	)
Stock-based compensation		53			208
Change in operating assets and liabilities:
Accounts receivable		377			1,363
Prepaid expenses and other		53			118
Other assets		20			(20	)
Accounts payable		(307	)		(244	)
Accrued liabilities		(149	)		(176	)
Deferred revenue		8			(91	)

Net cash (used in) provided by operating activities		(239	)		1,645

Cash flows from investing activities:
Proceeds from sale of equipment		5			—
Purchase of property and equipment		(45	)		(16	)
Proceeds from sale of domain		400			—
Cash paid for acquisitions		—			(240	)

Net cash provided by (used in) investing activities		360			(256	)

Cash flows from financing activities:
Exercise of common stock options		5			9
Debt issuance costs		—			(63	)
Net proceeds from (repayments of) revolving line of credit		(106	)		106
Proceeds of notes payable		125			700
Payment of notes payable		(140	)		(2,210	)

Net cash used in financing activities		(116	)		(1,458	)

Net increase (decrease) in cash		5			(69	)
Cash at beginning of year		107			176

Cash at end of year	$	112		$	107

Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest	$	111		$	117

Income taxes	$	5		$	267

Noncash financing and investing activities:
Preferred stock dividends accrued	$	39		$	30

See accompanying notes to consolidated financial statements.

F-5

BANKS.COM, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

At December 31, 2011 and 2010 and for the Years Then Ended

(1) Business and Organization

Description of Business. The consolidated financial statements include the accounts of Banks.com, Inc. (the “Parent”) and its wholly-owned subsidiaries which, as of December 31, 2011, consisted of InterSearch Corporate Services, Inc. (“ICS”), Dotted Ventures, Inc. (“Dotted”), and MyStockFund Securities, Inc. (“MyStockFund”), collectively, the “Company”.

ICS is engaged principally in the business of providing highly skilled Internet and technology consultants.

Dotted owns an ICANN accredited domain Registrar business.

MyStockFund is an online broker-dealer that offers an array of financial products and services.

The Parent is a Florida corporation organized in 1994. The Company owns and operates Internet media properties including: banks.com, irs.com, filelater.com and mystockfund.com, that provide users with relevant finance related content and services and provide vendors targeted online advertising opportunities. The Company intends to continue building a cohesive business around its suite of finance-related web properties. Through these properties, the Company provides access to current financial content, including financial news, business articles, interest-rate tables, stock quotes, stock tracking and financial calculators. The Company also provides users access to online financial services including tax preparation, tax extensions and stock brokerage. Although the Company’s primary focus is on its financial services related websites, it also operates the proprietary search and shopping website, searchexplorer.com, and operated the proprietary website, look.com, until it was sold in October 2011. The Company generates revenue on these sites primarily via traffic generation and search engine marketing efforts.

Financial Results and Liquidity. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern which contemplates the realization of assets and satisfaction of liabilities in the normal course of business.

At December 31, 2011, the Company had negative working capital of $0.8 million. During the years ended December 31, 2011 and 2010, the Company incurred a net loss of $9.7 and $1.0 million, respectively, primarily as a result of the impairment of domains of $6.7 million in 2011 and a continuing decline in revenues primarily attributable to a reduction in the Company’s search engine marketing efforts in 2011 and 2010. Cash flows used in operations in 2011 were $0.2 million and cash flows provided by operations were $1.6 million in 2010. In late 2010 management drastically reduced its search engine marketing efforts and reassessed its strategy for this business line. Accordingly, the Company significantly reduced its selling, general and administrative expenses in 2011 so as to better align its cost structure to be less reliant on search marketing.

Management believes that cash flows from operations will be sufficient to fund anticipated levels of operations for the next twelve months. In addition, the Company may seek a line of credit to meet seasonal working capital needs, if available, or sell non-core assets or alternatively raise new equity and or debt as needed. The Company has been exploring various strategic alternatives culminating in its recent agreement, described in Note 17 titled “Pending Merger Agreement”. If the Company is unable to achieve sufficient cash flows from operations, obtain adequate financing from lenders, or complete its pending merger, its ability to continue normal business operations may be substantially limited.

(2) Summary of Significant Accounting Policies

Principles of Consolidation. The consolidated financial statements include the accounts of Banks.com, Inc. and its wholly-owned subsidiaries (collectively the “Company”). All significant intercompany accounts and transactions have been eliminated in consolidation.

Use of Estimates. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the amounts reported in the financial statements and the accompanying notes. Actual results could differ from those estimates. On an ongoing basis, we evaluate our estimates, including those related to the accounts receivable and bad debt allowance, fair values of financial instruments, intangible assets, useful lives of intangibles assets, fair values of stock-based compensation, income taxes and contingent liabilities, among others. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable, the result of which form the basis for making judgments about the carrying values of assets and liabilities.

F-6

BANKS.COM, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

At December 31, 2011 and 2010 and for the Years Then Ended

(2) Summary of Significant Accounting Policies, Continued

Revenue Recognition. Pay-for-performance search results are recognized in the period in which the “click-throughs” occur. “Click-throughs” are defined as the number of times a user clicks on a search result. Revenues derived from consulting services are recorded on a gross basis as services are performed and associated costs have been incurred using employees or independent contractors of the Company. The Company has agreements with various entities, networks of Web properties that have integrated the Company’s search service into their sites, to provide pay-for-performance search results. The Company pays these entities based on click-throughs on these listings. The revenue derived from pay-for-performance search results related to traffic supplied by these entities is reported gross of the payment to these entities. This revenue is reported gross primarily because the Company is the primary obligor to its customers.

Deferred Revenue. Revenues that are billed or collected in advance of services being completed are deferred until the conclusion of the period of the service for which the advance billing or collection relates. Deferred revenues are included on the balance sheet as a liability until the service is performed and then recognized in the period in which the service is completed. The Company’s deferred revenues primarily consist of billings in advance for direct advertising.

Traffic Acquisition Costs. The Company enters into agreements of varying duration with certain entities that integrate the Company’s pay-for-performance search service into their sites. The Company expenses traffic acquisition costs based on a percentage of revenue, number of paid introductions, number of searches, or other metric based on the volume of the underlying activity or revenue multiplied by the agreed-upon price or rate.

Accounts Receivable and Allowance for Uncollectible Receivables. Accounts receivable are recorded at invoiced amount and do not bear interest. An allowance for uncollectible accounts receivable is recorded based on a combination of write-off history, aging analysis and any specific known troubled accounts. At December 31, 2011 and 2010 no allowance was necessary due to subsequent collection of substantially all accounts receivable.

Property and Equipment. Office equipment is stated at cost, less accumulated depreciation. Depreciation expense is computed using the straight-line method over the estimated useful lives of the assets.

Internet Domains and Other Intangibles. Internet domains, or URLs, are stated at cost, less accumulated amortization. Amortization expense is computed using the straight-line method over the estimated useful lives of the assets of five to 15 years. The Internet domain assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. Based on the impairment tests performed, the Company recorded impairment charges totaling $6.7 million on its domain names, look.com and irs.com, during the year ended December 31, 2011. There was no impairment of Internet domains during the year ended December 31, 2010. There can be no assurance that future Internet domain impairment tests will not result in a charge to operations. During each of the years ended December 31, 2011 and 2010, amortization expense related to intangible assets was $1.3 million. Approximate future amortization expense for the next five years is $490,000 for 2012, $250,000 per year for 2013 through 2015 and $200,000 for 2016. Other intangibles consist primarily of customer relationships and other intangibles that are amortized over their estimated lives (generally five years).

Impairment of Long-Lived Assets. The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. If indicators of impairment exist, the Company assesses the recoverability of the affected long-lived assets by determining whether the carrying value of such assets can be recovered through undiscounted future operating cash flows. If the carrying amount is not recoverable, the Company measures the amount of any impairment by comparing the carrying value of the asset to the present value of the expected future cash flows associated with the use of the asset.

F-7

BANKS.COM, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

At December 31, 2011 and 2010 and for the Years Then Ended

(2) Summary of Significant Accounting Policies, Continued

Income Taxes. The Company accounts for incomes taxes by recognizing the amount of taxes payable for the current year and deferred tax assets and liabilities for future tax consequences of events at enacted tax rates that have been recognized in our financial statements or tax returns. The Company performs periodic evaluations of recorded tax assets and liabilities and maintains a valuation allowance, if considered necessary. The determination of taxes payable for the current year includes estimates. The Company believes that it has appropriate support for the income tax positions taken, and to be taken, on its tax returns and that its accruals for tax liabilities are adequate for all open years based on an assessment of many factors including past experience and interpretations of tax law.

Stock Compensation Plans. The Company requires that the cost of all employee, director and consultant stock options, as well as other equity-based compensation arrangements, be reflected in the financial statements based on the estimated fair value of the awards. It is applicable to any award that is settled or measured in stock, including stock options, restricted stock, stock appreciation rights, stock units, and employee stock purchase plans.

The Company had two equity incentive plans at December 31, 2011, the 2004 Equity Incentive Plan (“2004 Plan”), and the Amended and Restated 2005 Equity Incentive Plan (“2005 Plan”), which replaced the 2004 Plan. The termination of the 2004 Plan did not affect any outstanding options under the 2004 Plan, and all such options will continue to remain outstanding and governed by the 2004 Plan, but no shares will be available for grant under the 2004 Plan. As of January 1, 2011, there were 385,081 shares of our common stock available for issuance under the 2005 Plan, and at December 31, 2011, there were 890,706 shares of our common stock available for issuance under the 2005 Plan.

Both incentive stock options and nonqualified stock options can be granted under the equity incentive plans, in addition to other stock-based awards which may include, but are not limited to, awards of restricted stock or plan awards denominated in the form of “stock units”, and grants of so-called “phantom stock”. The exercise price of the stock options is determined by the board of directors at the time of grant, but cannot be less than the fair market value of the common stock on the date of grant. The standard vesting schedule for stock options issued under the plans occurs over a four year period. The stock options must be exercised within ten years from the date of grant.

Net Loss Per Share. The Company computes net loss per share using the weighted average number of common shares outstanding during the period. Diluted net loss per share is computed by dividing the net loss for the period by the weighted average number of common and common equivalent shares outstanding during the period. In 2011 and 2010, potentially dilutive securities, composed of incremental common shares issuable upon the exercise of stock options and warrants, and conversion of preferred stock, were excluded from historical diluted loss per share because of their anti-dilutive effect.

Fair Value of Financial Instruments. Financial instruments, including cash, accounts receivable, accrued liabilities and accounts payable are carried at cost, which management believes approximates fair value because of the short-term maturity of these instruments. The fair value of notes payable is estimated using discounted cash flow analysis based on the Company’s incremental borrowing rates for similar types of borrowings. The fair value of notes payable was approximately $615,000 and $700,000 at December 31, 2011 and 2010, respectively.

Software Developed for Internal Use. The Company capitalizes costs of software, consulting services, hardware, interest and payroll-related costs incurred to purchase or develop internal-use software. The Company expenses costs incurred during preliminary project assessment, research and development, re-engineering, training and application maintenance. The Company capitalized $40,000 of software costs in 2011. The Company did not capitalize any software costs for the year ended December 31, 2010.

F-8

BANKS.COM, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

At December 31, 2011 and 2010 and for the Years Then Ended

(2) Summary of Significant Accounting Policies, Continued

Recent Accounting Pronouncements. In June 2011, the FASB issued ASU 2011-05, Presentation on Comprehensive Income. ASU 2011-05 provides guidance that allows companies the option of how to present the components of, and a total, for net income, the components of, and a total, for other comprehensive income, and a total for comprehensive income as either one continuous statement of comprehensive income or in two separate but consecutive statements. There will no longer be the option to present items of other comprehensive income in the statement of stockholders’ equity.

There were various other accounting standards and interpretations recently issued, none of which is expected to have a material impact on the Company’s financial position, operations or cash flows.

(3) Merger and Acquisitions

On December 20, 2010 the Company completed the purchase of substantially all the assets of TPN Holdings LLC used in its web-based tax extension filing services business, including the e-commerce website, filelater.com, and a portfolio of approximately 80 additional tax extension related Internet domains. The purchase price consisted of $225,000 in cash, of which $175,000 was paid at the closing of the purchase and an additional $50,000 was paid on the six month anniversary of the closing. FileLater provides a secure online solution for individuals and businesses seeking to e-file an IRS income tax extension. This acquisition resulted in the recording of $240,000 of other intangible assets. These intangibles are being amortized over a period of five years on a straight line basis.

(4) Concentration of Risk

A substantial portion of the Company’s revenues have historically been generated by a limited number of advertising network partners. The Company is paid when search results generated by these partners are clicked on by one of the Company’s web properties. The expiration of one or more of these contracts has historically adversely impacted the operations of the Company. Our contractual relationship with InfoSpace, Inc. was consummated in the fourth quarter of 2007 and historically accounted for a substantial portion of the Company’s revenues. This agreement last renewed on December 31, 2011 and automatically renews for successive one year terms unless either party provides the other written notice of termination at least thirty (30) days prior to the end of the then current term. During the years ended December 31, 2011 and 2010, revenues generated by this partner totaled $1,293,000 and $5,564,000, respectively. Accounts receivable at December 31, 2011 and 2010, respectively, included $33,000 and $144,000 due from this advertising network partner. The Company has taken proactive measures to both mitigate its reliance on revenue it derives from this relationship and develop new partnerships with alternative providers of online search and advertising. In addition, the change in the Company’s business model to diversify its strategy to include customer acquisition through offering financial products and services is expected to gradually reduce the Company’s reliance on advertising network partners.

F-9

BANKS.COM, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

At December 31, 2011 and 2010 and for the Years Then Ended

(5) Income Taxes

Income taxes consists of the following (in thousands):


	Years Ended December 31,
	2011		2010
Current:
Federal	$	—	$	—
State		—		—

Total current		—		—

Deferred:
Federal		978		(280	)
State		173		(50	)

Total deferred		1,151		(330	)

Total income taxes	$	1,151	$	(330	)

The reasons for the differences between the statutory Federal rate and the effective income tax rate are summarized as follows (in thousands):


	Years Ended December 31,
	2011			2010
Income taxes at statutory Federal income tax rate	$	(2,894	)	$	(419	)
Increase in rate resulting from:
State taxes, net of Federal income tax benefit		(510	)		(64	)
Stock compensation		21			41
Valuation Allowance		4,590			110
Other		(56	)		2

Income taxes	$	1,151		$	(330	)

F-10

BANKS.COM, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

At December 31, 2011 and 2010 and for the Years Then Ended

(5) Income Taxes, Continued

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities relate to the following (in thousands):


	At December 31,
	2011			2010
Deferred tax assets:
Net operating loss carry forwards	$	1,503		$	898
Domains		3,020			261
Stock compensation		304			282
Other		83			53

Total deferred tax assets		4,910			1,494
Valuation allowance		(4,833	)		(243	)

		77			1,251

Deferred tax liabilities:
Office equipment		(15	)		(45	)

Total deferred tax liabilities		(15	)		(45	)

Net deferred tax asset	$	62		$	1,206

A valuation allowance of $133,000 was established at the time of the acquisition of Banks.com, Inc. and relates to Florida tax net operating losses that management believes may not be utilized to offset future taxable income. With the proposed merger of the Company (see Note 17), the Company’s tax planning strategy to utilize certain other net operating losses was impaired. Accordingly, an increase in the deferred tax valuation of $4,590,000 was recorded to cover deferred tax assets previously recorded and to offset deferred tax assets generated in 2011.

At December 31, 2011, the Company had Federal net operating loss carryforwards of $3,354,000 which will expire beginning in 2023 through 2031. The Company also has Florida and California net operating loss carryforwards. The Florida net operating losses are approximately $2,485,000 and began to expire in 2010 for which the Company has recorded a full valuation allowance. The California net operating losses are approximately $3,830,000 and will expire in 2028 and 2031. The Federal and Florida net operating loss carryforwards are subject to an annual limitation of approximately $304,000 due to the ownership change of the Company.

The Company files income tax returns in the U.S. Federal jurisdiction and various states. The Company is no longer subject to U.S. Federal, state and local income tax examinations by taxing authorities for years before 2007.

F-11

BANKS.COM, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

At December 31, 2011 and 2010 and for the Years Then Ended

(6) Property and Equipment

Property and equipment consists of the following (in thousands):


	At December 31,
	2011			2010
Office furniture and equipment	$	20		$	131
Computer equipment		438			544
Computer software		1,759			1,723
Leasehold improvements		—			54

Total, at cost		2,217			2,452
Less accumulated depreciation and amortization		(2,155	)		(2,175	)

Property and equipment, net	$	62		$	277

The Company has capitalized certain costs associated with software developed for internal use. The estimated useful life of costs capitalized is evaluated for each specific project. Amortization begins in the period in which the software is ready for its intended use. The Company had $40,000 and $196,000 of unamortized internally developed software costs at December 31, 2011 and 2010, respectively. There were no interest costs capitalized during the year ended December 31, 2011 or 2010.

(7) Revolving Line of Credit

In March 2010, the Company established a $2.5 million revolving line of credit with Silicon Valley Bank (“SVB”) for a term of one year with interest at prime plus 2.50% to 3.25%. Under the terms of the loan agreement between the Company and SVB (the “Loan Agreement”), SVB could advance funds to the Company collateralized by certain receivables not to exceed $3,125,000. On March 5, 2010, SVB advanced approximately $1,850,000 to the Company, which was used to pay the outstanding balance on the Company’s Senior Subordinated Notes. An amendment to the Loan Agreement on November 24, 2010, among other things, decreased the facility amount to $1,250,000. On March 2, 2011, another amendment decreased the facility amount to $175,000, and extended the term of the Loan Agreement to April 1, 2011, when it ultimately terminated. As of December 31, 2011, the Company had no revolving line of credit.

(8) Notes Payable

Notes payable as of December 31, 2011 and 2010 consists of the following (in thousands):


	At December 31,
	2011			2010
Lease financing	$	513		$	600
Subordinated promissory note – stockholder		47			100
Convertible promissory note – stockholder		55			—

Total		615			700
Less current portion		(203	)		(141	)

Notes payable	$	412		$	559

F-12

BANKS.COM, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

At December 31, 2011 and 2010 and for the Years Then Ended

(8) Notes Payable, Continued

Senior Subordinated Notes. In July 2006, the Company completed the sale of 13.50% Senior Subordinated Notes in the aggregate principal amount of $7.0 million (the “Notes”), together with 195,000 shares of common stock and warrants to purchase up to an aggregate of 477,000 shares of common stock at an exercise price of $1.60 (the “Warrants”). The Warrants expired in July 2011. On March 5, 2010, the Company paid off the outstanding balance of $1.9 million on the Notes with the proceeds of an advance through the credit facility described in Note 7 and cash on hand.

Lease Financing. On December 7, 2010, the Company entered into a sale-leaseback arrangement with Domain Capital, LLC, consisting of an agreement to assign the domain name, banks.com, to Domain Capital in exchange for $600,000 in cash and a Lease Agreement to lease back the domain name from Domain Capital for a five year term with an effective interest rate of 15%. At the same time, the parties also entered into an Exclusive Option to Purchase whereby Domain Capital granted the Company an option to purchase the banks.com domain name for a nominal amount at the end of the lease. The lease agreement was effective as of the close of the assignment of the domain and provides for monthly payments of $14,274. The Company accounts for this transaction as a financing due to the Company’s continuing involvement and bargain purchase at end of the lease.

The lease agreement provides for customary events of default, including, among other things, nonpayment, failure to comply with the other agreements in the lease agreement within certain specified periods of time, and events of bankruptcy, insolvency and reorganization. The Company may pre-pay the balance of the lease payments at any time by paying to Domain Capital the pre-payment amount as described in the lease agreement, provided that if certain events of default have occurred and are continuing, the Company must exercise its right to pre-pay within 15 days following its receipt of notice of such default from Domain Capital and must also pay any then outstanding lease payments.

Subordinated Promissory Note – Stockholder. Effective as of December 21, 2010, the Company issued an unsecured promissory note in the amount of $100,000 (the “Note”) pursuant to which the Company’s Chief Executive Officer, Daniel M. O’Donnell, and his wife, Kimberly L. O’Donnell loaned such amount to the Company. The Note bears interest commencing December 1, 2010, at the following rates: 20.00% per annum during the first six month period (December 2010 – May 2011); 15.00% per annum during the second six month period (June – November 2011); and 17.50% per annum during the third six month period (December 2011 – May 2012).

Commencing December 31, 2010 and ending May 31, 2011, the Company made monthly payments of approximately $1,667, consisting solely of accrued interest on the outstanding principal amount of the Note. On May 31, 2011, a principal payment of $25,000 was due and paid on the Note. During the period commencing June 1, 2011 and ending May 31, 2012, the Company must make monthly principal payments averaging approximately $4,167 plus accrued interest on the outstanding principal amount of the Note. On May 31, 2012, the remaining unpaid principal balance of the Note shall be due and payable. The Note is unsecured and subordinated to all of the Company’s existing and future indebtedness to SVB.

Convertible Promissory Note – Stockholder. On December 28, 2011, the Company entered into a financing transaction (the “Transaction”) with the Company’s Chief Executive Officer, Daniel O’Donnell, and his wife, Kimberly O’Donnell (collectively, the “Purchasers”), pursuant to which the Company issued and sold to the Purchasers in a private placement a convertible promissory note in the principal amount of $125,000 (the “Convertible Note”) and a warrant (the “Warrant”) to purchase an aggregate of 2,083,333 shares of the Company’s common stock. The offer and sale of the Convertible Note and the Warrant in the Transaction were made in reliance upon the exemption from registration provided by Section 4(2) of the Securities Act of 1933, as amended, as the offering was not a public offering. The aggregate gross proceeds to the Company from the Transaction were $125,000, excluding any proceeds from the exercise of the Warrant.

F-13

BANKS.COM, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

At December 31, 2011 and 2010 and for the Years Then Ended

(8) Notes Payable, Continued

Convertible Promissory Note – Stockholder, Continued. The Convertible Note bears interest commencing December 28, 2011 at the rate of 10.0% per annum. All outstanding principal of and accrued interest on the Convertible Note shall be due and payable on June 26, 2012. If the Convertible Note remains unpaid from and after the maturity date, the Convertible Note may be converted into shares of Common Stock at a conversion price of $0.04 per share, in whole or in part, at any time at the option of the holder(s) of the Convertible Note, subject to approval of the Company’s shareholders, if required. If, while any principal of or accrued interest on the Convertible Note is outstanding, the Company enters into any consolidation or merger whereby it is not the surviving or continuing corporation or upon the sale of all or substantially all of the assets of the Company, for consideration to the Company (or its shareholders) of less than $0.04 per share (the “Sales Price”), then, at the election of the holder(s) of the Convertible Note, the Company shall pay to such holders within 30 days of the consummation of any such transaction, an amount equal to $0.04 per share less the Sales Price multiplied by 3,125,000 shares (subject to adjustment for stock splits, dividends and combinations, recapitalizations and the like), provided that such payment shall not exceed $125,000. The foregoing payment is in addition to any outstanding principal or accrued interest owed to the holder(s) pursuant to the Convertible Note. The Company may elect to prepay all or any portion of the Convertible Note without penalty upon 30 days advance written notice to the holder(s) of the Convertible Note, provided that such holder(s) may convert the Convertible Note during such period. The Convertible Note contains various events of default, such as failing to timely make any payment under the Convertible Note when due, which may result in all outstanding obligations under the Convertible Note becoming immediately due and payable.

The scheduled maturities of all notes payable as of December 31, 2011 were approximately as follows (in thousands):


Year ending December 31:
2012	$	204
2013		117
2014		136
2015		158

	$	615

F-14

BANKS.COM, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

At December 31, 2011 and 2010 and for the Years Then Ended

(9) Net Income (Loss) Per Share

Basic net income (loss) per share is computed on the basis of the weighted-average number of common shares outstanding. All outstanding stock options and warrants, and outstanding convertible preferred stock are not considered dilutive securities for the years ended December 31, 2011 and 2010 due to the net losses incurred by the Company and were therefore excluded from the earnings per share calculation. Earnings per common share have been computed based on the following:


	Years Ended December 31,
	2011								2010
	Net Loss			Weighted- Average Shares		Per Share Amount			Net Loss			Weighted- Average Shares		Per Share Amount
	(dollars in thousands, except share and per share amounts)
Basic:
Net loss	$	(9,662	)		25,931,361	$	(.37	)	$	(944	)		26,093,681	$	(.04	)
Less: preferred stock dividends		(39	)							(30	)

Net loss available to common stockholders		(9,701	)		25,931,361		(.37	)		(974	)		26,093,681		(.04	)
Effect of dilutive securities:
Assumed conversion of preferred stock					—								—
Incremental shares from assumed conversion of options					—								—
Incremental shares from assumed conversion of warrants					—								—

Diluted:
Net loss available to common stockholders and assumed conversions	$	(9,701	)		25,931,361	$	(.37	)	$	(974	)		26,093,681	$	(.04	)

F-15

BANKS.COM, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

At December 31, 2011 and 2010 and for the Years Then Ended

(10) Stock Compensation

A summary of the stock option activity in the Company’s equity incentive plans is as follows:


	Number of Shares			Weighted- Average Per Share Exercise Price		Weighted- Average Remaining Contractual Term		Aggregate Intrinsic Value
Outstanding at December 31, 2009		1,717,031		$	.74		7.92 years	$	107,000
Granted		420,000			.25
Forfeited		(396,875	)		.40
Exercised		(73,125	)		.13

Outstanding at December 31, 2010		1,667,031		$	.73		5.74 years	$	157,000
Granted		—			—
Forfeited		(655,625	)		.88
Exercised		(38,906	)		.14

Outstanding at December 31, 2011		972,500		$	.65		5.88 years	$	—

Exercisable at December 31, 2011		808,437		$	.74		5.57 years	$	—

The stock options exercised during the year ended December 31, 2011 had no intrinsic value and there was no tax benefit recognized for the incentive stock options exercised in 2011. The total intrinsic value of stock options exercised during the year ended December 31, 2010 was $20,000 and there was no tax benefit recognized for the incentive stock options exercised in 2010. At December 31, 2011, the Company had 164,063 unvested stock options outstanding and there was $79,000 of total unrecognized compensation expense related to unvested stock-based compensation arrangements granted under the plans. This cost is expected to be recognized monthly on a straight-line basis over the appropriate vesting periods through January, 2014. The total fair value of stock options vested and recognized as compensation expense was $33,000 for the year ended December 31, 2011, compared to $115,000 for the same period in 2010. The associated income tax benefit recognized was $6,000 and $2,000 for the years ended December 31, 2011 and 2010, respectively.

F-16

BANKS.COM, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

At December 31, 2011 and 2010 and for the Years Then Ended

(10) Stock Compensation, Continued

There were no stock options granted in 2011. The fair value of each option granted for the year ended December 31, 2010 was estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions:


	Year Ended December 31, 2010
Risk-free interest rate		5.13	%
Expected dividend yield		—
Expected volatility		167	%
Expected life in years		6.25
Grant-date fair value of options issued during the year	$	102,000

Per share value of options at grant date	$	.24

The Company examined its historical pattern of option exercises in an effort to determine if there were any patterns based on certain employee populations. From this analysis, the Company could not identify any patterns in the exercise of options. As such, the Company used the guidance issued by the SEC to determine the estimated life of stock options. Based on this guidance, the estimated term was deemed to be the midpoint of the vesting term and the contractual term ((vesting term and original contractual term)/2). Expected volatility is based on historical volatility. The risk-free rate is based on the U.S. Treasury Strips with similar expected lives at the time of grant. The dividend yield is based on the Company’s history and expectation of dividend payments.

On May 19, 2010 an award of 50,000 shares of Company common stock was granted to an outside service provider in exchange for investor relations services. This item has been recorded at fair value as stock compensation and additional paid-in capital. The amount of expense recognized in connection with this transaction totaled $25,000. The associated income tax benefit recognized was $10,000.

On June 24, 2010, following the Company’s 2010 annual meeting of shareholders and the election of directors for the ensuing year, the Board of Directors approved an award of an aggregate of 150,000 shares of Company common stock which was granted to non-employee directors on June 25, 2010. This item has been recorded at fair value as stock compensation and additional paid-in capital. In 2010, the amount of expense recognized in connection with this transaction totaled $54,000. The associated income tax benefit recognized was $21,000. Pursuant to our 2005 Equity Compensation Plan, on the day following our annual meeting of shareholders each year, each active non-employee director is eligible to receive an annual grant of options to purchase 45,000 shares of our Common Stock. However, each non-employee director elected to waive such non-qualified stock option award in 2010.

On December 20, 2010 an award of an aggregate of 50,000 shares of Company common stock was granted to three outside service providers in exchange for consulting services. This item has been recorded at fair value as stock compensation and additional paid-in capital. The amount of expense recognized in connection with this transaction totaled $14,000. The associated income tax benefit recognized was $5,000.

On June 24, 2011, following the Company’s 2011 annual meeting of shareholders and the election of directors for the ensuing year, the Board of Directors approved an award of an aggregate of 150,000 shares of Company common stock which was granted to non-employee directors on June 27, 2011. This item has been recorded at fair value as stock compensation and additional paid-in capital. In 2011, the amount of expense recognized in connection with this transaction totaled $19,500. The associated income tax benefit recognized was $8,000. Pursuant to our 2005 Equity Compensation Plan, on the day following our annual meeting of shareholders each year, each active non-employee director is eligible to receive an annual grant of options to purchase 45,000 shares of our Common Stock. However, each non-employee director elected to waive such non-qualified stock option award in 2011.

F-17

BANKS.COM, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

At December 31, 2011 and 2010 and for the Years Then Ended

(11) Warrants

In connection with the sale of common stock, the Company issued a warrant to Barron Partners L.P. to purchase 6,250,000 shares of Company common stock at an exercise price of $1.20 per share, of which 5,221,966 were outstanding when the warrant expired September 29, 2010. The Company also issued a warrant to purchase 625,000 shares of Company common stock for services rendered by placement agents in connection with the sale of common stock, and subsequently issued additional warrants to these placement agents to purchase an aggregate of 141,797 shares of company common stock. There were 628,469 of these warrants outstanding when they expired on September 29, 2010 and October 6, 2010.

In 2006, the Company issued a warrant to purchase 477,000 shares of the Company common stock to certain Senior Subordinated Note holders. The warrant was exercisable at $1.60 per share but expired on July 20, 2011.

In connection with the issuance of the convertible promissory note described in Note 8, the Company issued a warrant to purchase 2,083,333 shares of Company common stock to The Daniel Michael O’Donnell and Kimberly Linn O’Donnell AB Living Trust, of which the Company’s Chief Executive Officer, Daniel O’Donnell, and his wife, Kimberly O’Donnell are trustees (see Note 14). The exercise price of the warrant is $0.06 per share (subject to adjustment for stock splits, dividends and combinations, recapitalizations and the like). The warrant is exercisable on or after December 28, 2011 and expires on December 28, 2016. Using the Relative Value method, the fair value was determined to be $55,000. This item was accounted for as an original issue discount on the note payable.

The following table summarizes information about common stock warrants outstanding for the periods indicated:


	Warrants Outstanding			Weighted- Average Exercise Price
Outstanding at December 31, 2009		6,327,435		$	1.20
Granted		—			—
Exercised		—			—
Expired		(5,850,435	)		1.17

Outstanding at December 31, 2010		477,000		$	1.60
Granted		2,083,333			0.06
Exercised		—			—
Expired		(477,000	)		1.60

Outstanding at December 31, 2011		2,083,333		$	0.06

(12) Preferred Stock

The Company has authorized 5,000,000 shares of preferred stock. On January 6, 2009 and January 9, 2009, the Company amended the Articles of Incorporation of the Company to designate a series of preferred stock of the Company as Series C Preferred Stock, and authorized the issuance of 3,000,000 shares of Series C Preferred Stock. The Series C Preferred Shares are convertible, at any time at the option of the holders, into shares of the Company’s common stock on a 3:1 ratio, subject to adjustments for any stock dividends, splits, combinations and similar events. Each share of the Series C Preferred Stock will be entitled to receive a 10% annual cumulative dividend, compounded annually. These dividends will be payable only upon a liquidation or conversion to common. For any other dividends or distributions, the Series C Preferred Stock will participate with the common stock. On January 6, 2009, the Company’s Chief Executive Officer purchased 3,000,000 shares of Series C Preferred Stock, par value $.001 per share, for an aggregate purchase price of $300,000 or $0.10 per share. As of December 31, 2011, the Company had 3,000,000 shares of preferred stock issued and outstanding.

F-18

BANKS.COM, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

At December 31, 2011 and 2010 and for the Years Then Ended

(13) Employee Benefit Plans

On July 1, 2005, the Company established a 401(k) deferred contribution plan covering all employees who have attained age 21and meet certain eligibility requirements. As established, the Company could make discretionary contributions to the plan. Effective January 1, 2007, the Company makes safe-harbor contributions matching up to 4% of an employee’s salary. Company contributions totaled approximately $48,000 and $70,000 in 2011 and 2010, respectively.

On January 1, 2005, the Company established an Employee Stock Ownership Plan (“ESOP”) to serve as a benefit to employees. Each year, at the discretion of the Board of Directors, the Company may make a contribution to the ESOP in Company stock or in cash. In 2011 and 2010, no contributions were allocated to the plan.

(14) Related Party Transactions

Effective as of December 21, 2010, as described in Note 8, the Company issued an unsecured promissory note in the amount of $100,000 (the “Note”) pursuant to which the Company’s Chief Executive Officer, Daniel M. O’Donnell, and his wife, Kimberly L. O’Donnell loaned such amount to the Company. The Note bears interest commencing December 1, 2010, at the following rates: 20.00% per annum during the first six month period (December 2010 – May 2011); 15.00% per annum during the second six month period (June – November 2011); and 17.50% per annum during the third six month period (December 2011 – May 2012).

Monthly payments of approximately $1,667, consisting solely of accrued interest on the outstanding principal amount of the Note were due and paid beginning December 31, 2010 and ending May 31, 2011. On May 31, 2011, a principal payment of $25,000 was due and paid on the Note. During the period commencing June 1, 2011 and ending May 31, 2012, the Company must make monthly principal payments averaging approximately $4,167 plus accrued interest on the outstanding principal amount of the Note. On May 31, 2012, the remaining unpaid principal balance of the Note will be due and payable. The Note is unsecured and subordinated to any of the Company’s existing and future indebtedness to Silicon Valley Bank. The Note had a balance of $46,764 at December 31, 2011, which is classified in current liabilities.

On December 28, 2011, the Company entered into a financing transaction (the “Transaction”) with the Company’s Chief Executive Officer, Daniel O’Donnell, and his wife, Kimberly O’Donnell (collectively, the “Purchasers”), pursuant to which the Company issued and sold to the Purchasers in a private placement a convertible promissory note in the principal amount of $125,000 (the “Convertible Note”) and a warrant (the “Warrant”) to purchase an aggregate of 2,083,333 shares of the Company’s common stock. The offer and sale of the Convertible Note and the Warrant in the Transaction were made in reliance upon the exemption from registration provided by Section 4(2) of the Securities Act of 1933, as amended, as the offering was not a public offering. The aggregate gross proceeds to the Company from the Transaction were $125,000, excluding any proceeds from the exercise of the Warrant.

The Convertible Note bears interest commencing December 28, 2011 at the rate of 10.0% per annum. All outstanding principal of and accrued interest on the Convertible Note shall be due and payable on June 26, 2012. If the Convertible Note remains unpaid from and after the maturity date, the Convertible Note may be converted into shares of Common Stock at a conversion price of $0.04 per share, in whole or in part, at any time at the option of the holder(s) of the Convertible Note, subject to approval of the Company’s shareholders, if required. If, while any principal of or accrued interest on the Convertible Note is outstanding, the Company enters into any consolidation or merger whereby it is not the surviving or continuing corporation or upon the sale of all or substantially all of the assets of the Company, for consideration to the Company (or its shareholders) of less than $0.04 per share (the “Sales Price”), then, at the election of the holder(s) of the Convertible Note, the Company shall pay to such holders within 30 days of the consummation of any such transaction, an amount equal to $0.04 per share less the Sales Price multiplied by 3,125,000 shares (subject to adjustment for stock splits, dividends and combinations, recapitalizations and the like), provided that such payment shall not exceed $125,000. The foregoing payment is in addition to any outstanding principal or accrued interest owed to the holder(s) pursuant to the Convertible Note. The Company may elect to prepay all or any portion of the Convertible Note without penalty upon 30 days advance written notice to the holder(s) of the Convertible Note, provided that such holder(s) may convert the Convertible Note during such period. The Convertible Note contains various events of default, such as failing to timely make any payment under the Convertible Note when due, which may result in all outstanding obligations under the Convertible Note becoming immediately due and payable.

F-19

BANKS.COM, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

At December 31, 2011 and 2010 and for the Years Then Ended

(15) Commitments and Contingencies

The Company is subject to routine litigation arising in the normal course of business from time to time. Beginning in November 2009, the Company was involved in legal proceedings which were settled in 2010, and resulted in a gain on legal settlement of $224,000 when 622,673 shares of Company common stock were transferred to the Company pursuant to a suit settlement agreement.

Although the results of litigation and claims cannot be predicted with certainty, the Company does not believe the results of such litigation would have a material adverse effect on the Company’s business, financial condition or results of operations. However, should such litigation arise, defending such proceedings could be costly and may result in the diversion of management’s attention.

(16) Sale of Domain Name

On October 24, 2011, as part of its continuing strategy to exit the search business and focus on the finance vertical, the Company completed the sale of the domain name, look.com, to Quidsi, Inc. (the “Buyer”), pursuant to the terms of the agreement between the parties (the “Domain Name Transfer Agreement”), dated October 18, 2011. The purchase price of $400,000 was payable to the Company upon successful completion of transfer of the domain name to the Buyer. An escrow fee of $3,560 was payable to the escrow agent by the Buyer. Each of the parties to the Domain Name Transfer Agreement made customary representations, warranties and covenants in the Domain Name Transfer Agreement.

(17) Subsequent Events

Pending Merger Transaction. On February 26, 2012, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Remark Media, Inc. (“Remark”) where the Company will become a wholly owned subsidiary of Remark (the “Merger”). Pursuant to the terms of the Merger Agreement, all outstanding shares of the Company’s common stock and a warrant to purchase 2,083,333 shares of the Company’s common stock will be automatically converted into the right to receive shares of Remark’s common stock. In addition, a convertible promissory note (held by Kimberly & Daniel O’Donnell) will be cancelled, exchanged for and converted into a new promissory note that is not convertible. Finally, the Company’s Series C Preferred Stock and the accrued and unpaid dividends thereon will be automatically converted into the right to receive shares of Remark common stock and cash in the aggregate amount of $300,000. The maximum aggregate number of shares of Remark common stock issuable as a result of the Merger shall be 702,784, subject to adjustment based on the Company’s net working capital as of the closing of the Merger. Each share of the Remark common stock outstanding immediately prior to the effective time will remain outstanding and will not be affected by the Merger.

F-20

BANKS.COM, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

At December 31, 2011 and 2010 and for the Years Then Ended

(17) Subsequent Events, Continued

Pending Merger Transaction, Continued. The Merger Agreement contains customary representations and warranties for a transaction of this type. The Merger Agreement also contains customary covenants, including covenants providing for each of the parties to use reasonable best efforts to cause the transactions to be consummated. The Merger Agreement also contains covenants requiring the Company to call and hold a shareholder meeting and recommend adoption of the Merger Agreement, subject to applicable fiduciary duties. The Merger Agreement also requires the Company to, among other things, conduct its business in all material respects in the ordinary course consistent with past practice during the period between the execution of the Merger Agreement and the closing of the Merger. The Company is subject to customary “no-shop” restrictions on its ability to solicit alternative acquisition proposals from third parties and to provide information to and engage in discussions with third parties regarding alternative acquisition proposals, subject to a “fiduciary duty” exception in certain circumstances.

Should the Merger Agreement be terminated, neither party will be required to pay the other party a termination fee or reimburse the other party for its expenses.

NYSE Amex Delisting. The Company received notice from NYSE Amex LLC by letter dated June 20, 2011, indicating that the Company was not in compliance with Section 1003(f)(v) of the Exchange’s Company Guide in that the Company’s securities had been selling at a low price per share for a substantial period of time. The Company’s continued listing was predicated on it effecting a reverse stock split of its common stock within a reasonable amount of time, which Exchange had determined to be no later than November 18, 2011. This deadline for compliance reflected a truncation under Section 1009(h) of the Company Guide, which provides that Staff may truncate the continued listing evaluation and follow-up procedures if a company, within 12 months of the end of a plan period, is again determined to be below continued listing standards.

F-21

EXHIBIT INDEX


Exhibit Number	Exhibit Description	Incorporated by Reference
Exhibit Number	Exhibit Description	Form	File No.		Exhibit No.		Filing Date		Filed Herewith

2.1	Purchase Agreement by and among Banks.com, Inc., InterSearch Corporate Services, Inc., MyStockFund Securities, Inc., and Online Investments, Inc. effective as of November 29, 2007	Quarterly Report on Form 10-Q		001- 33074		2.1		5/15/2008

2.2 ¨	Asset Purchase Agreement by and between Robert Fox and Lina Watson and Internet Revenue Services, Inc. dated September 15, 2006	Quarterly Report on Form 10-Q		001-33074		10.1		11/14/2008

2.3(1)	Agreement and Plan of Merger, dated as of February 26, 2012, by and among Banks.com, Inc., Remark Media, Inc., and Remark Florida, Inc.	Current Report on Form 8-K		001-33074		2.1		02/28/2012

3.1	Amended and Restated Articles of Incorporation, as amended	Amendment No.1 to Annual Report on Form 10-K/A		001-33074		3.1		4/01/2009

3.2	Amended and Restated Bylaws	Registration Statement on Form SB-2, as amended		333-129937		3.2		11/23/2005

4.1	Form of Common Stock Certificate	Annual Report on Form 10KSB		001-33074		4.1		3/31/2008

4.2	Form of Common Stock Purchase Warrant	Registration Statement on Form SB-2, as amended		333-129937		4.3		11/23/2005

4.3	Registration Rights Agreement by and among Banks.com, Inc. and Barron Partners, L.P. dated September 26, 2005	Registration Statement on Form SB-2, as amended		333-129937		4.4		11/23/2005

4.4	Form of Common Stock Purchase Warrant issued to GunnAllen Financial, Inc. and Pacific Summit Securities	Registration Statement on Form SB-2, as amended		333-129937		4.6		1/26/2006

4.5	Investment Agreement between Banks.com, Inc. and Capital South Partners Fund I Limited Partnership, Capital South Partners Fund II Limited Partnership and Harbert Mezzanine Partners II SBIC, L.P. dated July 21, 2006	Current Report on Form 8-K		000-51776		10.1		7/27/2006

4.6	First Amendment to Investment Agreement dated September 30, 2006	Annual Report on Form 10KSB		001-33074		4.6		3/30/2007

Exhibit
Number

Exhibit Description

Incorporated by Reference

Form

File No.

Exhibit
No.

Filing
Date

Filed
Herewith

4.7

Waiver, dated November 21, 2008, by and among Banks.com, Inc., Capital South Partners Fund I Limited Partnership, Capital South Partners Fund II Limited Partnership, and Harbert Mezzanine Partners II SBIC, L.P.

Amendment No.1 to

Annual Report on

Form 10-K/A

001-33074

4.7

4/01/2009

4.8

First Amendment to Investment Agreement, dated January 6, 2009 and effective as of December 31, 2008, by and among Banks.com, Inc., Capital South Partners Fund I Limited Partnership, Capital South Partners Fund II Limited Partnership, and Harbert Mezzanine Partners II SBIC, L.P.

Amendment No.1 to

Current Report on

Form 8-K/A

001-33074

10.1

4/27/2009

4.9

Extensions, dated May 11, 2009 and March 31, 2009, of Waiver dated November 21, 2008, by and among Banks.com, Inc., Capital South Partners Fund I Limited Partnership, Capital South Partners Fund II Limited Partnership, and Harbert Mezzanine Partners II SBIC, L.P., as amended

Quarterly Report on

Form 10-Q

001-33074

4.3

5/14/2009

4.10

Promissory Notes issued to each of and Capital South Partners Fund I Limited Partnership, Capital South Partners Fund II Limited Partnership and Harbert Mezzanine Partners II SBIC, L.P. dated July 21, 2006

Current Report on

Form 8-K

000-51776

10.2

7/27/2006

4.11

Form of Common Stock Purchase Warrant issued to issued to each of and Capital South Partners Fund I Limited Partnership, Capital South Partners Fund II Limited Partnership and Harbert Mezzanine Partners II SBIC, L.P. dated July 21, 2006

Current Report on

Form 8-K

000-51776

10.3

7/27/2006

4.12

Registration Rights Agreement by and among Banks.com, Inc. and Capital South Partners Fund I Limited Partnership, Capital South Partners Fund II Limited Partnership and Harbert Mezzanine Partners II SBIC, L.P. dated July 21, 2006

Current Report on

Form 8-K

000-51776

10.4

7/27/2006

Exhibit
Number

Exhibit Description

Incorporated by Reference

Form

File No.

Exhibit
No.

Filing
Date

Filed
Herewith

10.1**

Banks.com, Inc. 2004 Equity Incentive Plan and form of agreements thereunder

Registration Statement

on Form SB-2, as

amended

333-129937

10.2

11/23/2005

10.2**

Amended and Restated Banks.com, Inc. 2005 Equity Incentive Plan and form of agreements thereunder, as amended

Current Report on

Form 8-K

000-51776

10.1

11/30/2007

10.3**

Form of agreements for the Amended and Restated Banks.com, Inc. 2005 Equity Incentive Plan

Annual Report on

Form 10KSB

001-33074

10.3

3/30/2007

10.4

Office Lease dated September 21, 2005 by and between HCV Pacific Investors V and Banks.com, Inc., as amended

Registration Statement

on Form SB-2, as

amended

333-129937

10.5

11/23/2005

10.5

Form of Non-compete Agreement issued to certain employees of Walnut Ventures

Registration Statement

on Form SB-2, as

amended

333-129937

10.11

11/23/2005

10.6**

Employment Agreement by and between Banks.com, Inc. and Daniel M. O’Donnell dated February 22, 2007

Quarterly Report on

Form 10QSB

001-33074

10.1

5/14/2007

10.7**

Employment Agreement by and between Banks.com, Inc. and Gary W. Bogatay dated February 22, 2007

Quarterly Report on

Form 10QSB

001-33074

10.2

5/14/2007

10.8**

Employment Agreement by and between Banks.com, Inc. and Andrew Keery dated December 10, 2004

Registration Statement

on Form SB-2, as

amended

333-129937

10.7

1/11/2006

10.9**

Employment Agreement by and between Banks.com, Inc. and Steven Ernst dated December 10, 2004

Registration Statement

on Form SB-2, as

amended

333-129937

10.8

1/11/2006

10.10**

Employment Agreement by and between Banks.com, Inc. and Robert Hoult dated December 10, 2004

Registration Statement

on Form SB-2, as

amended

333-129937

10.10

1/11/2006

10.11**

Employment Agreement by and between Banks.com, Inc. and Kimberly O’Donnell dated October 27, 2004

Quarterly Report on

Form 10QSB

001-33074

10.3

5/14/2007

10.12**

Separation Agreement by and between Banks.com, Inc. and Andrew Keery dated October 24, 2007

Annual Report on

Form 10KSB

001-33074

10.13

3/31/2008


Exhibit Number	Exhibit Description	Incorporated by Reference
Exhibit Number	Exhibit Description	Form	File No.		Exhibit No.		Filing Date		Filed Herewith

10.13	Form of Subscription Agreement, dated January 6, 2009, between Banks.com, Inc. and Daniel O’Donnell and certain of his affiliates	Current Report on Form 8-K		001-33074		10.2		1/12/2009

10.14	Sublease Agreement, dated January 13, 2009, between Banks.com, Inc. and MuseGlobal, Inc.	Current Report on Form 8-K		001-33074		10.1		2/06/2009

10.15	Waiver, Consent and Voting Agreement, dated January 5, 2009, between Barron Partners LP and Banks.com, Inc.	Quarterly Report on Form 10-Q		001-33074		10.1		8/14/2009

10.16	Loan and Security Agreement, dated March 3, 2010, by and among Banks.com, Inc., InterSearch Corporate Services, Inc., Dotted Ventures, Inc., and Silicon Valley Bank	Annual Report on Form 10-K		001-33074		10.25		3/31/2010

10.17	Settlement Agreement, dated August 23, 2010 and effective as of August 18, 2010, by and among Banks.com, Inc., Daniel O’Donnell, Frank McPartland, Lawrence Gibson, Charles Dargan II, Steven Ernst, Robert Hoult, and Moxiesearch.com	Quarterly Report on Form 10-Q		001-33074		10.1		11/15/2010

10.18	Escrow Agreement, dated August 23, 2010 and effective as of August 18, 2010, by and among, Banks.com, Inc., Robert Hoult, and Deutsche Bank National Trust Company	Quarterly Report on Form 10-Q		001-33074		10.2		11/15/2010

10.19	Settlement Agreement, dated August 25, 2010 and effective as of August 24, 2010, by and among Banks.com, Inc., Andrew Keery, Dale Giessman, and ProStreamMedia.com	Quarterly Report on Form 10-Q		001-33074		10.3		11/15/2010

10.20	Agreement for assignment of Domain Name, dated effective December 7, 2010, between the Company and Domain Capital, LLC	Current Report on Form 8-K		001-33074		10.1		12/13/2010


Exhibit Number	Exhibit Description	Incorporated by Reference
Exhibit Number	Exhibit Description	Form	File No.		Exhibit No.		Filing Date		Filed Herewith

10.21	Lease Agreement for Domain Name, dated effective December 7, 2010, between the Company and Domain Capital, LLC	Current Report on Form 8-K		001-33074		10.2		12/13/2010

10.22	Exclusive Option to Purchase Domain Name, dated effective December 7, 2010, between the Company and Domain Capital, LLC	Current Report on Form 8-K		001-33074		10.3		12/13/2010

10.23	Asset Purchase Agreement, dated December 20, 2010, among the Company, TPN Holdings LLC, and the members of TPN Holdings	Current Report on Form 8-K		001-33074		10.1		12/23/2010

10.24	Form of Noncompetition and Nonsolicitation Agreement, dated December 20, 2010, between the Company and each of Ryan Thompson, Mark Faggiano and Sebastian Ailioaie	Current Report on Form 8-K		001-33074		10.2		12/23/2010

10.25	Promissory Note of the Company, effective as of December 21, 2010, issued in favor of Daniel M. O’Donnell and Kimberly O’Donnell	Current Report on Form 8-K		001-33074		10.3		12/23/2010

10.26	Consent and First Amendment to Loan and Security Agreement, dated November 24, 2010, by and among Silicon Valley Bank and Banks.com, Inc., InterSearch Corporate Services, Inc., and Dotted Ventures, Inc.	Annual Report on Form 10-K		001-33074		10.26		03/31/2011

10.27	Second Amendment to Loan and Security Agreement, dated March 2, 2011, by and among Silicon Valley Bank and Banks.com, Inc., InterSearch Corporate Services, Inc., and Dotted Ventures, Inc.	Annual Report on Form 10-K		001-33074		10.27		03/31/2011

10.28	Domain Name Transfer Agreement, dated October 18, 2011, between Banks.com, Inc. and Quidsi, Inc.	Quarterly Report on Form 10-Q		001-33074		10.1		11/14/2011

10.29	Convertible Promissory Note, dated December 28, 2011, in the original principal amount of $125,000 payable by the Company to Kimberly O’Donnell and Daniel O’Donnell	Current Report on Form 8-K		001-33074		10.1		01/04/2012

10.30	Common Stock Purchase Warrant, dated December 28, 2011, issued by the Company to The Daniel Michael O’Donnell and Kimberly Linn O’Donnell AB Living Trust	Current Report on Form 8-K		001-33074		10.2		01/04/2012

21.1	List of Subsidiaries								X

23.1	Consent of Independent Auditors								X

24.1	Power of Attorney (included on signature page)								X

Exhibit
Number

Exhibit Description

Incorporated by Reference

Form

File No.

Exhibit
No.

Filing
Date

Filed
Herewith

31.1

Certification by Principal Executive Officer and Principal Financial Officer pursuant to Rule 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1

Certification by Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted by Section 906 of the Sarbanes-Oxley Act of 2002

101.INS*

XBRL Instance Document

101.SCH*

XBRL Taxonomy Extension Schema

101.CAL*

XBRL Taxonomy Extension Calculation Linkbase

101.DEF*

XBRL Taxonomy Extension Definition Linkbase

101.LAB*

XBRL Taxonomy Extension Label Linkbase

101.PRE*

XBRL Taxonomy Extension Presentation Linkbase

(1)

Schedules to the Agreement and Plan of Merger, dated as of February, 2012, by and among by and among Banks.com, Inc., Remark Media, Inc., and Remark Florida, Inc. have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The registrant hereby undertakes to furnish on a supplemental basis a copy of any omitted schedules to the Securities and Exchange Commission upon request.

¨	Confidential treatment for this exhibit expired on September 21, 2008, therefore, this exhibit was re-filed in its entirety. (The exhibit was originally filed on September 21, 2006).

Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933 or Section 18 of the Securities Exchange Act of 1934 and otherwise are not subject to liability.

**	Indicates management compensatory plan, contract or arrangement.

Large accelerated filer

Accelerated filer

Non-accelerated filer

¨ (Do not check if a smaller reporting company)

Smaller reporting company

Banks.com, Inc. 10-K