UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

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

For the fiscal year ended December 31, 2011

OR

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 001-33720
________________________________________

REMARK MEDIA, INC.
(Exact name of Registrant as specified in its charter)

Delaware
 
33-1135689
(State or other jurisdiction of
 
(I.R.S. Employer
incorporation or organization)
 
Identification No.)  

 
Six Concourse Parkway, Suite 1500 Atlanta, Georgia 30328
 
 
(Address of principal executive offices, including zip code)
 

 
(770) 821-6670
 
 
(Registrant’s telephone number, including area code)
 

  Securities registered pursuant to Section 12(b) of the Act:
 
Title of each class
 
Name of each exchange on which registered
Common Stock, $0.001 Par Value
 
NASDAQ Capital Market
 
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, as amended, 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 of this chapter) 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 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 definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Act (Check one):

Large accelerated filer 
 
Accelerated filer 
Non-accelerated filer 
 
Smaller reporting company x
(Do not check if a smaller reporting company)
   

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes   No x
 
At March 22, 2012, 6,367,072 shares of the Registrant’s common stock, $0.001 par value per share, were outstanding.  The aggregate market value of the common stock held by non-affiliates of the registrant was approximately $12,736,770 as of June 30, 2011, based on the closing price of the Common Stock on that date on the NASDAQ Capital Market. Shares of common stock held by each executive officer and director and by each person who owns 10% or more of the outstanding common stock have been excluded in that such person might be deemed to be an affiliate. This determination of affiliate status might not be conclusive for other purposes.
 
Documents incorporated by reference: 
 
 
None
 

 
 
 
Table of Contents

   
Page
     
PART I
     
     
PART II
     
 
     
PART III
     
     
PART IV
     
     
     

 
 
 
PART I
 

 
SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS
 
Our disclosure and analysis in this report concerning our operations, cash flows and financial position, including, in particular, the likelihood of our success in expanding our business and our assumptions regarding the regulatory environment and international markets, include forward-looking statements.  Statements that are predictive in nature, that depend upon or refer to future events or conditions, or that include words such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “estimate,” “may” and similar expressions are forward-looking statements.  Although these statements are based upon reasonable assumptions, they are subject to risks and uncertainties that are described more fully in this report in the section titled “Part I, Item 1A. Risk Factors”.  These forward-looking statements represent our estimates and assumptions only as of the date of this filing and are not intended to give any assurance as to future results.  As a result, undue reliance should not be placed on any forward-looking statements.  We assume no obligation to update any forward-looking statements to reflect actual results, changes in assumptions or changes in other factors, except as required by applicable securities laws.
 

 
ITEM 1.  BUSINESS
 

 
OVERVIEW
 

 
Our Mission
 
Our mission is to provide digital experiences that deliver content and foster connections so engaging and dynamic as to inform, entertain and inspire the world.
 
Our fundamentals for immersive digital experiences include: compelling content that fuels engagement, clean and intelligent organization and dynamic presentation that promotes content discovery, and intuitive discussion capabilities that generate content sharing and meaningful conversation.
 

 
Who We Are
 
Remark Media, Inc., formerly HSW International, Inc., (“Remark Media”, “we”, or the "Company") is a global digital media company focused on developing, owning and operating next-generation web publishing platforms that combine traditional web publishing and social media, with the goal of revolutionizing the way people search and exchange information over the Internet. The Company also offers a suite of content and platform services that provide its clients with opportunities to build consumer awareness, promote content engagement and foster brand-customer interactions.
 
The Company’s current leading brands, BoWenWang (bowenwang.com.cn) and ComoTudoFunciona (hsw.com.br), provide readers in China and Brazil with thousands of articles about how the world around them works, serving as destinations for credible, easy-to-understand reference information. Remark Media is the exclusive digital publisher in China and Brazil for translated content from HowStuffWorks.com, a subsidiary of Discovery Communications. The Company’s website services business creates innovative content and platform solutions for media and entertainment companies as well as Fortune 500 brands and boutique businesses. The solutions the Company offers center on helping clients generate incremental value by maximizing content utilization, enhancing online engagement and customer experience and by driving online and offline actions. Remark Media is also a founding partner and developer of the U.S.-based product Sharecare, a highly searchable social Q&A healthcare platform organizing and answering health and medical questions. The Company generates revenue primarily through service and licensing fees as well as online advertising sales on its owned and operated websites.
 
 
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The Company was incorporated in Delaware in March 2006 and is headquartered in Atlanta with additional operations in New York, Beijing and Sao Paulo.
 

 
Corporate Name Change
 
On December 30, 2011, the Company’s stockholders approved a company name change to Remark Media, Inc.  The name Remark Media reflects the Company’s continued dedication to rich, high-quality content, its commitment to deep social media engagement, and its core belief that uniting remarkable content and remarkable people leads to value-added exchanges of information and enriched connections with others.
 
The Company amended and restated its Certificate of Incorporation with the Delaware Secretary of State on December 30, 2011 to reflect its name change.  Effective January 3, 2012, the ticker symbol for the Company’s common stock traded on the NASDAQ Capital Market changed from “HSWI” to “MARK”, and the Cusip for the Company’s common stock changed  from “40431N104” to “75954W107”.
 

 
History
 
Remark Media was incorporated in Delaware in March 2006 as a wholly owned subsidiary of HowStuffWorks, Inc. in order to develop businesses using exclusive digital publishing rights to HowStuffWorks’ content in China and Brazil, and effect the merger with INTAC International, Inc. (the “INTAC Merger”). The Company completed the INTAC Merger in 2007 which assisted in the development of its digital content database exclusively licensed from HowStuffWorks by (i) accelerating its obtaining Internet licenses in China for launching its Internet platform, (ii) obtaining INTAC’s knowledge of the Chinese markets, relationships, and core competencies to accelerate the growth of its Internet platforms in China, and (iii) providing additional cash flow from INTAC’s established businesses.  In 2007 and 2008, the Company launched Brazilian and Chinese editions, respectively, of HowStuffWorks.com, utilizing strategies based on those employed by HowStuffWorks, Inc., as tailored to the needs of each localized market.  Remark Media still owns and operates these businesses.
 
In 2008, Remark Media decided to further leverage its web publishing infrastructure by expanding its operations into the U.S. market through the acquisition of DailyStrength, Inc. (“DailyStrength”). DailyStrength’s website offered content authored by medical professionals and the ability for users and members to launch health-related discussion groups using leading community tools to interact with others.
 
In 2009, the Company co-founded Sharecare, a U.S.-based venture between: Dr. Mehmet Oz, a leading cardiac surgeon, health expert and host of “The Dr. Oz Show”; HARPO Productions, producer of “The Oprah Winfrey Show”; Discovery Communications, the world’s largest non-fiction media company; Jeff Arnold, WebMD founder and Discovery Communications’ former Chief of Global Digital Strategy; Sony Pictures Television; and Remark Media.  Sharecare was created to build a web-based platform that simplifies the search for health and wellness information by organizing a vast array of health-related questions and providing multiple answers from experts, organizations, publishers, and caregivers representing various points of view. As a part of the transactions, the Company received an equity stake in Sharecare, sold substantially all of the assets of its DailyStrength subsidiary to Sharecare, agreed to provide management and website development services to Sharecare, and received a license to use Sharecare’s web platform for its own businesses.  As of December 31, 2011, Remark Media owns approximately 15.8% of Sharecare and has representation on its Board of Directors.  Accordingly, the Company considers Sharecare a related party.  Further information about Sharecare is available at http://sharecare.com . The Company does not incorporate any information on the Sharecare.com site into this Form 10-K. As Sharecare’s technology development partner, the Company began development of the platform for Sharecare in July 2009, and Sharecare.com was launched in October 2010. The Company continued to provide services to Sharecare through December 31, 2011, at which time its agreement with Sharecare expired. The Company does not expect to provide any further significant development services to Sharecare. Remark Media maintains the licensed rights to use the web publishing and social media platform it built for Sharecare for its own businesses outside of the healthcare industry.
 
In 2010, Remark Media launched Curiosity Online for Discovery Communications ( http://curiosity.com ), and provided website development services for the site through November 2011. The Company’s service agreement with Discovery ended in December 2011.
 

 
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Recent Developments
 
Funding.   On February 27, 2012, the Company entered into definitive equity financing agreements with accredited and institutional investors to raise funds in the amount of $4.25 million through a private placement. In connection with the transaction, the Company issued to investors common stock priced at $4.50 per share. Investors also received warrants to acquire shares of common stock at an exercise price of $6.81 per share, in the amount of 25% of the number of shares of common stock that the investors purchased. On February 29, 2012, the Company received $4.25 million in cash and issued to the investors a total of 944,777 shares of common stock and warrants to acquire an additional 236,194 shares of common stock. The Company also paid a placement agent fee of 7% of the proceeds of the offering or approximately $0.3 million, and issued a three-year warrant to the Placement Agent to purchase up to an aggregate of 35,429 shares of Common Stock at an exercise price of $7.46 per share.
 
Banks.com Merger.    On February 26, 2012, the Company entered into an agreement and plan of merger with Banks.com, Inc. (BNNX.PK), pursuant to which Banks.com will become a wholly-owned subsidiary of Remark Media (the “Banks.com Merger”). Banks.com is a leading financial services portal operating a unique breadth and depth of financial products and services. Upon the closing of the merger, which is subject to standard conditions to closing including the approval of the Banks.com shareholders, Remark Media will issue up to 702,784 shares of Common Stock representing approximately 11%  of our shares issued and outstanding as of March 22, 2012  to the shareholders of Banks.com, plus $300,000 in cash, as consideration for the merger.
 

 
  DESCRIPTION OF BUSINESSES
 
Remark Media has two operating segments: Brands (formerly “Digital online publishing”) and Content and Platform Services (formerly “Web platform services”).
 

 
Brands
 
Our Brands segment consists of those digital media properties that we own and operate.  It presently includes our translated and localized editions of HowStuffWorks.com in China and Brazil, and our soon-to-launch personal finance destination, DimeSpring.  We intend to expand our Brands segment in the coming year by continuing to develop and launch U.S.-based content and social media websites in a variety of content verticals.  Additionally, the digital media businesses we acquire through the expected Banks.com Merger will become a part of our Brands segment.
 
HowStuffWorks, China and Brazil.    ComoTudoFunciona ( http://hsw.com.br ) is Brazil’s online source for credible, unbiased and easy-to-understand explanations of how the world actually works.  The Portuguese-language site is the exclusive digital publisher in Brazil of translated and localized content from the leading Discovery Communications brand HowStuffWorks.  ComoTudoFunciona was established in March 2007. Its content is either originally created or translated and localized from HowStuffWorks.   BoWenWang ( http://www.bowenwang.com.cn ) is an information and reference website that provides China with encyclopedic knowledge and easy-to-understand explanations of how the world works.  The website is published from Beijing in the Chinese language.  Launched in June 2008, BoWenWang features a combination of original content authored by the Company, translated and localized from the leading Discovery Communications brand HowStuffWorks, and content from World Book, Inc. BoWenWang is the exclusive digital publisher in China of translated HowStuffWorks content and has an exclusive content partnership with World Book, Inc.
 
During 2011, we implemented certain cost-savings measures in our Brazil and China operations in connection with a strategic shift towards operations in the United States. We believe that the value of our international assets will be recognized over a longer term horizon, as online advertising markets develop for Brazil and China and the websites’ traffic fundamentals improve. In the near term, we believe our resources can be better applied to developing and establishing new brands and expending our services business in the United States; and as such, we are managing our costs in Brazil and China while evaluating those opportunities. In connection with these cost cutting measures, we performed an impairment assessment of the license to operate in China which is an indefinite-lived intangible asset. As a result of the assessment, we recorded an impairment loss of $0.38 million in our statement of operations for the third quarter ended September 30, 2011.
 
 
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DimeSpring.    As of December 31, 2011, we were in the development phase of a new English-language, personal finance website that will utilize rich content and  advice from a wide array of professionals to build a community of people interested in managing life’s financial hurdles and opportunities. DimeSpring is part of a larger product strategy to leverage our experience and expertise to create leading destination websites that offer a dynamic online experience around a given topic with access to relevant content and subject matter experts. Assets obtained through the expected Banks.com Merger will complement DimeSpring and serve to build a network of personal finance sites that aim to fulfill consumers’ needs. DimeSpring is expected to launch by the end of March 2012 at www.dimespring.com.
 
 
 
Content and Platform Services
 
Our Content and Platform Services business provides third-party clients with content, design, and development services for their websites as well as advisory services and custom technology solutions. We also license our proprietary web publishing and social media platforms. Our digital architects, developers and designers aim to construct a seamless connection between content and technology to create solutions that build consumer awareness, promote content engagement and foster multi-dimensional interactions.  Our prospective client base includes leading media and entertainment companies as well as Fortune 500 brands and boutique businesses. Recent engagements include the development and launch of Ask Dr. Oz ( http://www.doctoroz.com/ask) for Sharecare and the development and launch of Curiosity Online for Discovery Communications ( http://www.curiosity.com ).
 
As part of our transition to focusing on our U.S.-based Brands business, our legacy content and platform service agreements with Sharecare and Discovery Communications expired in December 2011. The Content and Platform Services business will have no revenues unless we enter into new services agreements with new customers. Accordingly, we intend to expand our Content & Platform Services business to additional clients in 2012, and we are continuing to evolve our technology platforms with the objective of incorporating the latest in social media and content trends.
 


Sales & Marketing
 
The primary business model for our Brands business is the sale of advertising, sponsorships and related products and services.  By focusing on providing high-quality digital properties to end users in the United States, Brazil and China we aim to establish a user base attractive to advertisers.  We primarily sell advertising based on the quantity of views delivered to advertisers or the success of various advertising-related metrics. We have sales operations in the United States to service our advertisers and intend to conduct sales for our owned and operated websites through a direct sales force and strategic partnerships. The primary business model for our Content and Platform Services business is service fees and platform licensing fees.
 
Much of our marketing efforts for both segments are in fostering word-of-mouth momentum by providing high-quality brands and services, in addition to using public relations efforts and search engine optimization practices.  We also intend to enter into partnerships with local businesses to provide awareness of and traffic to our brands and services.  We plan to begin paid marketing activities for our businesses during 2012.
 
 
 
Competition
 
Online publishing is a rapidly evolving market and we encounter significant competition in each market in which we own and operate websites.  Competitors for our Brands business include:
 
·  
United States: traditional Internet companies like Yahoo! and AOL, and web portals that focus on specific category verticals such as Demand Media, WebMD and About.com;
 
·  
China: national Internet portals such as Baidu, Shanda Interactive Entertainment, Sina, sohu.com and tom.com; and
 
·  
Brazil:  national websites such as Terra.
 
These competitors operate websites that compete with us for both end users and advertising revenue.
 
 
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Our Content & Platform Services segment provides a broad range of digital services for third parties, including content, design and development of websites as well as licensing of our proprietary content and social media technology platforms.  We are subject to significant competition from other website service providers.  Website service providers vary in their offerings and the market is highly competitive due to low barriers to entry and a large number of competitors. With respect to our social media technology platforms, we compete with companies such as Disqus and Jive Software.
 

 
Intellectual Property
 
We license many technologies used in our businesses as well as hold licenses to content owned by HowStuffWorks.  We rely upon trademark, copyright and trade secret laws in various jurisdictions, as well as confidentiality procedures and contractual provisions to protect our proprietary assets and brands.  We do not own any patent or copyright registrations.  We hold various trademarks for our brands, and we have additional applications pending.
 
 
 
Employees
 
As of December 31, 2011, we had 31 employees.
 

 
Our Relationship with Discovery Communications, Inc.
 
On December 17, 2007, following HowStuffWorks’ contribution of digital publishing rights to the Company, HowStuffWorks merged with Discovery Communications, Inc. (the “Discovery Merger”), and became a wholly owned subsidiary of Discovery.  The merger agreement between Discovery and HowStuffWorks provided that payment to the former HowStuffWorks shareholders for a significant portion of its ownership of our common stock would not be paid at the October 2007 closing of the transaction, but instead would be available to be paid in three semi-annual installments.  The installments were planned to begin in October 2008; however, no payment has occurred as of December 31, 2011.  Such payments will be in the form of cash or shares of Remark Media stock now held by HowStuffWorks.  Accordingly, the amount of shares of our common stock Discovery indirectly owns in the future may fall due to the potential distributions pursuant to the terms of the Discovery Merger.  At December 31, 2011, Discovery, through HowStuffWorks, owned approximately 42% of the Company’s outstanding common stock. 
 

 
Available Information
 
Remark Media’s website address is www.remarkmedia.com .  Information on our website is not incorporated by reference into this Form 10-K and should not be considered a part of this report.  We make available free of charge through our website our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports in addition to other SEC reports as soon as reasonably practicable after such material is electronically filed with or furnished to the SEC.
 
 
 
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ITEM 1A.  RISK FACTORS
 

 
This report contains forward-looking statements that involve risks and uncertainties.  Our actual results could differ materially from those discussed in this report.  Factors that could cause or contribute to these differences include, but are not limited to, those discussed below and elsewhere in this report and in any documents incorporated in this report by reference.
 

 
RISKS RELATING TO OUR SERVICES & BRANDS
 
We continue to evolve our business strategy and develop new brands and services, and prospects are difficult to evaluate.
 
We are in varying development stages of our business, so our prospects must be considered in light of the many risks, uncertainties, expenses, delays, and difficulties frequently encountered by companies in their early stages of development.  Additionally, we have limited operating history of our owned websites in the United States market. Some of the risks and difficulties we expect to encounter include our ability to:
 
·  
manage and implement new business strategies;
·  
successfully commercialize and monetize our assets;
·  
successfully attract advertisers for our owned and operated websites, and clients for our content and platform services;
·  
continue to raise additional working capital;
·  
manage our expense structure as a U.S. public company including, without limitation, compliance with the Sarbanes Oxley and Dodd Frank Acts;
·  
manage the anticipated  rise in operating expenses;
·  
establish and take advantage of contacts and strategic relationships;
·  
adapt to our potential diversification into other content verticals and service offerings;
·  
manage and adapt to rapidly changing and expanding operations;
·  
implement and improve operational, financial and management systems and processes;
·  
respond effectively to competitive developments;
·  
attract, retain and motivate qualified personnel; and
·  
manage each of the other risks set forth in this report.

 
Because of our lack of operating history in the United States and the early stage of development of our business, we cannot be certain that our business strategy will be successful or that it will successfully address these risks.  Any failure by us to successfully implement our new business plans could have a material adverse effect on our business, financial condition, results of operations and cash flows.
 

 
If we do not effectively manage our growth, our operating performance will suffer and our financial condition could be adversely affected.
 
Substantial future growth will be required in order for us to realize our business objectives.   To the extent we are capable of achieving this growth, it will place significant demands on our managerial, operational and financial resources.  Additionally, this growth will require us to make significant expenditures, establish, train and manage a larger work force, and allocate valuable management resources. We must manage any such growth through appropriate systems and controls in each of these areas.  If we do not manage the growth of our business effectively, our business, financial condition, results of operations and cash flows could be materially and adversely affected.
 
 
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The expansion of our Brands segments into new category verticals subjects us to additional business, legal, financial and competitive risks.
 
A key component of our business strategy is to grow our network of owned and operated websites to cover a variety of category verticals to address consumer interests and needs. In doing so we will encounter a number of risks, including increased capital requirements, growth in our workforce, new competitors and development of new strategic relationships. We cannot ensure that our strategy will result in increased revenue or operating profit. Furthermore, growth into new areas may require changes to our cost structure, modifications to our infrastructure and exposure to new regulatory and legal risks, any of which may require expertise in areas in which we have little or no experience. If we cannot generate revenue as a result of our expansion into new areas that are greater than the cost of such expansion, our operating results could be negatively impacted.
 

 
We have and will continue to generate revenue from advertising, and the reduction in spending by or loss of advertisers could seriously harm our business.
 
As we expand our Brands business, we will become increasingly reliant on online advertising. To date, we have had limited experience in selling online advertising.  Our advertisers can generally terminate their contracts with us at any time.  Advertisers will not continue to do business with us if their investment in advertising with us does not generate sales leads or if we do not deliver their advertisements in an appropriate and effective manner.  If we are unable to be competitive and provide value to our advertisers, they may stop placing ads with us, which would negatively impact our revenues and business.  Economic conditions, especially those associated with an emerging market or an industry where our Brands business has a focus such as banking and finance, could have a direct impact on advertising spend which would impact our revenue.  We cannot predict the timing, strength or duration of economic issues or a subsequent economic recovery generally or in the online advertising market.   In addition, expenditures by advertisers tend to be cyclical, reflecting overall economic conditions and budgeting and buying patterns.  Any decreases in or delays in advertising spending due to general economic conditions could reduce our revenues or negatively impact our ability to grow our revenues.
 

 
If we are unable to attract and retain visitors to our web business in a cost-effective manner, our business, financial condition and results of operations will be adversely affected.
 
Our primary strategy for attracting and retaining users to our websites is to provide content and community-focused digital experiences. The success of these efforts depends, in part, upon our ability to create and distribute high-quality content as well as innovate and evolve our content and social media technology platforms at scale in a cost-effective manner. Failure to do so could adversely affect user experiences and reduce traffic to our owned and operated websites, which would adversely affect our business, financial condition, results of operations and cash flows. Additionally, our strategy could be flawed and might not result in the ability to attract and retain users in a cost-effective manner. A second strategy we utilize to attract traffic is the search engine optimization, (“SEO”), of our websites and the content published on them.  SEO involves architecting websites with the objective of ranking well in unpaid search engine results. Our ability to successfully manage SEO efforts across our owned and operated websites is dependent on our timely and effective modification of SEO practices implemented in response to periodic changes in search engine algorithms and methodologies and changes in search query trends and our ability to offer websites and content responsive to ever-changing consumer interests and trends. Our failure to successfully manage our SEO strategy could result in a substantial decrease in traffic to our owned and operated websites, or an inability to attract traffic to new websites that we launch which would adversely affect our business, financial condition, results of operations and cash flows.
 
Even if we succeed in attracting traffic to our owned and operated websites, we may not be successful in monetizing the traffic. Additionally, the costs of attracting and retaining users to our websites may exceed our ability to generate revenues from such activities which would have an adverse effect on our business, financial condition, results of operations and cash flows.
 

 
Our services agreements with Sharecare and Discovery, which provided the vast majority of our 2011 revenue, expired at the end of 2011.
 
During 2011, we provided website development, design and management services to Sharecare and Discovery under services agreements which provided approximately 73% and 24%, respectively, of our revenues for 2011.  These agreements expired in December 2011, and we do not expect to extend the terms or enter into new services agreements with either customer.  As Sharecare has developed its operations and grown, it has made the strategic decision to
 
 
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transition these website development, design and management services in-house. In addition, the website services provided to Discovery were fully transitioned in 2011. The expiration of the two agreements has caused us to lose the majority of our sources of revenue, which will hurt our business, financial condition, results of operations and cash flows if the lost revenues are not replaced with other sources of revenue. Subsequent to December 31, 2011, we will have no service-related revenues generated in our U.S. operations unless we enter into new services agreements with new customers.

 

As a creator and a distributor of digital content, we face potential liability for legal claims based on the nature and content of the materials that we create or distribute, or that are accessible via our owned and operated websites.
 
As a creator and distributor of original content and third-party provided content, we face potential liability for legal claims, including defamation, negligence, unlawful practice of a licensed profession, copyright or trademark infringement or other legal theories based on the nature, creation or distribution of this information, and under various laws, including the Lanham Act, the Digital Millennium Copyright Act and the Copyright Act. We may also be exposed to similar liability in connection with content that is posted to our owned and operated websites by users and other third parties through comments, profile pages, discussion forums and other social media features. In addition, it is also possible that visitors to our owned and operated websites could make claims against us for losses incurred in reliance upon information provided on our owned and operated websites. Any of these claims could result in significant costs to investigate and defend, regardless of the merit of the claims. If we are not successful in our defense, we may be forced to pay substantial damages. While we run our content through a rigorous quality control process, there is no guarantee that we will avoid future liability and potential expenses for legal claims, which could affect our business, financial condition, results of operations and cash flows.
 

 
Our Content and Platform Services business may not prove to be profitable.
 
We intend to offer content and platform services to a broad portfolio of customers, but we have newly developed sales and marketing resources and may not be successful in obtaining those customers.  Because Sharecare and Discovery Communications, the customers generating virtually all of our Content and Platform services revenue through the end of 2011, are related parties, the pricing and other terms that were included in the agreements with those customers may not be indicative of the terms we can successfully obtain in arms-length transactions with other customers.  Additionally, we will be subject to competition with companies with greater resources.  Due to these factors, we may be unable to achieve profitability in this new line of business.
 

 
We face intense competition, which could have an adverse effect on our business, financial condition and results of operations.
 
The online publishing and content and platform development services markets are highly competitive.  We encounter significant competition across our business lines and in each market in which we offer our products and services. 
 
In the online publishing market, we expect that our competitors include:
 
·  
United States: traditional Internet companies like Yahoo! and AOL, and web portals that focus on specific category verticals such as Demand Media, WebMD and About.com;
 
·  
China: national Internet portals such as Baidu, Shanda Interactive Entertainment, Sina, sohu.com and tom.com; and
 
·  
Brazil:  national websites such as Terra.
 
In the content and platform services markets we are subject to competition from other website service providers.  Website service providers vary in their offerings and the market is highly competitive due to low barriers to entry and a large number of competitors. With respect to our social media technology platforms, we compete with companies such as Disqus and Jive Software.
 
Many of our competitors have more experience, resources and website visitors than us.  In the online publishing and content and platform services markets, many of our competitors have been providing similar services for an extended period of time, and have developed established brands, reputations, offerings, and client bases.
 

 
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We may not succeed in marketing and monetizing our assets to potential customers or developing strategic partnerships for the distribution of our products and services.
 
Our plans to market and monetize our assets in the United States are still relatively new, and we have limited experience in owning and operating websites in the United States.  We may not be successful in establishing a customer base of our owned and operated websites or strategic partnerships for our services.  If we are not successful in developing, releasing and/or marketing these owned and operated websites and services on a profitable basis, our results of operations would be materially and adversely affected.  Moreover, we may not have the resources available to simultaneously continue development of operations in China and Brazil.  Accordingly, there may be a delay in developing such operations or we might decide not to pursue these markets, which could affect our business, financial condition, results of operations and cash flows.
 

 
Our sublicensed content is subject to the terms and conditions of agreements between HowStuffWorks and third parties.
 
Under the terms of our contribution agreements, HowStuffWorks transferred and contributed to us all rights, but only those rights, that belong to and are held by HowStuffWorks pursuant to third party licenses.  Some of those licenses, including those with Publications International, Ltd., contain restrictions on the use of content and termination provisions for breaches of the license agreements.  Accordingly, a breach of any third party license by HowStuffWorks may cause us to lose our license with such third party, which could have a material adverse effect on the implementation of our business plan, value of our content offering, financial condition, results of our operations and cash flows.
 

 
RISKS RELATING TO OUR COMPANY
 
We have a history of operating losses and if we do not reach profitability, we may not be able to fund and operate our businesses.
 
Although Remark Media was founded in 2006, our business strategy is still evolving, and we have a limited operating history. We are in varying development stages of our businesses, including content and platform services, online publishing and international and domestic digital markets, with a limited operating history upon which investors and others can evaluate our current business and prospects.  We have had operating losses in each year of our operations. If we are not able to reach profitability, we may not be able to fund our operations in the future.
 
Because of our limited operating history and the ongoing development of our business, we will have limited insight into trends and conditions that may exist or emerge and affect our business, especially with respect to the content and platform services and online publishing market.  Our content and platform service agreements with Sharecare and Discovery Communications, which represented approximately 97% of our revenues for 2011, expired in December 2011. The Content and Platform Services business will have no revenues unless we enter into new services agreements with new customers. We cannot be certain that our business strategy will be successful or that it will successfully address these risks.  Any failure by us to successfully implement our new business plans could have a material adverse effect on our business, financial condition, results of operations and cash flows.
 
 
 
Acquisitions, business combinations and other transactions present integration risk and may have negative consequences for our business and our stockholders.
 
We plan to continuously monitor certain strategic acquisition opportunities. On February 26, 2012, we entered into an agreement and plan of merger with Banks.com, Inc., pursuant to which Banks.com would become a wholly owned subsidiary of Remark Media. The process of integrating acquired businesses into our existing operations may result in unforeseen difficulties and liabilities and may require a disproportionate amount of resources and management attention.  Difficulties that we encounter in integrating the operations of acquired businesses could have a material adverse effect on our business, financial condition, results of operations and cash flows.  Moreover, we may not realize any of the anticipated benefits of an acquisition and integration costs may exceed anticipated amounts.  We may enter into joint ventures, strategic alliances or similar arrangements with third parties.  These transactions result
 
 
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in changes in the nature and scope of our operations and changes in our financial condition.  Financing for these transactions may come from cash on hand, proceeds from the issuance of additional common stock or proceeds from debt financing.
 
 The issuance of additional equity or debt securities could:
 
·  
cause substantial dilution of the percentage ownership of our stockholders at the time of the issuance;
·  
cause substantial dilution of our earnings per share;
·  
subject us to the risks associated with increased leverage and additional interest costs;
·  
subject us to restrictive covenants that could limit our flexibility in conducting future business activities; and
·  
adversely affect the prevailing market price for our outstanding securities.

 
 
Our investment in Sharecare’s equity securities involves a substantial degree of risk.
 
Sharecare is a recently-formed company with limited history of operations.  Its prospects must be considered in light of the many risks, uncertainties, expenses, delays and difficulties encountered by companies in their early stages of development.  Moreover, Sharecare operates in the highly competitive internet industry and might not achieve profitability or consumer acceptance in the near term, if ever. Our investment in Sharecare’s equity securities is illiquid and might fail to appreciate and might decline in value or become worthless.  It is unlikely our Sharecare equity securities will pay current dividends, and our ability to realize a return on our investment, as well as to recover our investment, will be dependent on the success of Sharecare.  
 
Even if Sharecare is successful, our ability to realize the value of our investment might be limited.  Because it is a private company, there is no public market for Sharecare’s securities, and the Sharecare securities are subject to restrictions on resale that might prevent us from selling these securities during periods in which it would be advantageous to do so.  As a result, we might have to wait for a liquidity event, such as a public offering or the sale of Sharecare, to realize the value of our investment, if any.  A liquidity event is not expected in the near term.
 
We account for our investment in Sharecare under the equity method of accounting and we record our proportionate share of Sharecare’s net income or loss. It is likely that Sharecare will need to raise additional capital, or make additional acquisitions, and our equity position in Sharecare may be diluted if Sharecare issues additional equity, options, or warrants.  If Sharecare makes a capital call of its existing equity holders, our position may be diluted if we choose not to contribute additional capital. We continually evaluate the facts and circumstances related to our investment in Sharecare to assess the need for change in accounting method.  In November 2010, we acquired an option to purchase 13,089 shares in Sharecare. The option expired on July 30, 2011.  Our interest ownership in Sharecare was 15.8% at December 31, 2011.
 

 
We may not have sufficient liquidity to support the ongoing development and growth of our businesses.
 
The Company is in the process of developing and launching new content vertical websites as well as a website services business.  We currently operate at a loss and with a substantial negative cash flow from operations.  While we believe that our cash resources on hand at the time of this filing including the proceeds from our recent financing transactions, are sufficient to fund the launch and early growth of these businesses for a period of at least 12 months, our cash resources are not necessarily sufficient to fund these businesses for an extended period beyond that unless revenues increase significantly or we find additional sources of capital, neither of which can be assured.  Additionally, the development of new content vertical websites may require additional sources of capital for the Company.  Our management and directors continue to evaluate our progress and likelihood of success in each of our markets, and our ability to raise additional capital, against the relative value of our resources and other opportunities.  Accordingly, we  implemented cost saving measures in 2011 related to our Atlanta, Brazil and China operations in order to focus our limited resources in building our new content verticals, and we might decide to implement further cost savings measures or suspend our activities in one or more of our markets.  We may also need to raise additional funds for our business or the development of new initiatives, which may be dilutive to our stockholders.
 
We may need to raise additional funds in the future to support expansion, develop new or enhanced applications and services, respond to competitive pressures, acquire complementary businesses or technologies or take advantage of unanticipated opportunities.  If required, we may attempt to raise such additional funds through public or private debt or equity financing, strategic relationships or other arrangements similar to the revolving credit agreement entered into in March 2011 and which expired on March 3, 2012. In addition, there can be no assurance that such financing will be available on acceptable terms, if at all, or that such financing will not be dilutive to our stockholders. For further details regarding our liquidity, refer to our “Liquidity and Capital Resources” section of the “ Management’s Discussion and Analysis” included in this Form 10-K.  
 

 
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If we do not scale and adapt our business to technological needs of increased traffic and technological changes, it could cause inefficiencies or disruptions on our websites and loss of users, contributors, and advertisers.
 
As our business grows, our technological and network infrastructure must keep in-line with our traffic and advertiser needs. Future demand is difficult to forecast and we may not be adequately able to handle large increases unless we spend substantial amounts to augment our ability to handle increased traffic. Additionally, the implementation of increased network capacity contains some execution risks and may lead to ineffectiveness or inefficiency. This could lead to a diminished experience for our consumers and advertisers and damage our reputation and relationship with them, leading to lower marketability and negative effects on our operating results. Moreover, the pace of innovative change in network technology is fast and if we do not keep up, we may lag behind competitors. The costs of upgrading and improving technology could be substantial and negatively affect our business, financial condition, results of operations and cash flows.
 

 
We are vulnerable to failures of third party network and technology providers who may fail to provide adequate services in the future. This could cause technical problems or failure of our websites or traffic which could inhibit our revenues or damage our reputation and relationships with users, advertisers, and content providers.
 
We rely on many third party businesses for technological, network, and expert services. Our ability to operate successfully depends on the successful operation of these third party businesses, which carry their own risks. If one of our third party vendors fails to deliver expected services, our websites and business could suffer operating problems or temporary failures. If there is a problem or failure with our websites, it could hurt our ability to advertise and damage our reputation with consumers and advertisers.
 
We utilize third party services to host our websites. If one of these third parties experiences a failure, it could cause the failure of our websites, which may cause material adverse effects to our business. Additionally, a termination of our hosting agreements or failure to renew on favorable terms could affect our business. Shifting hosting services could require management focus and time and potentially disrupt operations of our websites.
 
In addition, as operators of content websites reliant on user traffic to sell advertising, our users must have adequate and functioning internet access. Technical problems with internet access providers such as cable, DSL satellite or mobile companies may inhibit user access to our websites and slow traffic. Such events as power outages caused by blackouts, brown outs, storm outages or other power issues could also cause loss of user access to our websites.
 

 
Our network operations may be vulnerable to hacking, viruses and other disruptions, which may make our products and services less attractive and reliable.
 
User traffic to our owned and operated websites could decline if any well publicized compromise of our security occurs.  “Hacking” involves efforts to gain unauthorized access to information or systems or to cause intentional malfunctions or loss or corruption of data, software, hardware or other computer equipment.  Hackers, if successful, could misappropriate proprietary information or cause disruptions in our service.  We may be required to expend capital and other resources to protect our owned and operated websites against hackers.  If our security measures are breached as a result of third party action, employee error or otherwise, we could incur liability and our reputation would be damaged, which could lead to the loss of current and potential customers. If we experience any breaches of our network security or sabotage, we might be required to expend significant capital and other resources to remedy, protect against or alleviate these and related problems, and we may not be able to remedy these problems in a timely manner, or at all. Because techniques used by outsiders to obtain unauthorized network access or to sabotage systems change frequently and generally are not recognized until launched against a target, we may be unable to anticipate these techniques or implement adequate preventative measures. We cannot ensure that any measures we may take will be effective.  In addition, the inadvertent transmission of computer viruses could expose us to a material risk of loss or litigation and possible liability, as well as materially damage our reputation and decrease our user traffic.
 

 
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We are subject to many government laws and regulations which could subject us to claims if we do not comply with such laws and regulations which could affect our reputation, business and financial position.
 
We are subject to a variety of laws and regulations regarding our business both within the United States, and in foreign territories in which we operate. Laws and regulations of particular importance to our business relate to: privacy, information security, intellectual property and other copyright, freedom of expression, domain registration, content distribution, and advertising. In particular, as a content company we may not be particularly protected from the Digital Millennium Copyright Act for infringing content posted on our website if we are not fully in compliance with the statutory requirements of this act.
 
Our failure to comply with these regulations may result in claims against us or other liabilities. Such liabilities could be substantial and adversely affect our operations, reputation and financial condition. We may incur substantial legal expenses and management resources may be required to defend against such claims, even if meritless.
 

 
We are exposed to unique risks from operations in Emerging Market countries, including Brazil and China which could affect our operations in these countries.
 
Our international operations expose us to a wide variety of risks including increased credit risks, customs duties, import quotas and other trade restrictions, potentially greater inflationary pressures, and the risk of failure or material interruption of wireless systems and services.  Changes may occur in foreign trade and investment laws in the territories and countries where we will operate.  United States laws and regulations relating to investment and trade in foreign countries could also change to our detriment.  Any of these factors could adversely affect our revenues and profits. 
 
We are subject to risk of political instability and trade sanctions within China.  China has traditionally been a closed market with strict political controls.  As China shifts to a market economy, growing economic and social freedoms may conflict with the more restrictive political and governmental policies.  In addition, democratic countries throughout the world have, from time to time, attempted to use economic and other sanctions to achieve political or social change in other countries.  Each of these factors could result in economic sanctions, economic instability, the disruption of trading and war within China and the Asia Pacific Rim, any of which could result in our inability to conduct business operations in China.
 
In the past, the Brazilian government has intervened in the Brazilian economy and occasionally made drastic changes in economic policy.  The Brazilian government’s actions to control inflation and affect other policies have included high interest rates, wage and price controls, currency devaluations, capital controls and limits on exports, among other actions.  Our business, financial condition, results of operations, cash flows, prospects and the market price of our securities may be adversely affected by changes in Brazilian government policies, as well as general economic factors, including:
 
·  
currency fluctuations;
·  
exchange controls and restrictions on remittances abroad, such as those that were briefly imposed on such remittances (including dividends) in 1989 and in the beginning of 1990;
·  
inflation;
·  
price instability;
·  
energy policy;
·  
interest rate increases;
·  
liquidity of domestic capital and lending markets;
·  
changes in tax policy; and
·  
other political, domestic, social and economic developments in or affecting Brazil.

 
Also, the President of Brazil has considerable power to determine governmental policies and actions that relate to the Brazilian economy and, consequently, affect the operations and financial performance of businesses operating in Brazil.  We have no control over, and cannot predict what policies or actions the Brazilian government may take in the future.
 
 
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Further risks relating to international operations include, but are not restricted to, unexpected changes in legal and regulatory requirements, changes in tariffs, exchange rates and other barriers, political and economic instability, possible effects of war and acts of terrorism, difficulties in accounts receivable collections, difficulties in managing distributors or representatives, difficulties in staffing and managing international operations, difficulties in protecting our intellectual property overseas, seasonality of sales and potentially adverse tax consequences.  Any of these factors could adversely affect our revenues and profits. Additional risks include, but are not limited to the following:
 
·  
We may not succeed in marketing and monetizing our international assets to potential customers or developing strategic partnerships for the distribution of our websites and services. Our plans to market and monetize our assets in the Chinese and Brazilian online markets through the Internet are still relatively unproven. 
 
·  
The state of the Internet infrastructure in Emerging Markets may limit our growth in these countries. The Internet infrastructures in Emerging Market countries, including China and Brazil, are not well developed and are subject to regulatory control and, in the case of China, ownership by the Chinese government.  The cost of Internet access is high relative to the average income in Emerging Market countries.  Failure to further develop these infrastructures could limit our ability to grow.  Alternatively, as these infrastructures improve and Internet use increases, we may not be able to scale our systems proportionately.  Our reliance on these infrastructures makes us vulnerable to disruptions or failures in service, without sufficient access to alternative networks and services.  Such disruptions or failures could reduce our user satisfaction.
 
·  
We may be sensitive to a slowdown in economic growth or other adverse changes in the China and Brazil economies.  This is particularly true in light of current financial and economic uncertainties.  In response to adverse economic developments, companies have reduced spending on marketing and advertising.  As a result, a slowdown in overall economic growth, an economic downturn or recession or other adverse economic developments in China or Brazil may materially reduce the demand for our services and materially and adversely affect our business.
 
·  
Our Emerging Market operations subject us to other regulatory risks including unpredictable governmental regulation in China and Brazil.
 
·  
Although Remark Media is incorporated in the State of Delaware, we have operations located in Brazil and the PRC.  As a result, it may be difficult for investors to enforce outside the United States any actions brought against us or our officers and directors in the United States, including actions predicated upon the civil liability provisions of the federal securities laws of the United States or of the securities laws of any state of the United States.  There is doubt as to the enforceability in Brazil and the PRC, in original actions or in actions for enforcement of judgments of United States courts, of civil liabilities predicated solely upon the federal securities laws of the United States or the securities laws of any state of the United States.
 

 
Additional specific risks related to conducting business in China could affect our business operations in that country.
 
The economy of China differs from the economies of most countries belonging to the Organization for Economic Cooperation and Development in a number of respects, including:
 
·  
structure;
·  
level of government involvement;
·  
level of development;
·  
level of capital reinvestment;
·  
growth rate;
·  
control of foreign exchange; and
·  
methods of allocating resources.

 
Since 1949, China has been primarily a planned economy subject to a system of macroeconomic management.  Although the Chinese government still owns a significant portion of the productive assets in China, economic reform policies since the late 1970s have emphasized decentralization, autonomous enterprises and the utilization of market mechanisms.  We cannot predict what affects the economic reform and macroeconomic measures adopted by the Chinese government may have on our business or results of operations. Specific risks which could affect our business in China include:
 
 
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·  
Regulation and censorship of information collection and distribution in China may adversely affect our business. China has enacted regulations governing Internet access and the distribution of news and other information.  Furthermore, the Propaganda Department of the Chinese Communist Party has been given the responsibility to censor news published in China to ensure, supervise and control a particular political ideology.  Periodically, the Ministry of Public Security has stopped the distribution over the Internet of information which it believes to be socially destabilizing.  The Ministry of Public Security has the authority to cause any local Internet service provider to block any website maintained outside China at its sole discretion.  If the PRC government were to take action to limit or eliminate the distribution of information through our portals or to limit or regulate current or future applications available to users of our portals, our business would be adversely affected.
 
·  
PRC laws and regulations related to the PRC Internet sector are unclear and will likely change in the near future.  If we are found to be in violation of current or future PRC laws or regulations, we could be subject to severe penalties.
 
·  
The PRC regulates its Internet sector by making pronouncements or enacting regulations regarding the legality of foreign investment in the PRC Internet sector and the existence and enforcement of content restrictions on the Internet.  There are substantial uncertainties regarding the interpretation of current PRC Internet laws and regulations. If we are found to be in violation of any existing or future PRC laws or regulations, the relevant PRC authorities would have broad discretion in dealing with such violation, including, without limitation, the following:
o  
levying fines;
o  
confiscating our income;
o  
revoking our business licenses;
o  
pursuing criminal sanctions against our business and personnel;
o  
shutting down our servers and/or blocking our websites;
o  
requiring us to restructure our ownership structure or operations; and
o  
requiring us to discontinue any portion or all of our Internet business based in China.
·  
A 2006 regulation establishes more complex procedures in the PRC for acquisitions conducted by foreign investors, which could make it more difficult for us to pursue growth through acquisitions.
 
·  
The online advertising markets in China and Brazil are still developing and present risk to our revenues to be generated from our online publishing business. We do not expect our online publishing businesses in China and Brazil to derive significant revenue from online advertisements in the near term. The online advertising markets in China and Brazil are still developing, and future growth and expansion of these markets is uncertain. In February and September 2011, we implemented certain cost-saving measures in our Brazil and China operations, respectively, to bring costs in line with expected revenues while searching for strategic media partners in both countries and consideration of other strategic alternatives.  These measures have also had an impact on our trend of revenues in both countries which would impact our financial condition, results or operations and cash flows generated in these countries.
 
·  
Potential additional Chinese regulation could affect our business in China. The Ministry of Information Industry, the Chinese governmental agency that regulates the Internet in China, promulgated a directive effective January 31, 2008, providing that online videos can only be broadcast or streamed by state-owned or controlled companies.  Subsequently, the Ministry of Information Industry acted to provide exceptions for certain non-state-owned or controlled companies.  While it is possible that our Chinese website would not be permitted to display online videos, which could have a material effect on the content provided on such website, it is not yet clear what, if any, effect this regulation has upon our business in China.
 
·  
New political and economic policies of the PRC government could affect our business.
 
·  
The PRC legal system embodies uncertainties which could limit the legal protections available to us. The PRC legal system is a civil law system based on written statutes.  Unlike common law systems, it is a system in which decided legal cases have little precedential value.  In 1979, the PRC government began to promulgate a comprehensive system of laws and regulations governing economic matters in general.  We are subject to laws and regulations applicable to foreign investment in mainland China.  However, these laws, regulations and legal requirements are relatively recent, and their interpretation and enforcement involve uncertainties.  These uncertainties could limit the legal protections available to us and other foreign investors. 
 
Any of these actions could have an adverse effect on our business, financial condition, results of operations and cash flows.
 
 
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We are subject to risks arising from some of our revenue being denominated in currencies other than the U.S. dollar. Restrictions on currency exchange may limit our ability to utilize our revenues effectively. Fluctuations in currency exchange rates may cause our foreign revenues to be unpredictable and fluctuate quarterly and annually.
 
Some of our revenues and operating expenses may be denominated in Chinese Renminbi .  Currently, we may purchase foreign exchange for settlement of “current account transactions” without the approval of the SAFE.  We may also retain foreign exchange in our current account (subject to a ceiling approved by the SAFE) to satisfy foreign exchange liabilities or to pay dividends.  However, the relevant PRC governmental authorities may limit or eliminate our ability to purchase and retain foreign currencies in the future.
 
Additionally, some of our revenues and operating expenses may be denominated in Brazilian Reais .  Brazilian law allows the Brazilian government to impose restrictions on the conversion of the Real into foreign currencies and on the remittance to foreign investors of proceeds from their investments in Brazil.  The government may impose such restrictions whenever there is a serious imbalance in Brazil’s balance of payments or there are reasons to foresee a serious imbalance.  The Brazilian government last imposed remittance restrictions for approximately six months in 1989 and early 1990.  The likelihood that the Brazilian government would impose such restrictions again depends on the extent of Brazil’s foreign currency reserves, the availability of foreign currency in the foreign exchange markets on the date a payment is due, the size of Brazil’s debt service burden relative to the economy as a whole, Brazil’s policy toward the International Monetary Fund and other factors.
 
Since a portion of our revenues may be denominated in Renminbi , existing and future restrictions on the exchange of Renminbi to other currencies may limit our ability to use revenue generated in Renminbi to fund our business activities outside China, if any, or expenditures denominated in foreign currencies.  Similarly, in the event that a significant amount of our revenues are denominated in Reais , any future restrictions on the exchange of Reais for other currencies or the remittance to foreign investors of proceeds from their investments in Brazil may limit our ability to use revenue generated in Reais to fund our business activities outside Brazil, or expenditures denominated in foreign currencies.
 
Currency fluctuations, devaluations and exchange restrictions may adversely affect our liquidity and results of operations.  In some countries, local currencies are not readily converted into Euros or U.S. dollars (or other “hard currencies”) or are only converted at government controlled rates, and, in some countries, the transfer of hard currencies offshore has been restricted from time to time.  Very limited hedging transactions are available in China to reduce its exposure to exchange rate fluctuations.  To date, we have not entered into any hedging transactions in an effort to reduce our exposure to foreign currency exchange risk.  While we may decide to enter into hedging transactions in the future, the availability and effectiveness of these hedges may be limited and we may not be able to successfully hedge our exposure, if at all.  Our revenues as expressed in our U.S. dollar financial statements will decline in value if Renminbi or Reais depreciate relative to the U.S. dollar to the extent we have revenues in China or Brazil.  In addition, our currency exchange losses may be magnified by PRC exchange control regulations that restrict our ability to convert Renminbi into U.S. dollars or by Brazilian exchange control regulations that restrict our ability to convert Reais into U.S. dollars.
 

 
Unauthorized use of our intellectual property by third parties, and the expenses incurred in protecting our intellectual property rights, may adversely affect our business.
 
We regard our copyrights, service marks, trademarks, trade secrets and other intellectual property as critical to our success.  Unauthorized use of our intellectual property by third parties may adversely affect our business and reputation.  We rely on trademark and copyright law, trade secret protection and confidentiality agreements with our employees, customers, business partners and others to protect our intellectual property rights.  Despite our precautions, it is possible for third parties to obtain and use our intellectual property without authorization.  Furthermore, the validity, enforceability and scope of protection of intellectual property in Internet related industries are uncertain and still evolving.  In particular, the laws of the PRC and Brazil are uncertain or do not protect intellectual property rights to the same extent as do the laws of the United States.  Moreover, litigation may be necessary in the future to enforce our intellectual property rights, to protect our trade secrets or to determine the validity and scope of the proprietary rights of others.  Future litigation could result in substantial costs and diversion of resources.
 

 
We may be subject to intellectual property infringement claims, which may force us to incur substantial legal expenses and, if determined adversely against us, materially disrupt our business.
 
We cannot be certain that our brands and services will not infringe valid patents, copyrights or other intellectual property rights held by third parties.  We may in the future be subject to legal proceedings and claims from time to time relating to the intellectual property of others in the ordinary course of our business.  In particular, if we are found to have violated the intellectual property rights of others, we may be enjoined from using such intellectual property, and may incur licensing fees or be forced to develop alternatives.  We may incur substantial expenses in defending against these third party infringement claims, regardless of their merit.  Successful infringement claims against us may result in substantial monetary liability or may materially disrupt the conduct of our business.
 
 
 
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If we are not able to attract and retain key management, we may not successfully integrate the contributed assets into our historical business or achieve our other business objectives.
 
We will depend upon our senior management for our business success.  The loss of the service of any of the key members of our senior management may significantly delay or prevent the integration of the contributed assets and other business objectives.  Our ability to attract and retain qualified personnel, consultants and advisors will be critical to our success.  We may not be able to attract and retain these individuals, and our failure to do so would adversely affect our business.
 

 
We may have additional tax liabilities if tax positions we have taken in prior years are challenged.
 
Although the company has not been a substantial tax payer to date, we and our subsidiaries are subject to taxes in the United States and various foreign jurisdictions.  We believe that our tax returns appropriately reflected our tax liability when those tax returns were filed.  However, applicable tax authorities may challenge our tax positions.  Any successful challenge to one or more of our prior tax positions could result in a material tax liability to us or to one or more of our subsidiaries, including INTAC, for one or more prior years.
 

 
We could incur asset impairment charges for intangible assets or other long-lived assets.
 
We have intangible assets and other long-lived assets, therefore future lower than anticipated financial performance or changes in estimates and assumptions, which in many cases require significant judgment, could result in impairment charges.  We test intangible assets that are determined to have an indefinite life for impairment during the fourth quarter of each fiscal year, and assess whether factors or indicators, such as unfavorable variances from established business plans, significant changes in forecasted results or volatility inherent to external markets and industries, become apparent that would require an interim test.  Adverse changes in the operating environment and related key assumptions used to determine the fair value of our indefinite lived intangible assets or declines in the value of our common stock may result in future impairment charges for a portion or all of these assets. In September 2011, we recorded an impairment charge of $0.38 million resulting from our analysis of a triggering event tied to the strategic reductions in investment in our China operations to better align expenses to the revenues being generated at this time. If any of the assumptions used in the analysis change in the future, an impairment charge for a portion or all of the assets may be required. In addition, in December 2010, we recorded an impairment charge of $0.5 million, primarily because of changes in our assumptions as to the time and cost required to obtain licenses to operate in China similar to the ones we currently hold. An additional impairment charge could have a material adverse effect on our business, financial position and results of operations, but would not be expected to have an impact on our cash flows or liquidity. The fair value of the license to operate in China was $0.1 million at December 31, 2011.
 

 
Our internal control over financial reporting and our disclosure controls and procedures may not prevent all possible errors that could occur. 
 
A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be satisfied.  Internal control over financial reporting and disclosure controls and procedures are designed to give a reasonable assurance that they are effective to achieve their objectives.  We cannot provide absolute assurance that all of our possible future control issues will be detected.  These inherent limitations include the possibility that judgments in our decision making can be faulty, and that isolated breakdowns can occur because of simple human error or mistake.  The design of our system of controls is based in part upon assumptions about the likelihood of future events, and there can be no assurance that any design will succeed absolutely in achieving our stated goals under all potential future or unforeseeable conditions.  Because of the inherent limitations in a cost effective control system, misstatements due to error could occur and not be detected.
 
 
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In our quarterly report on Form 10-Q for the period ended September 30, 2011, we disclosed that the former Chief Executive Officer (“CEO”) and former Chief Financial Officer (“CFO”) concluded that during the third quarter 2011 we did not maintain effective controls over the accounting for a nonmonetary change of interest ownership gain related to equity method investments. This control deficiency resulted in the restatement of our condensed consolidated financial statements originally reported in our Quarterly Report on Form 10-Q for the period ended June 30, 2011. Accordingly, the CEO and CFO at the time of filing determined that this control deficiency constitutes a material weakness as of September 30, 2011.
 
Our current CEO and management have taken appropriate measures to remediate the material weakness noted above. These enhanced control procedures over unusual investee transactions and related process improvements, have remediated this material weakness. The Company updated its accounting policies to require recognition of a non-cash change in interest gain or loss upon the issuance of equity in exchange for nonmonetary assets for equity-method investments in the period the equity issuance occurs. If the fair value of nonmonetary assets or the equity issued is not determined at the time of the transaction, the Company will record an estimate to reflect the gain or loss resulting from the change in interest ownership. In addition, the Company updated its procedures to require having periodic communications with its equity-method investees for review of the investees’ financial results and inquiring on key events or unusual transactions and ensuring the financial statements are prepared in accordance with GAAP.
 

 
We are not required to have our independent auditors attest to the effectiveness of our internal controls over our financial reporting.
 
The Sarbanes-Oxley Act of 2002 requires public companies to have and maintain effective internal controls over financial reporting to provide reasonable assurance regarding the reliability of financial reporting and preparation of financial statements, and have management review the effectiveness of those controls on an annual basis. We are required to comply with these requirements, but as a “smaller reporting company,” as defined by SEC rules, we are not required to have our independent auditors attest to the effectiveness of our internal controls over our financial reporting.  As a result, we may not have comparable procedures in place as compared to other larger public companies.
 

 
Our operations are vulnerable to natural disasters and other events.
 
While we believe we have adequate backup systems in place, we could still experience system failures and electrical outages from time to time in the future, which could disrupt our operations.  All of our servers and routers are currently hosted in a single location which poses site redundancy risk.  Although our site is a Tier 4 data center, which is composed of multiple active power and cooling distribution paths, has redundant components, is fault tolerant, and provides 99.995% availability, we do not have a documented disaster recovery plan in the event of damage from fire, flood, typhoon, earthquake, power loss, telecommunications failure, break in or similar events.  If any of the foregoing occurs, we may experience a temporary system shutdown.  If there is significant disruption or damage to the data center hosting our web servers, our ability to provide access to our websites would be interrupted.  We do not carry any business interruption insurance.  Although we carry property insurance, our coverage may not be adequate to compensate us for all losses, particularly with respect to loss of business and reputation that may occur.
 

 
RISKS RELATING TO OUR COMMON STOCK
 
There is a risk that an active and robust market for our common stock may not be available.
 
Our common stock is currently listed on the NASDAQ Capital Market, a robust exchange with substantial liquidity. It is not guaranteed that an active and robust market will exist for our common stock. However, if the NASDAQ Capital Market changes its listing requirements or ceases to operate in its current manner, there is no guarantee that we will be able to list on another exchange. This could severely limit the market liquidity of our stock and could adversely affect its price.
 
Moreover, the market for our common stock will be subject to general market economic conditions. Internet stocks in particular have exhibited extreme price fluctuations and volume volatility. In the event of adverse economic shifts in the Internet and Media stock sectors or the stock market in general, there is a risk that trading liquidity in our stock may not be available.
 

 
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The market price of our stock is likely to be volatile and various factors could negatively affect the market price or market for our common stock.
 
The market for and price of our common stock could be affected by the following factors: 
 
·  
general market and economic conditions;
·  
our common stock has been thinly traded; and 
·  
minimal third party research is available regarding our company.

 
Additionally, the terms of the Discovery Merger provided that payment to HowStuffWorks stockholders for a significant portion of HowStuffWorks’ ownership of our common stock would not be paid at the October 2007 closing of the transaction and instead are  payable to HowStuffWorks’ former stockholders in three semi-annual installments.  The installments were planned to begin in October 2008; however, payment had not occurred as of December 31, 2011.  Such payments will be in the form of cash or shares of Remark Media stock now held by HowStuffWorks.  Accordingly, the amount of shares of our common stock Discovery owns in the future may fall due to a combination of reasons.  All of our rights to publish HowStuffWorks content will remain effective regardless of the number of shares HowStuffWorks owns in the future.  If Discovery and HowStuffWorks’ former stockholders’  representative elect to distribute shares of our common stock to former HowStuffWorks stockholders,  a significant number of shares may be sold by such stockholders relative to the daily market trading volumes for our common stock.  These factors could also affect our common stock, and depress the market price for our common stock or limit the market for resale of our common stock.  The market price of our common stock has been volatile, particularly in the recent stock market turmoil, and is also based on other factors outside of our control. 
 

 
The concentration of our stock ownership may limit individual stockholder ability to influence corporate matters.
 
HowStuffWorks, a subsidiary of Discovery, beneficially owns a significant percentage of our outstanding common stock and is a party of a stockholders’ agreement.  The stockholders’ agreement entitles HowStuffWorks to designate nominees to our Board of Directors.  As a result, Discovery may have the ability to influence our management and affairs and determine the outcome of matters submitted to stockholders for approval, including the election and removal of directors, amendments to the charter, approval of equity-based employee compensation plans and any merger, consolidation or sale of all or substantially all of our assets.  The interests of Discovery and its affiliates may materially conflict with the interests of other stockholders.   For as long as they exert a significant influence over our business affairs, they will have the ability to cause us to take actions that may be adverse to the interests of other stockholders or inconsistent with other stockholders’ investment objectives.
 

 
Two of our stockholders also have substantial Sharecare investments, and potential conflicts of interests could harm us.
 
Jeff Arnold, a member of the Board of Directors until June 2010 and former Chief of Global Digital Strategy for Discovery, the parent company of HowStuffWorks, together with Discovery beneficially own approximately 42% of our common stock at December 31, 2011.  Both Mr. Arnold and Discovery own significant interests in Sharecare.  Mr. Arnold and a representative of Discovery serve on the Board of Directors of Sharecare, and Mr. Arnold is also Chairman and Chief Executive Officer of Sharecare.  As a result, Mr. Arnold and Discovery have the ability to significantly influence and manage the affairs of both Remark Media and Sharecare and determine the outcome of matters submitted for approval to stockholders of each company.  If Remark Media and Sharecare’s interests diverge, there is a risk that Mr. Arnold or Discovery will favor actions by Sharecare that are adverse to Remark Media. 
 

 
The concentration of our stock ownership, as well as our Amended and Restated Certificate of Incorporation, Amended and Restated Bylaws, stockholders agreement and Delaware law contain provisions that may make our acquisition more difficult without the approval of our board of directors, which could discourage, delay or prevent a transaction involving our change of control.
 
 
18
 
 
As of December 31, 2011, Discovery owned approximately 42% of our outstanding shares of common stock through its HowStuffWorks subsidiary.  As a result, it will be difficult for our other stockholders to approve a takeover of us without the cooperation of Discovery.
 
Furthermore, our Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws contain anti-takeover provisions, including but not limited to the following provisions:
 
·  
only our Board of Directors may call special meetings of our stockholders;
·  
our stockholders may take action only at a meeting of our stockholders and not by written consent;
·  
we have authorized undesignated preferred stock, the terms of which may be established and shares of which may be issued without stockholder approval;
·  
SEC Rule 14a-8 requires that we receive notice of stockholder proposals at least 120 days prior to the date of our proxy statement for the previous year’s annual meeting or we do not have to include them in our proxy materials; and
·  
for stockholder proposals not requested to be included in our proxy materials under Rule 14a-8, we require advance notice of not less than 60 nor more than 90 days prior to a meeting for the proposal to be introduced and considered.

In addition, the stockholders agreement gives HowStuffWorks the right to designate nominees to our Board of Directors.
 
These anti-takeover defenses could discourage, delay or prevent a transaction involving a change of control of us.  These provisions could also discourage proxy contests and make it more difficult for individual investors and other stockholders to cause us to take other corporate actions individual investors and other stockholders desire.
 
Section 203 of the Delaware General Corporation Law may also delay, defer or prevent a change in control that our stockholders might consider to be in their best interest.  We are subject to Section 203 of the Delaware General Corporation Law which, subject to certain exceptions, prohibits “business combinations” between a publicly-held Delaware corporation and an “interested stockholder,” which is generally defined as a stockholder who becomes a beneficial owner of 15% or more of a Delaware corporation’s voting stock for a three-year period following the date that such stockholder became an interested stockholder.  Section 203 could have the effect of delaying, deferring or preventing a change in control of us that our stockholders consider to be in their best interest.
 

 
Resales of our common stock and additional obligations to issue our common stock may cause the market price of our stock to fall.
 
As of December 31, 2011, there were approximately 5,422,295 shares of our common stock outstanding, and options and warrants to purchase another approximately 989,192 shares outstanding.  At December 31, 2011, we also had reserved an additional 366,325 shares for future issuance under our equity compensation plans.  Resale of outstanding shares or issuance of new shares could depress the market price for our common stock.
 

 
If we fail to meet all listing requirements, we might not be able to remain listed on The NASDAQ Stock Market.
 
In September 2009, we received a notice from The NASDAQ Stock Market indicating that we no longer complied with the continued listing requirement that our shares of common stock maintain a minimum closing bid price of $1.00.  In response, we conducted a reverse stock split and regained compliance with continued listing standards.  In March 2010, the Company received a notice from The NASDAQ Stock Market indicating that we were not in compliance with the continued listing requirement that the publicly held shares of the Company, which is calculated by subtracting all shares held by officers, directors or beneficial owners of 10% or more from the total shares outstanding, maintain a minimum market value of $5,000,000.  In July 2010, the Company received a notice from The NASDAQ Stock Market indicating that it had regained compliance with this rule.  In April 2011, Remark Media received notification from the NASDAQ Stock Market indicating that the Company no longer complied with the requirements for continued listing on the NASDAQ Global Market because the Company’s stockholders’ equity has fallen below $10 million as reported on our Annual Report on Form 10-K for the year ended December 31, 2010.  The Company’s stockholders’ equity as of December 31, 2010 was $8,775,882.  The Company was allowed until May 19, 2011, to submit a plan to NASDAQ to regain compliance. Rather than submit a plan, we elected to move our listing to the NASDAQ Capital Market. Our stockholders’ equity as of December 31, 2011 was $2,693,183. We are currently in compliance with the standards of the NASDAQ Capital Market. However, there can be no assurance that we will be able to continue to satisfy the requirements to maintain a continued listing on The NASDAQ Capital Market.
 

 
19
 
 
ITEM 1B.  UNRESOLVED STAFF COMMENTS
 
None.
 

 
ITEM 2.  PROPERTIES
 
Our corporate headquarters are located at Six Concourse Parkway, Suite 1500, Atlanta, Georgia, 30328 which consists of approximately 12,000 square feet of leased space.   We do not own any real property.  We believe that our existing facilities are adequate to meet our needs in the near term.
 
As of December 31, 2011, our total remaining lease obligations were approximately U.S. $1.1 million. The lease obligations are associated with a lease agreement for our headquarters which will terminate in 2016.
 

 
  ITEM 3.  LEGAL PROCEEDINGS
 
We are not subject to any material pending legal proceeding, nor are we aware of any material threatened claims against us.
 

 
ITEM 4.  MINE SAFETY DISCLOSURES
 
Not applicable.
 
 
20
 

PART II
 
 
 
ITEM 5.  MARKET FOR THE REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
 
Our common stock has been traded on the NASDAQ Capital Market under the symbol “MARK” since January 3, 2012, following the change of our corporate name to Remark Media, Inc.  Previously, our common stock traded under the symbol “HSWI” on the NASDAQ Global Market from October 2, 2007, until May 30, 2011, and on the NASDAQ Capital Market from May 31, 2011 until January 3, 2012. The following table sets forth the high and low sales prices of our common stock, as reported on the NASDAQ Capital Market.  See Note 8, “Stockholders’ Equity” of the notes to the financial statements included in this report.
 
   
High
   
Low
 
Year ended December 31, 2011
           
First Quarter
  $ 4.25     $ 2.52  
Second Quarter
    6.41       2.68  
Third Quarter
    5.99       2.41  
Fourth Quarter
    3.74       2.00  
                 
Year ended December 31, 2010
               
First Quarter
  $ 2.36     $ 1.36  
Second Quarter
    2.40       1.54  
Third Quarter
    7.49       1.77  
Fourth Quarter
    7.38       3.76  
                 


 
 
Holders of Record
 
As of March 22, 2012, the last sale price of our common stock on the NASDAQ Capital Market was $5.80 per share.  As of March 22, 2012, there were approximately 30 stockholders of record.
 

 
Dividend Policy
 
We have neither paid nor declared dividends on our common stock since our inception and do not plan to pay dividends in the foreseeable future.  Any earnings that we may realize will be retained to finance our growth.
 

 
Reverse Stock Split
 
On February 16, 2010, the Company conducted a reverse split of its common stock, par value $0.001, at a ratio of 10-for-1 (the “Reverse Split”), at which time each share of common stock was automatically reclassified as and converted into one-tenth of a share of common stock.    Each stockholder’s percentage ownership in the Company and proportional voting power remained unchanged by the Reverse Split, except for those adjustments resulting from stockholders receiving cash in lieu of fractional shares.  In connection with the Reverse Split, the number of authorized shares of the Company’s capital stock was reduced accordingly by a ratio of 10-for-1. Any references to Remark’s stock within this document prior to the stock split have been adjusted to reflect the effects of the Reverse Split, unless otherwise indicated.
 

 
21
 
 
Equity Compensation Plans
 
The information required by Item 5 of Form 10-K regarding equity compensation plans is incorporated herein by reference to “Item 12.  Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters”.
 

 
ITEM 6.  SELECTED FINANCIAL DATA
 
We are a smaller reporting company; as a result, we are not required to report selected financial data disclosures as required by item 301 of Regulation S-K.
 

ITEM 7.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion together with our consolidated financial statements and the related notes and other financial information included elsewhere in this report.  The discussion in this report contains forward-looking statements that involve risks and uncertainties, such as statements of our plans, objectives, expectations and intentions.  The cautionary statements made in this report should be read as applying to all related forward-looking statements wherever they appear in this report.  Our actual results will likely differ materially from those discussed here.
 

 
Business Overview and Recent Developments
 
Remark Media, Inc., formerly HSW International, Inc., (“Remark Media”, “we”, or the “Company”) is a global digital media company focused on developing, owning and operating next-generation web publishing platforms that combine traditional web publishing and social media, with the goal of revolutionizing the way people search and exchange information over the Internet. The Company also offers a suite of content and platform services that provide its clients with opportunities to build consumer awareness, promote content engagement and foster brand-customer interactions.
 
The Company’s current leading brands, BoWenWang (bowenwang.com.cn) and ComoTudoFunciona (hsw.com.br), provide readers in China and Brazil with thousands of articles about how the world around them works, serving as destinations for credible, easy-to-understand reference information. Remark Media is the exclusive digital publisher in China and Brazil for translated content from HowStuffWorks.com, a subsidiary of Discovery Communications, and in China for certain content from World Book, Inc., publisher of World Book Encyclopedia. The Company’s website services business seeks to create innovative content and platform solutions for leading media and entertainment companies as well as Fortune 500 brands and boutique businesses. The solutions the Company offers center on helping clients generate value with the objective of maximizing content utilization, enhancing online engagement and customer experience and by driving online and offline actions. Remark Media is also a founding partner and developer of the U.S.-based product Sharecare, a highly searchable social Q&A healthcare platform organizing and answering health and medical questions. The Company generates revenue primarily through service and licensing fees as well as online advertising sales on its owned and operated websites.
 
The Company was incorporated in Delaware in March 2006 and is headquartered in Atlanta with additional operations in New York, Beijing and Sao Paulo.
 
On December 30, 2011, the Company changed its name to Remark Media, Inc.  The name Remark Media reflects the Company’s continued dedication to rich, high-quality content, its commitment to deep social media engagement, and its core belief that uniting remarkable content and remarkable people leads to value-added exchanges of information and enriched connections with others.   The Company amended and restated its Certificate of Incorporation with the Delaware Secretary of State to reflect its name change.  Effective January 3, 2012, the ticker symbol for the Company’s common stock traded on the NASDAQ Capital Market changed from “HSWI” to “MARK”, and the CUSIP for the Company’s common stock changed from “40431N104” to “75954W107”.
 
 
22
 
 
On February 27, 2012, the Company entered into definitive equity financing agreements with accredited and institutional investors to raise funds in the amount of $4.25 million through a private placement. In connection with the transaction, the Company issued to investors common stock priced at $4.50 per share. Investors also received warrants to acquire shares of common stock at an exercise price of $6.81 per share, in the amount of 25% of the number of shares of common stock that the investors purchased. On February 29, 2012, the Company received $4.25 million in cash and issued to the investors a total of 944,777 shares of common stock and warrants to acquire an additional 236,194 shares of common stock.
 
On February 26, 2012, the Company entered into an agreement and plan of merger with Banks.com, Inc. (BNNX.PK), pursuant to which Banks.com will become a wholly-owned subsidiary of Remark Media (the “Banks.com Merger”). Banks.com is a leading financial services portal operating a unique breadth and depth of financial products and services. Upon the closing of the merger, which is subject to standard conditions to closing including the approval of the Banks.com shareholders, Remark Media will issue up to 702,784 shares of Common Stock representing approximately 11 percent of our shares issued and outstanding as of March 22, 2012 to the shareholders of Banks.com, plus $300,000 in cash, as consideration for the merger.
 

 
Operations
 
2011 was a transformative year for the Company. We made a strategic decision to shift our management, operational, and financial focus to the U.S. market with the development of new owned and operated websites and the expansion of our services business. We also changed our name to Remark Media. We believe the new name reflects more accurately the entirety of what we aim to be, as opposed to one example of who we are. Concurrent with the name change, we appointed a new executive management team and the Board of Directors elected a new Chairman in December 2011. The new executive management team will support our new strategy and drive the Company towards the future. Additionally, we right-sized the organization, domestically and internationally, to align with the new strategy.
 
 Domestic
 
Brands .  We are developing DimeSpring.com, a new English-language, personal finance website that intends to utilize rich content and advice from a wide array of professionals to build a community of people interested in managing life’s financial hurdles and opportunities. DimeSpring is part of a larger product strategy to leverage our experience and expertise to create leading destination websites that offer a dynamic online experience around a given topic with access to relevant content and subject matter experts. Assets obtained through the expected Banks.com merger will complement DimeSpring and serve to build a network of personal finance digital media businesses. We are investing in technology, editorial staff, sales and marketing to support this initiative. It is our goal to expand into more vertical categories through both the in-house development of new websites and acquisitions of websites and digital products.
 
Content and Platform Services .  During 2011 and 2010, we provided website development services to two affiliated entities, Sharecare and Discovery.  73% and 24% of our revenue generated and recognized in 2011 resulted from the services we performed for Sharecare and Discovery, respectively, and, which represented 100% of our revenue for the Content and Platforms Services reporting segment. Our agreements with Sharecare and Discovery expired in December 2011, and no new revenue from these clients is expected in 2012. We will not have revenues related to the Content and Platforms Services segment unless we enter into new revenue agreements to provide content and platform services. Accordingly, we intend to expand our services business to new clients in 2012.  We are investing in sales and marketing to support our growth initiative, and are continuing to evolve our technology platforms to ensure we incorporate the latest in social media and content trends.
 
Sharecare Investment .  Although Remark Media is no longer providing services for Sharecare, the Company maintains equity ownership in the venture.  As of December 31, 2011, we own approximately 15.8% of Sharecare and have representation on Sharecare’s board of directors.  We account for our investment in Sharecare under the equity method of accounting for investments and we record our proportionate share of Sharecare’s net income or loss in our consolidated statements of operations under income or loss on equity-method investments.
 
 
23
 
 
International
 
During 2011, we implemented certain cost-savings measures in our Brazil and China operations in connection with a strategic shift towards operations in the United States. We believe that the value of our international assets will be recognized over a longer term horizon, as online advertising markets develop for Brazil and China and the websites’ traffic fundamentals improve. In the near term, we believe our resources can be better applied to developing and establishing new brands and expanding our services business in the United States; and as a result, are managing our costs in Brazil and China while evaluating our opportunities.
 
ComoTudoFunciona ( http://hsw.com.br ) is Brazil’s online source for credible, unbiased and easy-to-understand explanations of how the world actually works.  The Portuguese-language site is the exclusive digital publisher in Brazil of translated and localized content from the leading Discovery Communications brand HowStuffWorks, and is published from Remark Media’s São Paulo operations. As a result of our cost cutting measures, the number of page views and unique visitors for ComoTudoFunciona decreased by 15% and 2%, in 2011 as compared to 2010, respectively.  We recognized approximately $0.1 million and $0.2 million of revenue from Brazil during the twelve months ended December 31, 2011 and 2010, respectively.  Brazil revenues and operating results are included in the Brands reporting segment. We do not expect to see major growth in our Brazil operations in the near term unless we increase investment in the brand.
 
BoWenWang ( http://www.bowenwang.com.cn ) is an information and reference website that provides China with encyclopedic knowledge and easy-to-understand explanations of how the world works.  The website is published from Beijing in the Chinese language.  Launched in June 2008, BoWenWang features a combination of original content authored by the Company, translated and localized articles from the leading Discovery Communications brand HowStuffWorks, and content from World Book, Inc. As a result of our cost cutting measures, the number of page views and unique visitors for BoWenWang decreased by 38% and 33% in 2011 as compared to 2010, respectively.  Revenue generated from the operations based in China was approximately $0.03 million and $0.01 million during the twelve months ended December 31, 2011 and 2010, respectively. We performed an impairment assessment of the license to operate in China which is an indefinite-lived intangible asset. As a result of the assessment, we recorded an impairment loss of $0.38 million in our statement of operations for the third quarter ended September 30, 2011. China revenues and operating results are included in the Brands reporting segment. We do not expect to see major growth in our China operations in the near term unless we increase investment in the brand.
 

 
24
 
 
Results of Operations – Year Ended December 31, 2011, Compared to Year Ended December 31, 2010
 
The following table sets forth our consolidated results of operations for the years ended December 31, 2011, and 2010.  
 
   
(Expressed in U.S. Dollars)
 
   
Year Ended December 31,
 
   
2011
   
2010
 
             
Operating revenue
           
Brands
  $ 140,702     $ 190,712  
Content and platform services from affiliates
    4,851,224       6,464,352  
Total revenue
    4,991,926       6,655,064  
                 
Cost of services
    3,187,379       5,405,128  
                 
Gross margin
    1,804,547       1,249,936  
                 
Operating expenses
               
Selling general and administrative expenses (including
     stock based compensation expense of $615,367 and
     $265,990 in 2011 and 2010, respectively)
    5,919,996       4,983,981  
Impairment loss
    381,000       488,560  
Depreciation and amortization expense
    220,327       295,529  
Total operating expenses
    6,521,323       5,768,070  
                 
Operating loss
    (4,716,776 )     (4,518,134 )
                 
Other income (expense)
               
Interest expense
    (123,480 )     -  
Other (expense) income
    6,769       14,514  
Total other (expense) income
    (116,711 )     14,514  
                 
Loss before income taxes and losses of equity-method investments
    (4,833,487 )     (4,503,620 )
                 
Losses of equity-method investment, net of taxes
    (2,066,283 )     (1,522,697 )
Net loss before benefit from income taxes
    (6,899,770 )     (6,026,317 )
                 
Income tax benefit
    (95,250 )     (121,238 )
                 
Net loss
  $ (6,804,520 )   $ (5,905,079 )
                 
Net loss per share
               
Net loss per share, basic and diluted
  $ (1.26 )   $ (1.10 )
                 
Basic and diluted weighted average shares outstanding
    5,416,109       5,368,419  
                 

 
25
 
 
Revenues
 
For the twelve months ended December 2011 and 2010, we generated revenue of $5.0 million and $6.7 million respectively, of which 97% was generated from our Content and Platform services segment for 2011and 2010. The decrease in revenue is primarily attributable to a decrease in the services provided to Sharecare and Discovery during 2011 as compared to 2010. As Sharecare has developed its operations and grown, it has made the strategic decision to transition the web development, design and management services in-house which was completed in the fourth quarter 2011.  In addition, the services agreements with Sharecare and Discovery expired in December 2011 and the content and platform services segment will have no revenues unless we enter into new agreements with new customers.  Sharecare and Discovery are related parties and the related revenues are included in our consolidated statements of operations under Content and Platform Services from affiliates. Our Brands segment is comprised of revenue generated from our owned and operated websites, including international website businesses based in Brazil and China. Revenue generated on the two websites relate primarily to paid-for-impression and pay-per-performance ads.   In Brazil, we generated revenue for the years ended December 31, 2011 and 2010 of approximately $0.1 million and $0.2 million, respectively.  In China, we generated revenue for the years ended December 31, 2011 and 2010, of approximately $0.03 million and $0.01 million, respectively. 
 

 
Cost of Services
 
Cost of services includes the costs incurred to support our content and platform services business including labor, content and third party platform support services as well as ongoing third party costs to support our Brands business, including the costs to acquire original content, translate and localize content from English to Portuguese and Chinese. These costs were $3.2 million and $5.4 million for the years ended December 31, 2011 and 2010, respectively. The decrease in cost of services is related to the decrease in revenues in addition to performing platform services projects in 2011 that had higher profitability margins than projects completed in 2010.
 

 
Operations – Selling, General and Administrative Expenses
 
Our total selling, general and administrative   expenses (“SG&A”) increased by $0.9 million for the year ended December 31, 2011, as compared to 2010.  The increase is primarily related to an increase in stock compensation expense of $0.3 million compared to the same period of 2010.  In addition, the Company incurred additional costs related to the cost-saving measures implemented in Brazil, China and United States operations. These costs also included severance payments of $0.3 million.
 

 
Impairment Loss
 
During the quarter ended September 30, 2011, we made reductions in the number of personnel supporting our China business operations to better align with our new strategic direction. This event directly impacted the Company’s expectations of revenues and growth rates. In accordance with ASC 350 – “Intangibles – Goodwill and Other” , we performed an assessment for impairment on our indefinite-lived intangible asset, our license to operate in China, which had a carrying value of $0.5 million prior to performing the assessment. We used the cost approach instead of the discounted cash flow method used in the prior year due to a decrease in projected revenues and cost cutting measures enacted during the third quarter 2011. The reductions prompted a change in our assessment of the highest and best use of the asset from an in-use premise to an in-exchange valuation premise.  The cost approach uses the concept of depreciated replacement costs as an indicator of value. As a result of the assessment, we concluded that the asset is impaired and its fair value is $0.1 million at September 30, 2011. Subsequently, we recorded a charge of $0.4 million under the impairment loss line in our statement of operations for the quarter ended September 30, 2011. We believe that the fair value of the China license remained at $0.1 million at December 31, 2011.
 

 
26
 
 
Depreciation and Amortization
 
Depreciation and amortization expense was $0.2 million and $0.3 million for the years ended December 31, 2011 and 2010, respectively. The slight decrease is due to certain assets being fully depreciated and amortized during the year 2011.
 

 
Interest Expense
 
Interest expense was $0.1 million during the year ended December 31, 2011 which is related to the amortization of debt issuance costs associated with the credit agreement entered into in March 2011 which expired in March 2012 and we chose not to request a renewal.  We had no interest expense in 2010.
 

 
Deferred Income Tax Benefit
 
During the year 2011, we recorded $0.1 million as a tax benefit due to the impairment charge against the license to operate in China.
 

 
Loss in Equity Investment
 
We account for our investment in Sharecare under the equity method of accounting.  For the years ended December 31, 2011 and 2010, we recognized a loss in the equity investment of approximately $2.1 million and approximately $1.5 million, respectively, net of taxes.  The losses are related to major expenses that Sharecare is incurring as it builds its business strategy.
 

 
Liquidity and Capital Resources
 
On February 27, 2012, the Company entered into definitive equity financing agreements with accredited and institutional investors to raise funds in the amount of $4.25 million through a private placement. In connection with the transaction, the Company issued to investors common stock priced at $4.50 per share. Investors also received warrants to acquire shares of common stock at an exercise price of $6.81 per share, in the amount of 25% of the number of shares of common stock that the investors purchased. On February 29, 2012, the Company received $4.25 million in cash and issued to the investors a total of 944,777 shares of common stock and warrants to acquire an additional 236,194 shares of common stock.
 
On March 4, 2011, we entered into a senior revolving credit agreement with Theorem Capital, LLC (the “Lender”) pursuant to which the Lender agreed to extend to the Company a line of credit of up to $1.0 million for a period of one year from March 4, 2011, subject to renewal by the Lender, at its sole discretion, for an additional one-year period. Under the terms of the credit agreement, we could, in our sole discretion, borrow from the Lender up to $1.0 million from time to time during the term of the credit agreement, in minimum loan amounts of $200,000.  Any borrowings under the credit agreement would be senior unsecured indebtedness of Remark Media and could be used for our working capital and general corporate purposes. Borrowings under the credit agreement bear interest at a fixed rate equal to 8% per annum, payable on or before March 3, 2012, unless the line of credit was renewed and the payment date extended, in which case interest would be payable on or before March 3, 2013.  During the term of the credit agreement, any principal amounts repaid by Remark Media could be re-borrowed. As of December 31, 2011, the Company did not have any outstanding balance under the senior revolving credit agreement and no interest was incurred during 2011.  Interest expense showing in our consolidated statements of operations is related to the amortization of debt issuance costs associated with the senior revolving credit agreement. The agreement expired on March 3, 2012 and we chose not to request an additional one-year extension.
 
Our cash balance was approximately $1.5 million as of December 31, 2011.  We believe that this balance along with the funds received through the above mentioned equity financing transaction will be sufficient to meet our cash requirements for the next twelve months.
 
We consistently monitor our cash position, and make operational changes as necessary to maintain our business objective of funding ongoing operations and related growth. Accordingly, we implemented cost savings measures in our Brazil operations in February 2011, and in our China operations in September 2011. It is important to note that all our content and platform service agreements expired in December 2011. The Content and Platform Services business
 
 
27
 
 
will have no revenues unless we enter into new services agreements with new customers. We are actively seeking to expand our Content & Platform Services business to additional clients in 2012, and we are continuing to evolve our technology platforms and brands to ensure we incorporate the latest in social media and content trends.
 
The table below summarizes the change in our statement of cash flows for the years ended December 31, 2011 and 2010:
 

   
Year Ended December 31,
 
   
2011
   
2010
 
             
Net cash used in operating activities
  $ (2,952,840 )   $ (3,663,784 )
Net cash used in investing activities
    (323,639 )     (215,300 )
Net cash used in financing activities
    (20,000 )     0  
                 
Net decrease in cash and cash equivalents
  $ (3,296,479 )   $ (3,879,084 )
                 
 
  Cash flows used in operating activities
 
Our net cash used in operating activities during 2011 decreased by $0.7 million compared to the prior year.  The decrease in cash used was related to a decrease in accounts receivable at the end 2011 as compared to 2010 due to higher collections in the current year.
 
 
 
Cash used in investing activities
 
During the year ended December 31, 2011, net cash used in investing activities was $0.3 million as compared to $0.2 million in 2010.  The increase was primarily due to additional capital expenditures for leasehold improvements in connection with relocating our corporate headquarters.
 

 
Cash flows from financing activities
 
For the years ended December 31, 2011, net cash used in financing activities was $0.02 million which was related to payments of debt issuance costs related to our revolving credit agreement. There was no cash used in financing activities during the year 2010.
 
 
Critical Accounting Policies
 
Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States.  We believe that our critical accounting policies, revenue recognition, stock-based compensation and long-lived assets including goodwill, equity investments, and other intangible assets may involve a higher degree of judgment and complexity.
 

 
Revenue Recognition
 
We recognize revenue when the service has been provided, and the other criteria set forth in Staff Accounting Bulletin (“SAB”) 104, Revenue Recognition have been met; namely, the fees we charge are fixed or determinable, we and our advertisers understand the specific nature and terms of the agreed-upon transactions, and the collectability is reasonably assured.
 
 
28
 
 
We recognize revenue from our owned and operated websites as visitors are exposed to or react to advertisements on our website.  We generate revenue from advertising in the form of sponsored links and image ads.  This includes both pay-per-performance ads and paid-for-impression advertising.  In the pay-per-performance model, we earn revenue based on the number of clicks associated with such ad; in the paid-for-impression model (sponsorships), revenue is derived from the display of ads. These revenues are classified within our Brands segment.
 
We recognize content and platform services revenue at the time services are performed.  All of our services revenue is related to the design, development, hosting and other services required to launch and operate the Sharecare, DailyStrength and Ask Dr. Oz websites through our direct activities and management of third-party vendors. We also recognize content and platform services revenue on certain projects using a percentage of completion method.  Sales are calculated based on the percentage that total costs incurred bear to total estimated costs at completion.  These revenues are classified within our Content and Platform services segment.
 

 
Stock-Based Compensation
 
Under the 2006 Equity Incentive Plan adopted April 13, 2006, and the 2010 Equity Plan adopted June 15, 2010, as modified on December 30, 2011 (the “Plans”), Remark Media authorized a total of 1,325,000 shares for grant as part of a long-term incentive plan to attract, retain and motivate its eligible executives, employees, officers, directors and consultants.  Options to purchase common stock under the Plans have been granted to our officers and employees with an exercise price equal to the fair market value of the underlying shares on the date of grant.  Additionally in 2008, 2009, 2010 and 2011, we granted restricted shares to certain members of our Board of Directors and executives.  As of December 31, 2011, no options have been exercised under the Plan.
 
We account for stock-based compensation in accordance with Codification ASC 718, “Compensation, Stock Compensation” which requires us to recognize expense based on the fair value of our stock-based compensation awards.
 
ASC 718 requires the use of a valuation model to calculate the fair value of the stock-based awards.  We have elected to use the Black-Scholes options pricing model to determine the grant date fair value of stock option awards.  We measure stock-based compensation based on the fair values of all stock-based awards on the dates of grant, and recognize stock-based compensation expense using the straight-line method over the vesting periods.  Stock-based compensation expense was $0.6 million and $0.3 million for the years ended December 31, 2011 and 2010, respectively.
 

 
Impairment of Property and Equipment
 
Property and equipment is tested for impairment whenever events or changes in circumstances indicate that its carrying amount may not be recoverable.  Such events include significant adverse changes in the business climate, the impact of significant customer losses, unanticipated current period operating or cash flow losses, forecasted continuing losses or a current expectation that an asset group will be disposed of before the end of its useful life.  Recoverability of property and equipment is measured by a comparison of the carrying amounts to future net undiscounted cash flows the assets are expected to generate.  For purposes of recognition and measurement of an impairment loss, property and equipment are grouped with other assets at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets.
 

 
Impairment of Investments
 
Investments are reviewed to determine if events have occurred which would indicate that a decrease in value has occurred which is other than temporary.  Evidence of a loss in value might include, but would not necessarily be limited to, absence of an ability to recover the carrying amount of the investment or inability of the investee to sustain an earnings capacity that would justify the carrying amount of the investment. We monitor our assets for potential impairment on an ongoing basis.  No impairment charge has been recognized on our investment balances as of December 31, 2011 or 2010.
 

 
29
 
 
Impairment of Definite-Lived Intangible Assets
 
Amortizable intangible assets are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.  The carrying amount of an asset or asset group is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use of the asset and its eventual disposition.  We monitor our assets for potential impairment on an ongoing basis. We have no definite-lived intangible assets at December 31, 2011 and 2010.
 

 
Goodwill and Indefinite-Lived Intangible Assets Impairment
 
Generally, we perform our annual assessment for impairment for goodwill and indefinite-lived intangible assets during the fourth quarter of the fiscal year, unless facts and circumstances require differently.  For goodwill, we determine recoverability by comparing the estimated fair value of the reporting unit to which the goodwill applies to the carrying value, including goodwill, of that reporting unit using a discounted cash flow model.  We test indefinite-lived intangible assets, which are licenses to operate in China, for impairment by utilizing discounted cash flow models to estimate their fair values, as appropriate.  Estimating the fair value of the reporting unit and our long-lived intangible assets involve uncertainties, because management is required to develop numerous assumptions, including assumptions about the future growth and potential volatility in revenues and costs, capital expenditures, industry economic factors and future business strategy.  The variability of the factors that management uses to perform our impairment tests depend on a number of conditions, including uncertainty about future events and cash flows.  All such factors are interdependent and, therefore, do not change in isolation.  Accordingly, the accounting estimates may materially change from period to period due to changing market factors and other conditions.  Significant judgments in this area involve determining whether a triggering event has occurred, determining the future cash flows for the assets involved and determining the proper discount rate to be applied in determining fair value. The discounted cash flow approach was used in 2010. However, in the impairment assessment for 2011, the Company used the cost approach. The change in the approach used in the impairment analysis of 2011 compared to 2010 was due to a major decrease in projected revenues as a result of costs saving measures implemented in September 2011. The reductions prompted a change in our assessment of the highest and best use of the asset from an in-use premise to an in-exchange valuation premise. As a result, the income approach used in 2010 was no longer a valid approach for the 2011 analysis.  The cost approach uses the concept of depreciated replacement cost as an indicator of value and is based on the principle of substitution which holds that a prudent investor would pay no more for an asset than the amount for which the asset could be replaced less the effects of physical, functional and external depreciation or obsolescence.
 
 
 
Recent Accounting Pronouncements
 
We are subject to recent accounting pronouncements, as described in detail in Note 3 to our consolidated financial statements included in Item 8 herein.
 

 
Off-Balance Sheet Arrangements
 
None.
 

 
ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
We translate the foreign currency financial statements of our international operations into U.S. dollars at current exchange rates, except revenue and expenses, which we translate at average exchange rates during each reporting period.  We accumulate net exchange gains or losses resulting from the translation of assets and liabilities in a separate caption of stockholders’ equity titled “accumulated other comprehensive income (loss)”.  Generally, our foreign expenses are denominated in the same currency as the associated foreign revenue, and at this stage of our development, the exposure to rate changes is minimal.
 
 
30
 
 
Financial instruments that potentially subject us to a concentration of credit risk consist principally of cash and accounts receivables.  At December 31, 2011, 99% of our cash was denominated in U.S. dollars.  The remaining 1% was denominated in Brazilian Reals , Chinese Renminbi or Hong Kong Dollars.  The majority of our cash is placed with financial institutions we believe are of high credit quality.  Our cash is maintained in bank deposit accounts, which, at times, exceed federally insured limits.  We have not experienced any losses in such accounts and do not believe our cash is exposed to any significant credit risk.
 
We do not use financial instruments to hedge our foreign exchange exposure because the effects of the foreign exchange rate fluctuations are not currently significant.  We do not use financial instruments for trading purposes.  We do not use any derivative financial instruments to mitigate any of our currency risks.  The net assets of our foreign operations at December 31, 2011, were approximately $0.1 million.
 

 
31
 

 
 
ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 

 
CONSOLIDATED FINANCIAL STATEMENTS
 

 
33
35
36
37
38
39

 
For supplemental quarterly financial information, see Note 14, Quarterly Financial Data (unaudited), of the Notes to Consolidated Financial Statements.
 
 
 
32
 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
 
To the Board of Directors and Stockholders of Remark Media, Inc.:
 
We have audited the accompanying consolidated balance sheet of Remark Media, Inc. and subsidiaries (the Company) as of December 31, 2011, and the related statements of operations, stockholders’ equity, and cash flows for the year ended December 31, 2011. We have also audited the accompanying consolidated financial statement schedule for the year ended December 31, 2011. These consolidated financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements and schedule based on our audit.
 
We conducted our audit in accordance with standards of the Public Company Accounting Oversight Board (United States of America). The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purposes 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 audit provides 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 as of December 31, 2011, and the results of its operations and its cash flows for the year ended December 31, 2011, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the related consolidated financial statement schedule for the year ended December 31, 2011, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
 
As discussed in Notes 2 and 10 to the consolidated financial statements, the Company has entered into significant transactions with Sharecare, Inc. and Discovery Communications, both related parties. The Company’s services agreements with Sharecare, Inc. and Discovery Communications expired at the end of 2011, which will have a significant negative impact on the Company’s future results of operations and financial condition if the lost revenue is not replaced. Management’s plans with regards to these matters are also described in Note 2.
 

 
Cherry, Bekaert & Holland, L.L.P.
 
Atlanta, GA
 
March 22, 2012
 

 
33
 
 
 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To Board of Directors and Stockholders of HSW International, Inc.:

In our opinion, the accompanying consolidated balance sheet and the related consolidated statements of operations, of stockholders' equity, and cash flows present fairly, in all material respects, the financial position of HSW International, Inc. at December 31, 2010 and the results of their operations and their cash flows for the year ended December 31, 2010 in conformity with accounting principles generally accepted in the United States of America.  In addition, in our opinion, the financial statement schedule for the year ended December 31, 2010 presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements.  These financial statements and financial statement schedule are the responsibility of the Company's management.  Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audit.  We conducted our audit of these statements 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.  An audit 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, and evaluating the overall financial statement presentation.  We believe that our audit provides a reasonable basis for our opinion.

As discussed in Notes 2 and 10 to the consolidated financial statements, the Company has entered into significant transactions with Sharecare, Inc., a related party.



/s/ PricewaterhouseCoopers LLP
Atlanta, Georgia
March 29, 2011

 
 
 
34
 





REMARK MEDIA, INC. AND SUBSIDIARIES (formerly HSW INTERNATIONAL, INC.)
CONSOLIDATED BALANCE SHEETS
(Expressed in U.S. Dollars)
 

 

   
December 31, 2011
   
December 31, 2010
 
             
             
 Assets
           
             
Current assets
           
    Cash and cash equivalents
  $ 1,531,502     $ 4,843,893  
    Trade accounts receivable, net
    21,730       42,741  
    Trade accounts receivable due from affiliates
    302,129       658,944  
    Prepaid expenses and other current assets
    393,989       566,174  
        Total current assets
    2,249,350       6,111,752  
                 
Property, equipment and software, net
    364,386       306,460  
Investment in unconsolidated affiliate
    905,852       2,972,135  
Licenses to operate in China
    100,000       481,000  
Intangibles
    16,429       16,429  
Other long-term assets
    100,000       -  
        Total assets
  $ 3,736,017     $ 9,887,776  
                 
 Liabilities and Stockholders’ Equity
               
                 
Current liabilities
               
     Accounts payable
  $ 93,806     $ 382,515  
     Advances from stockholder
    85,745       85,745  
     Accrued expenses and other current liabilities
    547,569       523,384  
         Total current liabilities
    727,120       991,644  
                 
Long-term liabilities
               
     Deferred tax liabilities
    25,000       120,250  
     Other long-term liabilities
    290,714       -  
         Total liabilities
    1,042,834       1,111,894  
                 
Commitments and contingencies
    -       -  
                 
Stockholders’ equity
               
Preferred stock, $0.001 par value; 1,000,000 shares
     authorized, none issued
    -       -  
Common stock, $0.001 par value; 20,000,000 shares
     authorized,  5,422,295 and 5,375,455 issued and
     outstanding at December 31,  2011 and
     2010, respectively
    5,422       5,375  
Additional paid-in-capital
    101,444,780       100,701,356  
Accumulated other comprehensive income
    16,881       38,531  
Accumulated deficit
    (98,773,900 )     (91,969,380 )
     Total stockholders’ equity
    2,693,183       8,775,882  
     Total liabilities and stockholders’ equity
  $ 3,736,017     $ 9,887,776  
                 


The accompanying notes are an integral part of these consolidated financial statements.

 
 

 
 
35
 





REMARK MEDIA, INC. AND SUBSIDIARIES (formerly HSW INTERNATIONAL, INC.)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Expressed in U.S. Dollars)
 

 

   
Year Ended December 31,
 
   
2011
   
2010
 
             
             
Operating revenue
           
Brands
  $ 140,702     $ 190,712  
Content and  platform services from affiliates
    4,851,224       6,464,352  
     Total revenue
    4,991,926       6,655,064  
                 
Cost of services
    3,187,379       5,405,128  
                 
Gross margin
    1,804,547       1,249,936  
                 
Operating expenses
               
Selling general and administrative expenses (including
     Stock-based compensation expense of $615,367 and
     $265,990 in 2011 and 2010, respectively)
    5,919,996       4,983,981  
Impairment loss
    381,000       488,560  
Depreciation and amortization expense
    220,327       295,529  
     Total operating expenses
    6,521,323       5,768,070  
                 
Operating loss
    (4,716,776 )     (4,518,134 )
                 
Other income (expense)
               
Interest expense
    (123,480 )     -  
Other income
    6,769       14,514  
     Total other (expense) income
    (116,711 )     14,514  
                 
Loss before income taxes and loss in equity-method investments
    (4,833,487 )     (4,503,620 )
                 
Loss in equity-method investment, net of taxes
    (2,066,283 )     (1,522,697 )
Net loss before benefit from income taxes
    (6,899,770 )     (6,026,317 )
                 
Income tax benefit
    (95,250 )     (121,238 )
                 
Net loss
  $ (6,804,520 )   $ (5,905,079 )
                 
Net loss per share
               
Net loss per share, basic and diluted
  $ (1.26 )   $ (1.10 )
                 
Basic and diluted weighted average shares outstanding
    5,416,109       5,368,419  
                 



The accompanying notes are an integral part of these consolidated financial statements.

 
 

 
 
36
 





REMARK MEDIA, INC. AND SUBSIDIARIES (formerly HSW INTERNATIONAL, INC.)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Expressed in U.S. Dollars)
 

 

   
Common Stock
   
Additional Paid-in Capital
   
Accumulated Other Comprehensive Income (Loss)
   
Accumulated Deficit
   
Total Stockholders’ Equity
 
   
Shares
   
Amount
                         
 
Balance as of December 31, 2009
    5,369,829     $ 5,369     $ 100,435,372     $ 40,100     $ (86,064,301 )   $ 14,416,540  
                                                 
Comprehensive loss:
                                               
Net loss
    -       -       -       -       (5,905,079 )     (5,905,079 )
Foreign currency translation adjustments
    -       -       -       (1,569 )     -       (1,569 )
Total comprehensive loss
                                            (5,906,648 )
                                                 
Restricted stock grants
    8,000       8       (8 )     -       -       -  
Forfeited restricted stock
    (2,374 )     (2 )     2       -       -       -  
Stock-based compensation
    -       -       265,990       -       -       265,990  
Balance as of December 31, 2010
    5,375,455     $ 5,375     $ 100,701,356     $ 38,531     $ (91,969,380 )   $ 8,775,882  
                                                 
Comprehensive loss:
                                               
Net loss
    -       -       -       -       (6,804,520 )     (6,804,520 )
Foreign currency translation adjustments
    -       -       -       (21,650 )     -       (21,650 )
Total comprehensive loss
                                            (6,826,170 )
                                                 
Restricted stock grants
    49,000       49       (49 )     -       -       -  
Forfeited  restricted stock
    (2,160 )     (2 )     2       -       -       -  
Stock-based compensation
    -       -       615,367       -       -       615,367  
Warrants issued
    -       -       128,104       -       -       128,104  
Balance as of December 31, 2011
    5,422,295     $ 5,422     $ 101,444,780     $ 16,881     $ (98,773,900 )   $ 2,693,183  
                                                 

Outstanding shares at December 31, 2009 have been restated to reflect the Company’s February 2010 10-for-1 Reverse Split.  See Note 8: “Stockholders’ Equity”.

The accompanying notes are an integral part of these consolidated financial statements.

 
 

 
 

 
37
 





REMARK MEDIA, INC. AND SUBSIDIARIES (formerly HSW INTERNATIONAL, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Expressed in U.S. Dollars)
 

 

   
Year Ended December 31,
 
   
2011
   
2010
 
Cash Flows from operating activities:
           
Net loss
  $ (6,804,520 )   $ (5,905,079 )
Adjustments to reconcile net loss to net cash used in operating activities:
               
      Depreciation and amortization
    220,327       295,529  
      Impairment loss
    381,000       488,560  
      Stock-based compensation
    615,367       265,965  
      Deferred income taxes
    (95,250 )     (122,140 )
      Loss in equity-method investments
    2,066,283       1,522,697  
      Loss on disposal of property, equipment and
          software
    39,648       14,095  
Changes in operating assets and liabilities:
               
      Accounts receivable
    21,011       (6,364 )
      Accounts receivable from affiliates
    356,815       (189,759 )
      Prepaid expenses and other assets
    220,289       221,798  
      Accounts payable, accrued expenses and other
           liabilities
    26,190       (249,086 )
Net cash used in operating activities
    (2,952,840 )     (3,663,784 )
                 
Cash flows from investing activities:
               
      Purchases of property, equipment and software
    (327,404 )     (125,772 )
      Other, net
    3,765       (89,528 )
Net cash used in investing activities
    (323,639 )     (215,300 )
                 
Cash flows from financing activities:
               
     Payments of debt issuance costs
    (20,000 )     -  
Net cash used in financing activities
    (20,000 )     -  
                 
Net change in cash and cash equivalents
    (3,296,479 )     (3,879,084 )
     Impact of currency translation on cash
    (15,912 )     (1,569 )
     Cash and cash equivalents at beginning of year
    4,843,893       8,724,546  
Cash and cash equivalents at end of year
  $ 1,531,502     $ 4,843,893  
                 
                 
Supplemental disclosure of cash flow information:
               
Other non-cash financing and investing activities:
               
      Debt issuance costs in the form of warrants
  $ 128,104     $ -  
                 


.

 
 
 

 
 
38
 





REMARK MEDIA, INC. AND SUBSIDIARIES (formerly HSW INTERNATIONAL, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
 

 

1.  DESCRIPTION OF ORGANIZATION AND BUSINESS OPERATIONS
 
Description of the Business
 
Remark Media, Inc., formerly HSW International, Inc., (“Remark Media” or the “Company”) is a global digital media company focused on developing, owning and operating next-generation web publishing platforms that combine traditional web publishing and social media, with the goal of revolutionizing the way people search and exchange information over the Internet. The Company also offers a suite of content and platform services that provide its clients with opportunities to build consumer awareness, promote content engagement and foster brand-customer interactions.
 
Remark Media has two operating segments: Brands (formerly “Digital online publishing”) and Content and Platform Services (formerly “Web platform services”).
 
The Brands segment consists of those digital media properties that are owned and operated.  It presently includes translated and localized editions of HowStuffWorks.com in China and Brazil, and the soon-to-launch personal finance destination DimeSpring.  The Company intends to expand its Brands business in the coming year by continuing to develop and launch U.S.-based content and social media websites in a variety of content verticals.  Additionally, the digital media businesses acquired through the expected Banks.com Merger will become part of the Brands business.
 
The Content and Platform Services segment provides third party clients with content, design and development services for their websites as well as advisory services and custom technology solutions. The Company also licenses its proprietary web publishing and social media platforms. Remark Media’s digital architects, developers and designers aim to construct a seamless connection between content and technology to create solutions that help its clients generate incremental value by maximizing content utilization, enhancing online engagement and customer experience and by driving online and offline actions.
 
The Company was incorporated in Delaware in March 2006 and is headquartered in Atlanta with additional operations in New York, Beijing and Sao Paulo.
 
The Company amended and restated its Certificate of Incorporation with the Delaware Secretary of State on December 30, 2011, to reflect its name change. Effective January 3, 2012, the ticker symbol for the Company’s common stock traded on the NASDAQ Capital Market changed from “HSWI” to “MARK”, and the Cusip for the Company’s common stock changed from “40431N104” to “75954W107”.
 

 
Liquidity Considerations
 
On February 27, 2012, the Company entered into definitive equity financing agreements with accredited and institutional investors to raise funds in the amount of $4.25 million through a private placement. In connection with the transaction, the Company issued to investors common stock priced at $4.50 per share. Investors also received warrants to acquire shares of common stock at an exercise price of $6.81 per share, in the amount of 25% of the number of shares of common stock that the investors purchased. On February 29, 2012, the Company received $4.25 million in cash and issued to the investors a total of 944,777 shares of common stock and warrants to acquire an additional 236,194 shares of common stock. The Company also paid a placement agent fee of 7% of the proceeds of the offering or approximately $0.3 million, and issued a three-year warrant to the Placement Agent to purchase up to an aggregate of 35,429 shares of Common Stock at an exercise price of $7.46 per share.
 
On March 4, 2011, the Company entered into a senior revolving credit agreement with Theorem Capital, LLC (the “Lender”) pursuant to which the Lender agreed to extend to the Company a line of credit of up to $1.0 million for a period of one year from March 4, 2011, subject to renewal by the Lender, at its sole discretion, for an additional one-year period. Under the terms of the credit agreement, the Company could, in its sole discretion, borrow from the
 
 
39
 
 
Lender up to $1.0 million from time to time during the term of the credit agreement, in minimum loan amounts of $200,000. Borrowings under the credit agreement bear interest at a fixed rate equal to 8% per annum, payable on or before March 3, 2012.  As of December 31, 2011, the Company did not have any outstanding balance under the senior revolving credit agreement and no interest was incurred during 2011. Interest expense showing in the Company’s consolidated statements of operations is related to the amortization of debt issuance costs associated with the senior revolving credit agreement. The agreement expired on March 3, 2012 and the Company chose not to request an additional one-year extension.
 
The Company’s cash and cash equivalents were approximately $1.5 million as of December 31, 2011.  The Company believes that this balance along with the proceeds received through the above-mentioned equity financing transaction will be sufficient to meet its cash requirements for the next twelve months.
 
The Company consistently monitors its cash position, and makes operational changes as necessary to maintain its business objective of funding ongoing operations and related growth. Accordingly, the Company implemented cost savings measures in its Brazil operations in February 2011, and in its China operations in September 2011. In addition, all Remark Media Content and Platform Service agreements expired in December 2011. The Content and Platform Services business will have no revenues generated unless the Company enters into new services agreements with new customers. The Company is actively seeking to expand its Content and Platform Services business to additional clients in 2012, and Remark Media is continuing to evolve its technology platforms and brands to ensure it incorporates the latest in social media and content trends.
 

 
2.  TRANSACTIONS WITH SHARECARE
 
On October 30, 2009, the Company co-founded Sharecare, Inc. a U.S.-based venture among: Dr. Mehmet Oz, a leading cardiac surgeon, health expert and host of “The Dr. Oz Show”; HARPO Productions, producer of “The Oprah Winfrey Show”; Discovery Communications, the world’s largest non-fiction media company; Jeff Arnold, WebMD founder and Discovery Communications’ former Chief of Global Digital Strategy; and Remark Media.  Sharecare was created to build a web-based platform that simplifies the search for health and wellness information by organizing a vast array of the questions of health and providing multiple answers from experts, organizations, publishers, and caregivers representing various points of view.
 
As a result of these transactions, the Company:
 
·  
Entered into a subscription agreement for the purchase of 125,000 shares of common stock of Sharecare, representing 20%  ownership of Sharecare at the time of purchase;  
·  
Sold substantially all of the assets of its DailyStrength subsidiary to Sharecare;
·  
Agreed to provide management and website development services to Sharecare; and
·  
Received a limited license to use the Sharecare web platform for the Company’s own businesses. 

The Company accounts for its equity interest in Sharecare under the equity method of accounting based on its ability to exercise significant influence over Sharecare due to its ownership percentage and representation on its board of directors.  Under this method, the Company recorded its proportionate share of Sharecare’s net income or loss based on Sharecare’s financial results.  As of December 31, 2011, Remark Media owned approximately 15.8% of the outstanding common stock of Sharecare.
 
At December 31, 2011, there was no difference between the carrying amount of Sharecare’s investment balance of $0.9 million and the Company’s proportionate share of Sharecare’s underlying net assets.
 
In June 2011, Sharecare acquired the assets and assumed the liabilities of HFPN and dotFit in exchange for its common stock. The Company did not receive sufficient evidence at the time regarding the transaction from Sharecare. Accordingly, the Company did not record an adjustment to reflect the transaction. During the third quarter 2011, the Company received information from Sharecare related to the fair value of Sharecare’s common shares. Based on this information, the Company determined that this issuance of common stock by Sharecare generated a non-cash gain of $0.4 million resulting from the change in its interest ownership which should have been recorded in the second
 
 
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quarter 2011.  As a result, the Company has restated its financials for the quarter ended June 30, 2011 to reflect the gain. Other than this transaction, there was no other issuance of common stock by Sharecare to any other third party investors in 2011 that would result in recording an adjustment related to a change in interest ownership.
 
For the year ended December 31, 2010, the Company recorded a non-cash adjustment to loss in equity-method investment of approximately $0.1 million to correct the Company’s investment in unconsolidated affiliate balance.  The Company determined this out-of-period adjustment was not material to the consolidated financial statements for the year ended December 31, 2010 or prior period financial statements.
 
The following table shows selected financial data of Sharecare as well as Remark Media’s proportional share of net loss in Sharecare as reported under the equity method:

   
Year Ended December 31,
 
   
2011
   
2010
 
             
Revenues
  $ 11,839,568     $ 4,742,403  
                 
Gross profit
    9,809,402       4,000,091  
                 
Loss from operations
    (13,626,988 )     (11,863,151 )
                 
Net loss
    (13,862,217 )     (12,008,017 )
                 
Loss in equity-method investment
  $ (2,066,283 )   $ (1,980,122 )
 

 
3.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
Principles of Consolidation
 
The consolidated financial statements include the accounts of Remark Media and its subsidiaries (1) HSW Brasil – Tecnologia e Informação Ltda., (2) HSW (HK) Inc. Limited, (3) Bonet (Beijing) Technology Limited Liability Company, and (4) BoWenWang Technology (Beijing) Limited Liability Company.  The equity of certain of these entities is partially or fully held by citizens of the country of incorporation to comply with local laws and regulations.
 
Equity investments in which the Company exercises significant influence but does not control and is not the primary beneficiary are accounted for using the equity method.  In the event of a change in ownership, any gain or loss resulting from an investee share issuance is recorded in earnings.  Investments in which the Company is not able to exercise significant influence over the investee are accounted for under the cost method.  Controlling interest is determined by majority ownership interest and the ability to unilaterally direct or cause the direction of management and policies of an entity after considering any third-party participatory rights.  The Company applies the guidelines set forth in ASC 810, “Consolidations” , in evaluating whether it has interests in variable interest entities (“VIE”) and in determining whether to consolidate any such entities.  All inter-company accounts and transactions between consolidated companies are eliminated in consolidation.
 
The Company uses qualitative analysis to determine whether or not it is the primary beneficiary of a VIE. The Company considers the rights and obligations conveyed by its implicit and explicit variable interest in each VIE and the relationship of these with the variable interests held by other parties to determine whether the variable interests will absorb a majority of a VIE’s expected losses, receive a majority of its expected residual returns, or both.  If the
 
 
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Company determines that its variable interests will absorb a majority of the VIE’s expected losses, receive a majority of its expected residual returns, or both, it consolidates the VIE as the primary beneficiary, and if not, the Company does not consolidate. 
 
The Company has determined that Bonet (Beijing) Technology Limited Liability Company is a variable interest entity as defined in ASC 810. Remark Media is the primary beneficiary of this entity and accordingly, the results of this entity have been consolidated along with other subsidiaries.
 
The Company has determined that its interest in Sharecare is not a VIE.  Additionally, the Company believes that it is able to exercise significant influence over Sharecare due to its level of interest ownership and its representation on Sharecares’s Board of Directors. Accordingly, the equity method of accounting is used to account for the investment in Sharecare.
 
 
 
Revenue Recognition
 
Brands Revenue. The Company generally recognizes Brands revenue as visitors are exposed to or react to advertisements on its websites.  Revenue from advertising is generated in the form of sponsored links and image ads.  This includes both pay-per-performance ads and paid-for-impression advertising.  In the pay-per-performance model, revenue is generally earned based on the number of clicks or other actions taken associated with such ads; in the paid-for-impression model, revenue is derived from the display of ads.
 
Content and Platform Services. Revenue from Content and Platform services is recognized during the period services related to the design, development, hosting, and related web services are performed.  Revenue is recorded on a gross versus net basis as Remark Media bears the risk of loss related to the services performed, the majority of which relates to services performed by the Company’s resources. The Company is able to recognize all of the revenue generated from this effort when the services have been provided since the Company meets the criteria set forth in Staff Accounting Bulletin (“SAB”) 104, “Revenue Recognition” ; namely, the fees the Company charges are fixed or determinable.  Remark Media and its customers understand the specific nature and terms of the agreed-upon transactions and collectability is reasonably assured.
 
The Company may also recognize content and platform services revenue on certain projects using a percentage of completion method.  Sales are calculated based on the total costs incurred to date divided by total estimated costs at completion times the contract price.
 

 
Cost of Services
 
Brands. The Brands cost of revenue represents the cost of translating and localizing content and acquiring original content written by third-parties as well as costs associated with design, development, hosting, user acquisition and user retentions.
 
Content and Platform Services. The Content and Platform Services cost of revenue represents the costs incurred to support the services agreements with the Company’s customers in this segment which include labor, content and third-party support services.
 

 
Concentration of Credit Risk and Accounts Receivable
 
Financial instruments that potentially subject Remark Media to a concentration of credit risk consist principally of cash and accounts receivable.  At December 31, 2011, 99% of cash was denominated in U.S. dollars, and 1% was
 
 
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denominated in Brazilian Reais, Chinese Renminbi or Hong Kong dollars.  The majority of the Company’s cash and cash equivalents balances are in one financial institution which is believed to have high credit quality.  Cash is maintained in bank deposit accounts, which, at times, may exceed federally insured limits. The Company has not experienced any losses in such accounts and does not believe its cash is exposed to any significant credit risk. Cash held by non-U.S. subsidiaries is subject to foreign currency fluctuations against the U.S. dollar. However, the risk in foreign currency is somewhat mitigated at this time as U.S. funds are transferred to Brazil and China to fund that subsidiary’s operating activity.  If, however, the U.S. dollar is devalued significantly against the Brazilian Reais or the Chinese Renminbi, the cost to further develop the Company’s websites in Brazil and China could exceed original estimates.
 
94% of the Company’s accounts receivable balance as of December 31, 2011, was from Sharecare and Discovery, who are related parties. The Company regularly evaluates the collectability of trade receivable balances based on a combination of factors such as customer credit-worthiness, past transaction history with the customer, current economic industry trends and changes in customer payment patterns.  If the Company determines that a customer will be unable to fully meet its financial obligation, such as in the case of a bankruptcy filing or other material events impacting its business, a specific reserve for bad debt will be recorded to reduce the related receivable to the amount expected to be recovered.  The Company’s revenue from Sharecare for the years ended December 31, 2011 and December 31, 2010, was approximately $3.7 million and $6.0 million, respectively.  The Company provided content and platform services to Sharecare in 2011, and amounts due from Sharecare represented approximately 56% of accounts receivable balances as of December 31, 2011.
 
During 2011, the Company also provided services to Discovery Communications, LLC (“Discovery”) to provide website development services to Discovery.  The Company’s Content and Platform services revenue from Discovery, an affiliated entity, for the year ended December 31, 2011 totaled approximately $1.2 million, and Discovery represented approximately 38% of accounts receivable balance as of December 31, 2011.
 
All accounts receivable from affiliates outstanding at the end of 2011, which accounted for 94% of accounts receivable balances at December 31, 2011, were collected in 2012. As such, an allowance for doubtful accounts was not deemed necessary at December 31, 2011.
 

 
Cash and Cash Equivalents
 
The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents.  A large portion of the cash balance is maintained at one financial institution. Cash denominated in foreign currencies is translated to U.S dollars at the month-end rate of exchange. The impact of foreign currency on cash and cash equivalents is presented in the Company’s statements of cash flows in accordance with accounting principles generally accepted in the United States (“GAAP”).
 

 
Use of Estimates
 
The preparation of consolidated financial statements in conformity with GAAP requires the Company to make estimates and assumptions that affect amounts reported and disclosed in the consolidated financial statements and accompanying notes.  Actual results could differ materially from those estimates.  On an ongoing basis, the Company evaluates its estimates, including those related to accounts receivable, intangible assets, useful lives of property and equipment, stock-based compensation, equity-method investments, and income taxes, among other things.
 
 
 
Income Taxes
 
Income taxes are accounted for using the asset and liability method in accordance with ASC 740, “Income Taxes” .  Deferred income tax assets and liabilities are computed for differences between the financial statement and tax basis of assets and liabilities that could result in future taxable or deductible amounts, based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income.  Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.
 
 
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The application of income tax law is inherently complex.  Laws and regulations in this area are voluminous and are often ambiguous.  As a result, the Company is required to make many subjective assumptions and judgments regarding income tax exposures, interpretations of, and guidance, surrounding income tax laws and regulations change over time.  As a result, changes in the Company’s assumptions and judgments can materially affect amounts recorded in the consolidated financial statements.
 
The Company classifies interest and penalties arising from unrecognized income tax positions in the statement of operations as general and administrative expenses if they occur.  At December 31, 2011, and 2010, the Company had no accrued interest or penalties related to uncertain tax positions.  The tax years 2007 through 2010 are not or have not been under examination but remain open to examination under the IRS statute.
 

 
Stock-Based Compensation
 
The Company measures stock-based compensation at the grant date based on the calculated fair value of the award.  The Company recognizes the expense over the employee’s requisite service period, generally the vesting period of the award.  The Company estimates the fair value of stock options at the grant date using the Black-Scholes option pricing model with weighted average assumptions for the activity under its stock plans.  Option pricing model input assumptions such as expected term, expected volatility and risk-free interest rate among others, impact the fair value estimate.  These assumptions generally require significant analysis and use of judgment and estimates to develop. Options vest based on meeting a minimum service period or performance condition. Restricted stock grants are recorded using the fair value of the granted shares based on the market value at the grant date.  In addition, the forfeiture rate impacts the amount of aggregate compensation. These assumptions are subjective and generally require significant analysis and judgment to develop.
 
The Company does not recognize a deferred tax asset for unrealized tax benefits associated with the tax deductions in excess of the compensation recorded (excess tax benefit).  The Company applies the “with and without” approach for utilization of tax attributes upon realization of net operating losses in the future.  This method allocates stock-based compensation benefits last among other tax benefits recognized.  In addition, the Company applies the “direct only” method in calculating the amount of windfalls or shortfalls.
 

 
Foreign Currency
 
The functional currency of the Company’s international subsidiaries is the local currency, Reais in Brazil, Renminbi in China or Hong Kong dollars in Hong Kong.  The financial statements of these subsidiaries are translated to U.S. dollars using month-end rates of exchange for assets and liabilities, and average rates of exchange for revenue, costs and expenses.  Translation gains and losses are recorded in accumulated other comprehensive income (loss) as a component of stockholders’ equity.  Net gains and losses resulting from foreign exchange transactions are recorded in selling, general and administrative expenses.  Currency translation gains and losses during 2011 and 2010 were immaterial to the Company’s consolidated financial statements.
 

 
Purchase Price Allocations
 
Occasionally, the Company enters into material business combinations.  In accordance to ASC 805, “Business Combinations” , the purchase price is allocated to the various assets acquired and liabilities assumed based on their estimated fair value.  Fair values of assets acquired and liabilities assumed are based upon available information and may involve engaging an independent third party to perform an appraisal of tangible and intangible assets.  Estimating fair values can be complex and subject to significant business judgment and most commonly impacts property, equipment, software, and definite- or indefinite-lived intangible assets.
 
 
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Property, Equipment and Software
 
Property, equipment and software is stated at cost less accumulated depreciation.  Depreciation is recorded within operating expenses in the consolidated statements of operations, using the straight-line method over the estimated useful lives of the assets, generally one to three years for computer equipment and software and three to five years for building improvements and office equipment.  Leasehold improvements are depreciated over the shorter of their estimated useful life or lease term.  Costs represent the purchase price and any directly attributable costs of bringing the asset to working condition for its intended use.  Repairs and maintenance are expensed as incurred.  Betterments and capital improvements are capitalized and depreciated over the remaining useful life of the related asset.  Gains or losses from disposal of property and equipment are included in selling, general and administrative expenses.
 

 
Software Development Costs
 
In accordance with ASC 350-40, “Internal Use Software” and ASC 350-50, “Web Development Costs”, the Company capitalizes qualifying costs of computer software and website development costs. Costs incurred during the application development stage as well as upgrades and enhancements that result in additional functionality are capitalized. The internally developed software costs capitalized were $0.1 million at December 31, 2011 and are included in “Property, equipment and software” in the consolidated balance sheet. Internally developed software and website development costs will be amortized utilizing the straight-line method over a period of three years, the expected period of the benefit. There was no amortization recorded for these costs during 2011 as these projects were not complete yet at December 31, 2011.
 

 
Advertising Expenses
 
The Company expenses advertising costs in the year in which they are incurred.  Advertising expenses for each of the years ended December 31, 2011 and 2010 were minimal.
 

 
Commitments and Contingencies
 
The Company records liabilities for loss contingencies arising from claims, assessments and litigation and other sources when it is probable that a liability has been incurred and the amount of the assessment can be reasonably estimated.  In the opinion of management, and after consultation with legal counsel, there were no material claims, assessments and litigation against the Company as of December 31, 2011.
 

 
Impairment of Property, Equipment and Software and Definite-Lived Intangible Assets
 
Property, equipment, software and definite-lived intangible assets are tested for impairment whenever events or changes in circumstances indicate that their carrying amount may not be recoverable.  Such events include significant adverse changes in the business climate, the impact of significant customer losses, unanticipated current period operating or cash flow losses, forecasted continuing losses or a current expectation that an asset group will be disposed of before the end of its useful life.  Recoverability of these assets is measured by a comparison of the carrying amounts to future net undiscounted cash flows the assets are expected to generate.  For purposes of recognition and measurement of an impairment loss, property, equipment, software and definite-lived intangible assets are grouped with other assets at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets.
 
 
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Impairment of Investments
 
Investments are reviewed to determine if events have occurred which would indicate that a decrease in value has occurred which is other than temporary.  Evidence of a loss in value include, but are not limited to, absence of an ability to recover the carrying amount of the investment or inability of the investee to sustain an earnings capacity that would justify the carrying amount of the investment. The Company monitors its assets for potential impairment on an ongoing basis.  No impairment charge has been recognized related to investments as of December 31, 2011 or 2010.
 

 
Goodwill and Indefinite-Lived Intangible Assets Impairment
 
Generally, the Company performs its annual assessment of impairment for goodwill and indefinite-lived intangible assets during the fourth quarter of each year, unless facts and circumstances require differently.  For goodwill, the Company determines recoverability by comparing the estimated fair value of the reporting unit to which goodwill applies to the carrying value, including goodwill, of that reporting unit using a discounted cash flow model.  The Company tests its indefinite-lived intangible assets, which are licenses to operate in China, for impairment by utilizing appropriate valuations techniques to estimate their fair values.  Estimating the fair value of the reporting unit and its long-lived intangible assets involve uncertainties, because management is required to develop numerous assumptions, including assumptions about the future growth and potential volatility in revenues and costs, capital expenditures, industry economic factors and future business strategy.  The variability of the factors that management uses to perform its impairment tests depends on a number of conditions, including uncertainty about future events and cash flows.  All such factors are interdependent and, therefore, do not change in isolation.  Accordingly, the accounting estimates may materially change from period to period due to changing market factors and other conditions.  Significant judgments in this area involve determining whether a triggering event has occurred, estimating the future cash flows for the assets involved and determining the proper discount rate to be applied in determining fair value.
 
As of September 30, 2011, and in light of the market conditions and the cost savings measures implemented in the Company’s operations in China, the Company performed an impairment analysis of its indefinite-lived intangible asset which is a license to operate in China. The Company used the cost approach to estimate the fair value. As a result of the assessment, the Company determined that the intangible asset is impaired and recorded in the Company’s statement of operations for the third quarter 2011 an impairment charge of $0.4 million.
 
As a result of the annual impairment test in the fourth quarter 2010, the Company recorded an impairment charge related to its indefinite-lived intangible asset of $0.5 million during the year ended December 31, 2010, related to the licenses to operate in China. The Company used the discounted cash flow approach to determine the fair value. For further details, refer to Note 5.
 
 
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Fair Value Measurements on a Recurring Basis
 
The Company applies the guidance in ASC 820, “Fair Value Measurements”, to nonfinancial assets and liabilities that are recognized or disclosed at fair value on a nonrecurring basis.  ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price).  To measure fair value, the Company incorporates assumptions that market participants would use in pricing the asset or liability, and utilizes market data to the maximum extent possible.
 
As a basis for considering market participant assumptions in fair value measurements, ASC 820 establishes a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value as follows:
 
·  
Level 1 – Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access;
·  
Level 2 – Inputs, other than the quoted market prices included in Level 1, which are observable for the asset or liability, either directly or indirectly; and
·  
Level 3 – Unobservable inputs for the asset or liability, which are typically based on an entity’s own assumptions, as there is little, if any, related market data available.

In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety.  The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.
 

 
Debt Issuance Costs
 
Costs associated with entering into a credit facility are deferred and amortized over the term of the credit facility on a straight-line basis. The amortization is included in interest expense in the consolidated statements of operations.
 
In connection with the revolving credit agreement entered into in March 2011, the Company deferred debt issuance costs of approximately $0.15 million provided to its lender consisting of $0.02 million paid in cash and $0.13 million in warrants to purchase 65,359 shares of the Company’s common stock.
 

 
Net Loss per Share
 
The Company computes net loss per share in accordance with ASC 260, “Earnings per Share”, which requires dual presentation of basic and diluted earnings or loss per share (“EPS”).
 
The Company computes basic loss per share by dividing net loss applicable to common stockholders by the weighted-average number of common shares outstanding during the period. The Company calculates diluted loss per share by dividing net loss by the weighted-average number of common shares and dilutive potential common shares, if any, outstanding during the period.  Stock options and warrants are not included in the computation of diluted loss per share because their effects are anti-dilutive.
 
 
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Recent Accounting Pronouncements
 
In September 2011, the Financial Accounting Standards board ("FASB”) issued Accounting Standard update (“ASU”) No. 2011-08, “Intangibles – Goodwill and Other” (Topic 350), (“ASU 2011-08”) which simplifies how entities test goodwill for impairment. This accounting update permits an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test described in Topic 350. The more-likely-than-not threshold is defined as having a likelihood of more than 50 percent. ASU 2011-08 will be effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011 with early adoption permitted. The Company will adopt this ASU in the first quarter 2012 and does not expect that the adoption of ASU 2011-08 will have a material impact on the Company’s financial position, results of operations or cash flows.
 
In June 2011, the FASB issued ASU No. 2011-05, “Comprehensive Income Topic 220” – “Presentation of Comprehensive Income” (ASU 2011-05). ASU 2011-05 requires that all nonowner changes in stockholders’ equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. Under either method, adjustments must be displayed for items that are reclassified from other comprehensive income to net income, in both net income and other comprehensive income. The standard does not change the current option for presenting components of other comprehensive income (“OCI”) gross or net of the effect of income taxes, provided that such tax effects are presented in the statement in which OCI is presented or disclosed in the notes to the financial statements. Additionally, the standard does not affect the calculation or reporting of earnings per share. In December 2011, the FASB issued ASU 2011-12 Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05 (“ASU 2011-12”). ASU 2011-12 defers those changes in ASU 2011-05 that relate to the presentation of reclassification adjustments. The FASB has deferred those changes in order to reconsider whether to present on the face of the financial statements the effects of reclassifications out of accumulated other comprehensive income on the components of net income and other comprehensive income for all periods presented. ASU 2011-12 does not impact the requirement of ASU 2011-05 to report comprehensive income either in a single continuous financial statement or in two separate but consecutive financial statements. For public entities, ASU 2011-05 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011 and is to be applied retrospectively, with early adoption permitted. The Company will adopt these updates in the first quarter 2012 and does not expect that the adoption will have any impact on its financial position, results of operations or cash flows.
 
In May 2011, the FASB issued ASU No. 2011-04, “Fair Value Measurement (Topic 820)” – “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS”   (ASU 2011-04). The amendments in this ASU result in common fair value measurement disclosure requirements between U.S. GAAP and International Financial Reporting Standards. Consequently, the amendments change the wording used to describe many of the requirements in U.S. GAAP for measuring fair value and disclosing information about fair value measurements. The amendments include a clarification of the FASB’s intent about the application of existing fair value measurement requirements and change a particular principle or requirement for measuring fair value or for disclosing information about fair value measurements. The amendments in this guidance are effective prospectively for interim and annual periods beginning after December 15, 2011, with no early adoption permitted. The Company will adopt the update in the first quarter of 2012 and does not expect the adoption to have a material impact on its financial position, results of operations or cash flows.
 
Effective January 1, 2011, the Company adopted ASU No. 2009-13, “Revenue Recognition (Topic 605)” – “Multiple-deliverables revenue arrangements” (ASU 2009-13). This update provides that, when vendor-specific objective evidence or third party evidence of selling price is not available, a best estimate of the selling price is required to separate deliverables and allocate arrangement consideration based on the relative selling prices of the separate deliverables (the “relative selling price method”). The relative selling price method allocates any discount in the arrangement proportionately to each deliverable on the basis of each deliverable’s selling price. The Company concluded that the adoption of ASU 2009-13 did not have a material impact on its financial position, results of operations or cash flows, as the guidance applied to revenue arrangements with multiple deliverables, which were not significant.
 
 
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In January 2010, the FASB issued authoritative guidance that expands the required disclosures about fair value measurements.  This guidance provided for new disclosures requiring the Company to (i) disclose separately the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements and describe the reasons for the transfers and (ii) present separately information about purchases, sales, issuances and settlements in the reconciliation of Level 3 fair value measurements.  This guidance also provides clarification of existing disclosures requiring the Company to (i) determine each class of assets and liabilities based on the nature and risks of the investments rather than by major security type and (ii) for each class of assets and liabilities, disclose the valuation techniques and inputs used to measure fair value for both Level 2 and Level 3 fair value measurements.  The adoption of this guidance did not have a material impact on the financial statements.
 

 
4.  PREPAID EXPENSES AND OTHER CURRENT ASSETS
 
As of December 31, 2011 and 2010, prepaid expenses and other current assets consisted of the following:
 
   
December 31,
 
   
2011
   
2010
 
             
Prepaid insurance
  $ 326,482     $ 348,936  
Deposits and other current assets
    67,507       217,238  
Total
  $ 393,989     $ 566,174  
                 


5.  GOODWILL AND INTANGIBLE ASSETS
 
In accordance with ASC No. 350, “ Intangibles-Goodwill and Other ”, goodwill and other intangible assets with indefinite lives are not amortized. Instead, a review for impairment is performed at least annually or more frequently if events and circumstances indicate impairment might have occurred. Intangible assets with indefinite lives are tested by comparing the fair value of the asset to its carrying value. If the carrying value of the asset exceeds its fair value, impairment is recognized. The Company has no goodwill but does have indefinite-lived intangible assets consisting of a license to operate in China and certain site domains related to its operations in Brazil. In the third quarter 2011, the Company made strategic reductions in the number of personnel supporting its China business operations to better align with its new strategic business plans. This event directly impacted the Company’s expectations of revenues and growth rates.  As a result, the Company performed an impairment assessment related to its license to operate in China using the cost approach. The Company considered the inputs in this assessment to be level 3 in the fair value hierarchy under ASC 820. As a result of the assessment, the Company determined the China license fair value to be $0.1 million at December 31, 2011 and recorded an impairment loss of $0.4 million which was reported under impairment loss in the Company’s consolidated statement of operations for the third quarter 2011.  In performing the analysis, the Company assumed that the time involved to negotiate and obtain the license is approximately 4.5 months and estimated the direct and indirect costs to obtain the license is approximately $0.1 million.
 
In the fourth quarter of 2010, the Company performed an impairment assessment on its license to operate in China using the income approach. As a result of this assessment, the Company determined the China license’s fair value to be $0.4 million and recorded an impairment charge of $0.5 million, reported under impairment loss in its consolidated statements of operations for the year ended December 31, 2010. 
 
The change in the approach used in the impairment analysis was due to a major decrease in projected revenues as a result of costs saving measures implemented in September 2011. The reductions prompted a change in the
 
 
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Company’s assessment of the highest and best use of the asset from an in-use premise to an in-exchange valuation premise. As a result, the income approach used in 2010 was no longer a valid approach for the 2011 analysis.  The cost approach uses the concept of depreciated replacement cost as an indicator of value and is based on the principle of substitution which holds that a prudent investor would pay no more for an asset than the amount for which the asset could be replaced less the effects of physical, functional and external depreciation or obsolescence.
 
The Company also has indefinite-lived intangible assets related to Brazil website domain names. The Company did not recognize any impairment during 2011 and 2010 related to this asset.
 
As of December 31, 2011 and 2010 intangible assets consisted of the following:
 
Indefinite-lived Intangible assets:
 
December 31,
 
   
2011
   
2010
 
License to operate in China:
           
      Balance, beginning of year
  $ 481,000     $ 969,560  
       Impairment loss
    (381,000 )     (488,560 )
       Balance, end of year
    100,000       481,000  
Site domains:
               
       Balance, end of year
    16,429       16,429  
                 
Total
  $ 116,429     $ 497,429  
                 

 
The following table presents the range of assumptions the Company used to derive its fair value estimates for the China reporting units during the impairment test conducted in the fourth quarter of 2010.
 
   
2010 Assumptions
 
Weighted-average cost of capital
    28 %
Long-term growth rates
    7.0 %
Annual revenue growth rates
 
$0.2 -$25.2 million
 
Time required to obtain similar licenses
 
4.5 months
 
         

 
Any change in estimates and assumptions related to the operations in China or to the license may lead to further material impairment charges to the remaining carrying amount of the licenses to operate in China.
 
 
50
 

6.  PROPERTY, EQUIPMENT AND SOFTWARE

As of December 31, 2011 and 2010, property, equipment and software consisted of the following:


   
December 31,
 
   
2011
   
2010
 
             
Computer equipment
  $ 593,177     $ 569,440  
Furniture and fixtures
    198,231       113,071  
Software
    359,946       267,896  
Leasehold improvements
    214,811       193,401  
Total
    1,366,165       1,143,808  
Less accumulated depreciation and amortization
    (1,001,779 )     (837,348 )
Property, equipment and software, net
  $ 364,386     $ 306,460  
                 

Depreciation and amortization expense was $0.2 million and $0.3 million for the years ended December 31, 2011, and 2010, respectively.  At December 31, 2011, the U.S. operations and Brazil operations own approximately 86% and 14% of Property, equipment and software, net of accumulated depreciation and amortization, respectively.
 

 
7.  INCOME TAXES
 
For the years ended December 31, 2011 and 2010, the benefit from income taxes is comprised of the following:
 
   
Year Ended December 31,
 
   
2011
   
2010
 
Current:
           
     Federal
  $ -     $ -  
     State
    -       -  
     Foreign
    -       902  
           Total
    -       902  
                 
Deferred:
               
     Federal
    -       -  
     State
    -       -  
     Foreign
    (95,250 )     (122,140 )
           Total
    (95,250 )     (122,140 )
                 Income tax benefit
  $ (95,250 )   $ (121,238 )
                 
 
 
 
51
 

 
The provision for income taxes for the years ended December 31, 2011 and 2010 differs from the amount computed by applying the U.S. income tax rate of 34% to loss before taxes as follows:

   
Year Ended December 31,
 
   
2011
   
2010
 
             
Computed “expected” tax expense
  $ (2,345,921 )   $ (2,048,948 )
Loss from equity-method investment
    702,536       517,717  
State taxes, net of federal benefit
    (223,587 )     (167,067 )
Change in valuation allowance
    1,614,792       1,356,007  
Tax effect of losses and rates in non-US jurisdictions
    113,836       169,089  
Tax effect of other permanent items
    43,094       51,371  
Other
    -       593  
                 
           Total
  $ (95,250 )   $ (121,238 )
                 


Loss before benefit from income taxes for the years ended December 31, 2011 and 2010, on a domestic versus foreign basis, consisted of the following:

   
Year Ended December 31,
 
   
2011
   
2010
 
             
Domestic
  $ (6,071,414 )   $ (4,830,570 )
Foreign
    (828,356 )     (1,195,747 )
                 
          Total
  $ (6,899,770 )   $ (6,026,317 )
                 
 
 
52
 

Deferred income taxes reflect the tax consequences on future years of temporary differences between the tax basis of assets and liabilities and their financial reporting basis and are reflected as current or non-current depending on the classification of the asset or liability generating the deferred tax. The deferred tax provision for the periods shown represents the effect of changes in the amounts of temporary differences during those periods.
 
   
December 31,
 
   
2011
   
2010
 
Deferred tax assets:
           
Net operating loss carryforwards
  $ 13,703,132     $ 12,434,401  
Amortization
    11,793       66,321  
Depreciation of property, equipment and software
    -       45,995  
Deferred income and reserves
    240,291       124,965  
Stock-based compensation expense
    9,136,952       8,954,255  
Differences related to stock basis in equity investment
    164,623       -  
      Less: Valuation allowance
    (23,209,679 )     (20,999,839 )
         Total deferred tax assets
    47,112       626,098  
                 
                 
Deferred tax liabilities:
               
Acquired intangibles
    (25,000 )     (120,250 )
Depreciation of property, equipment and software
    (40,752 )     -  
Foreign exchange gain/loss
    (6,360 )     (6,360 )
Differences related to stock basis in equity investment
    -       (619,738 )
       Total deferred tax liabilities
    (72,112 )     (746,348 )
                 
              Net deferred tax liabilities
  $ (25,000 )   $ (120,250 )
                 

 
The following table represents a rollforward of the valuation allowance against deferred tax assets for fiscal 2011 and 2010:  
 
   
December 31,
 
   
2011
   
2010
 
             
Balance at the beginning of year
  $ 20,999,839     $ 19,081,594  
Increase related to net operating  loss and costs and expenses
     incurred in the current year
    2,316,233       1,878,253  
Change related to prior year true-ups
    1,697       (4,530 )
Effect of foreign exchange rate differences
    (108,090 )     44,522  
                 
Balance at end of year
  $ 23,209,679     $ 20,999,839  
                 
 
 
53
 
 
The net operating losses available at December 31, 2011, to offset future taxable income in the U.S. federal, state, Hong Kong, China and Brazil jurisdictions are $30.9 million, $27.5 million, $0.5 million, $2.8 million and $8.2 million, respectively.  The income tax rates for Hong Kong, China and Brazil are 16.5%, 25% and 15%, respectively.  The net operating losses in the U.S. include losses in the amount of $3.9 million related to the purchase of DailyStrength.  The U.S. net operating losses are subject to certain rules under Internal Revenue Code Section 382 limiting their annual usage.  The federal net operating losses expire between the years 2024 and 2030.  The state net operating losses expire between the years 2016 and 2030.  The net operating losses generated in Hong Kong have no expiration date and carry forward indefinitely.  The net operating losses generated in China have a five year carryover period.  The net operating losses generated in Brazil have no expiration date and up to 30% of the net operating loss may be utilized each year.

In assessing the realizability of deferred tax assets, the Company considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The Company considers the reversal of existing taxable temporary differences, projected future taxable income, and tax planning strategies in making this assessment. Based upon the level of historical taxable losses, at December 31, 2011, the Company believes it is not more likely than not that Remark Media will realize the benefits of these deductible differences. Therefore, a full valuation allowance has been provided for all the net deferred tax assets.
The Company had no unrecognized tax benefits for the years ended December 31, 2011 and 2010 and does not expect its unrecognized tax benefits to change significantly over the next 12 months.
 
Remark Media files United States state and foreign income tax returns in jurisdictions with varying statutes of limitations.  The 2004 through 2010 tax years generally remain subject to examination by federal and most state tax authorities with respect to net operating losses.  In significant foreign jurisdictions, the 2007 through 2010 tax years generally remain subject to examination by their respective tax authorities.
 
 
 

8.  STOCKHOLDERS’ EQUITY
 
Common Stock
 
On February 16, 2010, the Company conducted a reverse split of its common stock, par value $0.001, at a ratio of 10-for-1 (the “Reverse Split”), at which time each share of common stock was automatically reclassified as and converted into one-tenth of a share of common stock.  Each stockholder’s percentage ownership in the Company and proportional voting power remained unchanged by the Reverse Split, except for those adjustments resulting from stockholders receiving cash in lieu of fractional shares.  In connection with the Reverse Split, the number of authorized shares of the Company’s capital stock was reduced accordingly by a ratio of 10-for-1. Any reference to the Company’s stock for the year 2009 within this document has been adjusted to reflect the effects of the Reverse Split.
 
Subsequent to the Reverse Split, the par value per share of the common stock remained unchanged at $0.001 per share.  As a result, on the effective date of the Reverse Split, the stated capital on the Company’s consolidated balance sheet attributable to common stock was reduced and the additional paid-in capital account was increased by the amount by which the stated capital is reduced. In addition, the net income or loss per share was increased because there were fewer shares of the Company’s common stock outstanding. Employee and director share and option grants as well as associated exercise prices were also adjusted in the same proportion as the Reverse Split.
 
Each share of the common stock entitles its holder to one voting right.
 
At December 31, 2011, the Company had outstanding warrants to acquire 95,359 shares of common stock of which 65,359 shares had an exercise price of $3.06 and will expire in 2014. The exercise price of the remaining warrants ranges from $35.00 to $98.90 and the warrants will expire through 2017.
 
 
54
 
 
Stock Based Compensation
 
Remark Media has authorized 800,000 shares under the 2006 Equity Incentive Plan adopted April 13, 2006 (the “2006 Plan”), and an additional 525,000 shares authorized under the 2010 Equity Incentive Plan adopted June 15, 2010, as modified on December 30, 2011 (the “2010 Plan”), for grant as part of long-term incentive plans to attract, retain and motivate its eligible executives, employees, officers, directors and consultants.  Options to purchase common stock under the 2006 and 2010 Plans have been granted to its officers and employees with an exercise price equal to the fair market value of the underlying shares on the date of grant.
 
On June 15, 2010, the Company granted 8,000 shares of restricted stock to members of its Board of Directors.  The grant date fair value was $2.10 per share.  Of the 8,000 shares granted, 7,100 shares vested on December 31, 2010 and the remaining shares were forfeited.
 
On February 2, 2011, the Company granted 16,000 shares of restricted stock to members of its Board of Directors. The grant date fair value was $3.52 per share. Of the 16,000 shares granted, 13,840 shares vested on December 31, 2011.
 
On February 25, 2011, the Company granted 33,000 shares of restricted stock to members of senior management. The grant fair value was $2.88 per shares. The 33,000 shares granted fully vested on December 31, 2011.
 
On July 17, 2010, the Company granted stock options covering 9,020 shares at an exercise price of $3.85 per share.  These options vest in approximately two years from the grant date and their fair value on the grant date was $3.02 per share.
 
On September 21, 2010, the Company granted stock options covering 140,000 shares at an exercise price of $6.06 per share.  These options vest in three years. Of the 140,000 shares, 45,000 shares were forfeited on December 31, 2011. The fair value of these options on the grant date was $4.93 per share.
 
On February 25, 2011, the Company granted stock options covering 177,500 shares at an exercise price of $2.88 per share. These options vest in three years. Of the 177,500 shares granted, 44,675 shares were forfeited on December 31, 2011. The fair value of these options on the grant date was $2.29 per share.
 
In addition, 16,671 shares were forfeited related to options granted in November of 2009.
 
The Company uses the Black-Scholes options pricing model to value its options, using the assumptions in the following table for 2011 and 2010.  Expected volatilities are based on the historical volatility of its stock.  The expected term of options represents the period of time that the options granted are expected to be outstanding.  The Company uses the midpoint method to estimate the expected term for options granted as sufficient historical data regarding exercise of options is not available nor information readily available regarding comparable plans sufficient to use as a basis to estimate the expected term value.  The risk-free rate of periods during the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant.  The dividend yield is based on expected dividends to be paid over the term of the options.
 
   
2011
   
2010
 
             
Expected volatility
    105.8 %     185.6% - 197.7 %
Expected life in years
    5.75       5.75 – 6.25  
Dividend yield
    -       -  
Risk free interest rate
    2.50 %     1.34% - 1.99 %
                 

 
 
55
 
 
In accordance with ASC 718, stock-based compensation cost is measured based on the fair value of the award on the date of the grant, and is recognized as an expense over the employee’s requisite service period.  Stock-based compensation expense for the years ended December 31, 2011, and 2010, was $0.6 million and $0.3 million, respectively.  Unrecognized compensation expense as of December 31, 2011, relating to non-vested stock options approximated was $0.4 million and is expected to be recognized through 2013.  At December 31, 2011, no options have been exercised under this plan.  Stock options have a maximum term of 10 years from the grant date.
 
A summary of stock option activity and related information as of December 31, 2011, and changes during the year then ended, is presented below:
 
   
Number of options
   
Weighted average exercise price
   
Weighted average remaining contract term (years)
   
Aggregate Intrinsic Value
 
Options
                       
Outstanding at January 1, 2011
    936,679     $ 56.19              
Granted
    177,500       2.88              
Forfeited
    (220,346 )     35.56              
Exercised
    -       -              
Total outstanding at December 31, 2011
    893,833       41.80       6.3     $ 57,929  
Options exercisable at December 31, 2011
    763,081     $ 48.22       5.9     $ 39,389  
                                 

The fair value of options vested during the years ended December 31, 2011 and 2010, were $0.5 million and $0.2 million, respectively. The grant-date fair value of options granted during the years 2011 and 2010 was $0.4 million and $0.7 million.
 
As of December 31, 2011, 55,535 shares and 310,790 shares are available for future issuance under the Equity Incentive Plans for 2006 and 2010, respectively.
 
Restricted stock activity during the year ended December 31, 2011 is shown in the following table.  A summary of restricted stock activity and related information as of December 31, 2011, and changes during the year then ended is presented below:
 
   
Number of shares
   
Weighted average grant date fair value
 
             
Shares
           
Unvested balance, January 1, 2011
    -       -  
Granted
    49,000     $ 3.09  
Vested
    (46,840 )     3.07  
Forfeited
    (2,160 )     3.52  
Total unvested at December 31, 2011
    -     $ -  
The total fair value of restricted stock vested during the year ended December 31, 2011 was approximately $0.14 million.
 
As of December 31, 2011, there was no unrecognized compensation expense related to non-vested restricted stock.
 
 
56
 

 
9.  EARNINGS PER SHARE
 
The following is a reconciliation of the numerators and denominators of the Company’s basic and diluted earnings per share computations:
 
   
Year Ended December 31,
 
   
2011
   
2010
 
Loss per share:
           
Net loss
  $ (6,804,520 )   $ (5,905,079 )
Weighted average shares outstanding, basic and diluted
    5,416,109       5,368,419  
                 
Net loss per share, basic and diluted
  $ (1.26 )   $ (1.10 )
                 
Common shares and dilutive securities:
               
Weighted average shares outstanding
    5,416,109       5,368,419  
Dilutive stock options
    -       -  
Total common shares and dilutive securities
    5,416,109       5,368,419  

Stock options and warrants are not included in the diluted earnings per share calculation above as they are anti-dilutive.  The number of anti-dilutive weighted average shares outstanding excluded from the calculation above was 1,109,019 and 883,836 for the years ended December 31, 2011 and 2010 respectively.
 

 
10.  RELATED PARTY TRANSACTIONS
 
On October 30, 2009, the Company entered into and effectuated a series of transactions with Sharecare, a related party.  As a result of these transactions, the Company received an equity stake in Sharecare, sold substantially all of the assets of its DailyStrength subsidiary to Sharecare, agreed to provide management and website development services to Sharecare, and received a limited license to use the Sharecare web platform for its own businesses.  Additionally, the Company issued a promissory note to Sharecare, all of which was settled by services the Company provided to Sharecare during 2009.  
 
Jeff Arnold, a former member of the Company’s Board of Directors, is the Chairman and Chief Executive Officer and a significant stockholder of Sharecare.  Additionally, Discovery Communications, Inc., the Company’s largest stockholder, is a significant stockholder of Sharecare.  Until December 17, 2009, Bruce Campbell, President of Digital Media and Business Development for Discovery Communications, was a member of the Company’s Board of Directors.  The Company’s Board of Directors established a Special Committee on May 18, 2009, consisting of three independent directors without any interests in Sharecare to evaluate and recommend the terms of these transactions to the Board.  The Special Committee engaged a third party financial adviser to provide a fairness opinion on the totality of the transactions.  All terms recommended by the Special Committee were unanimously approved by the Board, with Mr. Arnold and Mr. Campbell abstaining from voting.
 
 
57
 
 
The Company’s revenue from Sharecare for the years ended December 31, 2011 and 2010 totaled approximately $3.7 million and approximately $6.0 million, respectively.  As of December 31, 2011, the Company owned approximately 15.8% of the outstanding common stock of Sharecare.  The Company provided platform services to Sharecare, and amounts due from Sharecare represented 56% of accounts receivable balances as of December 31, 2011.  The Content and Platform services agreement with Sharecare expired in December 2011.
 
In April 2010, the Company entered into an agreement with Discovery Communications, LLC (“Discovery”) to provide website development services to Discovery.  The Company’s Content and Platform services revenue from Discovery, an affiliated entity, for the year ended December 31, 2011 totaled approximately $1.2 million, and Discovery represented 38% of accounts receivable balances as of December 31, 2011. The Content and Platform services agreement with Discovery expired in December 2011.
 
On March 30, 2010, the Company entered into a 24-month sublease agreement with Sharecare for rental of its corporate headquarters in Atlanta, Georgia, effective March 1, 2010. In conjunction with the relocation of its headquarters in April 2011, the Company reduced the square footage and associated expense related to this sublease agreement, and on August 1, 2011, the Company and Sharecare mutually agreed to end the sublease agreement prior to the contracted termination date.
 
As of December 31, 2011 and 2010, the Company had an outstanding liability due to its affiliate, Discovery, of approximately $0.1 million.
 

 
11.  SEGMENTS
 
Operating segments are components of an enterprise for which separate financial information is available and is evaluated regularly by the chief operating decision maker, or decision making group, in deciding how to allocate resources and in assessing performance.  Because of the Company’s integrated business structure, operating costs included in one segment can benefit other segments, and therefore these segments are not designed to measure operating income or loss directly related to the products included in each segment.  Reconciling amounts include adjustments to conform with U.S. GAAP and corporate-level activity not specifically attributed to a segment.  Corporate expenses include, among other items: corporate-level general and administration costs, technology costs and on-going maintenance charges; stock-based compensation expense related to stock and stock option grants; depreciation and amortization expense; and interest expense and income.
 
The Company has reported two segments for the years ended December 31, 2011 and 2010: Brands (formerly digital online publishing) and Content and Platform Services (formerly web platform services). The Brands segment consists of the websites related to the operations in Brazil and China and generates revenues from advertisers based in the respective countries. The Content and Platform Services segment consisted in 2011 and 2010 of the services provided to its affiliates, Sharecare and Discovery. These services are related to the design, development, hosting and related services necessary to launch and operate websites for Sharecare and Discovery through the Company’s direct activities and management of third party vendors.  The operating results for services performed under the Sharecare and Discovery’s services agreement are included in the content and platform services segment. Loss in equity-method investment is included in the tables below under the other income (expense) line.
 
 
58
 

Revenue, operating loss and total assets regarding reportable segments are presented in the following tables:
 
   
Brands
   
Content and Platform Services
   
Corporate
   
Total
 
                         
Year Ended December 31, 2011:
                       
                         
 Revenue
  $ 140,702     $ 4,851,224     $ -     $ 4,991,926  
 Operating (loss) income
    (832,935 )     1,666,693       (5,550,534 )     (4,716,776 )
 Interest expense
    (60 )     -       (123,420 )     (123,480 )
 Other income (expense)
    4,638       -       (2,064,152 )     (2,059,514 )
Income tax benefit
            -       (95,250 )     (95,250 )
 Net (loss) income
  $ (828,357 )   $ 1,666,693     $ (7,642,856 )   $ (6,804,520 )
                                 

 
 
   
Brands
   
Content and Platform Services
   
Corporate
   
Total
 
                         
Year Ended December 31, 2010:
                       
                         
 Revenue
  $ 190,712     $ 6,464,352     $ -     $ 6,655,064  
 Operating (loss) income
    (1,196,653 )     1,119,007       (4,440,488 )     (4,518,134 )
 Interest income
    -       -       14,514       14,514  
 Other expense
    -       -       (1,523,599 )     (1,523,599 )
Income tax benefit
    -       -       (122,140 )     (122,140 )
 Net (loss) income
  $ (1,196,653 )   $ 1,119,007     $ (5,827,433 )   $ (5,905,079 )

 
 
59
 
 
 
   
December 31,
 
   
2011
   
2010
 
             
Total assets:
           
             
Brands
  $ 118,503     $ 400,660  
Content and platform services
    302,129       658,944  
Business segments
    420,632       1,059,604  
Corporate
    3,315,385       8,828,172  
Total assets
  $ 3,736,017     $ 9,887,776  
                 



   
December 31,
 
   
2011
   
2010
 
Investment in unconsolidated entity:
       
Business segments
  $ -     $ -  
Corporate
    905,852       2,972,135  
Total investment in unconsolidated entity
  $ 905,852     $ 2,972,135  
                 




   
Year Ended December 31,
 
   
2011
   
2010
 
Loss in investment of unconsolidated entity:
       
Business segments
  $ -     $ -  
Corporate
    (2,066,283 )     (1,522,697 )
Total loss on investment in unconsolidated entity
  $ (2,066,283 )   $ (1,522,697 )
                 


 
60
 

The table below is a summary of selected financial information by country of operation:

   
Year Ended December 31,
 
   
2011
   
2010
 
Revenues:
           
        United States
  $ 4,851,224     $ 6,464,352  
        Brazil
    115,552       176,295  
        China
    25,150       14,417  
               Total
  $ 4,991,926     $ 6,655,064  
                 



   
Year Ended December 31,
 
   
2011
   
2010
 
Long-lived assets:
           
        United States
  $ 414,856     $ 660,257  
        Brazil
    65,959       102,510  
        China
    -       41,122  
              Total
  $ 480,815     $ 803,889  
                 

 

 
12.  COMMITMENTS AND CONTINGENCIES
 
Commitments
 
The Company has entered into operating leases for office space.  The lease agreement associated with its headquarters required a security deposit and included an allowance which was used against leasehold improvements. The security deposit and the allowance were recorded as an asset and a liability, respectively in the Company’s consolidated financial statements in accordance with ASC 840, “Leases”.   Rental expense for operating leases, which is recognized on a straight-line basis over the lease term, was $0.08 million and $0.03 million for the years ended December 31, 2011 and 2010, respectively. The Company does not have any capital leases.
 
The following table represents the approximate future minimum lease payments at December 31, 2011 due under non-cancellable operating lease agreements with terms in excess of a year:
 
 
61
 

 
   
Operating Lease Commitments
 
       
2012
  $ 174,287  
2013
    198,110  
2014
    273,596  
2015
    297,282  
2016
    127,683  
       Total
  $ 1,070,958  
         


13.  SUBSEQUENT EVENTS
 
In accordance with ASC 855, “Subsequent Events” , the Company evaluated subsequent events through the date the financial statements are issued and as a result, is reporting the following:
 
On February 27, 2012, the Company entered into definitive equity financing agreements with accredited and institutional investors to raise funds in the amount of $4.25 million through a private placement. In connection with the transaction, the Company issued to investors common stock priced at $4.50 per share. Investors also received warrants to acquire shares of common stock at an exercise price of $6.81 per share, in the amount of 25% of the number of shares of common stock that the investors purchased. On February 29, 2012, the Company received $4.25 million in cash and issued to the investors a total of 944,777 shares of common stock and warrants to acquire an additional 236,194 shares of common stock. The Company also paid a placement agent fee of 7% of the proceeds of the offering or approximately $0.3 million, and issued a three-year warrant to the Placement Agent to purchase up to an aggregate of 35,429 shares of Common Stock at an exercise price of $7.46 per share.
 
On February 26, 2012, the Company entered into an agreement and plan of merger with Banks.com, Inc. (BNNX.PK), pursuant to which Banks.com will become a wholly-owned subsidiary of Remark Media (the "Banks.com Merger"). Banks.com is a leading financial services portal operating a unique breadth and depth of financial products and services. Upon the closing of the merger, which is subject to standard conditions to closing including the approval of  Banks.com shareholders, Remark Media will issue up to 702,784 shares of Common Stock, representing approximately 11  percent of its shares issued and outstanding as of March 22, 2012, to the shareholders of Banks.com, plus $300,000 in cash, as consideration for the merger.
 
On January 17, 2012, Sharecare announced that it has secured $14.0 million equity financing and it has also acquired The Little Blue Book in exchange for Sharecare common stock. The transaction will decrease the Company’s interest ownership to approximately 14.6%.
 

 
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14. QUARTERLY FINANCIAL DATA (UNAUDITED)
 
The following table sets forth the Company’s unaudited quarterly results of operations for the four quarters for each of the years 2011 and 2010.

Year Ended December 31, 2011
 
First Quarter
   
Second Quarter
   
Third Quarter
   
Fourth Quarter
 
                         
Revenue
  $ 1,546,074     $ 1,281,156     $ 1,210,279     $ 954,417  
Gross margin
    470,200       453,072       442,892       438,383  
Operating loss
    (1,207,154 )     (929,106 )     (1,457,797 )     (1,122,719 )
Net loss
  $ (1,653,248 )   $ (1,012,610 )   $ (2,135,586 )   $ (2,003,076 )
                                 
Net loss per basic and
     diluted share
  $ (0.31 )   $ (0.19 )   $ (0.39 )   $ (0.37 )
Weighted average
     shares outstanding, basic
     and diluted
    5,388,289       5,424,455       5,408,455       5,422,295  

Year Ended December 31, 2010
 
First Quarter
   
Second Quarter
   
Third Quarter
   
Fourth Quarter
 
                         
Revenue
  $ 1,374,111     $ 1,439,958     $ 2,038,441     $ 1,802,554  
Gross margin
    224,807       327,424       340,018       357,687  
Operating loss
    (1,354,550 )     (1,048,471 )     (581,572 )     (1,534,460 )
Net loss
  $ (1,426,773 )   $ (1,573,595 )   $ (1,239,215 )   $ (1,690,011 )
                                 
Net loss per basic and
     diluted share
  $ (0.27 )   $ (0.29 )   $ (0.23 )   $ (0.31 )
Weighted average
     shares outstanding, basic
     and diluted
    5,369,829       5,369,829       5,368,399       5,368,476  



 
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ITEM 9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
 
None.

 
 
ITEM 9A.  CONTROLS AND PROCEDURES
 
Evaluation of Disclosure Controls and Procedures
 
Our management, with the participation of our Chief Executive Officer, or CEO, (Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer) evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act) as of December 31, 2011. Disclosure controls and procedures are controls and procedures designed to ensure that information required to be disclosed in the Company’s reports filed or submitted under the Securities Exchange Act of 1934, as amended,  is recorded, processed, summarized and reported within the time periods specified in SEC’s rules and forms and include, without limitation, controls and procedures designed to ensure that information required to be disclosed in such reports is accumulated and communicated to management, including the Company’s CEO (Principal Executive Officer, Principal Financial and Principal Accounting Officer), as appropriate to allow timely decisions regarding required disclosure. In designing and evaluating our 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 their objectives, and our management necessarily applied its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on this evaluation, our CEO (Principal Executive Officer, Principal Financial and Principal Accounting Officer) concluded that our disclosure controls and procedures were effective as of December 31, 2011.
 

 
Management’s Report on Internal Control over Financial Reporting
 
In our quarterly report on Form 10-Q for the period ended September 30, 2011, we disclosed that we concluded that  we did not maintain effective controls over the accounting for a nonmonetary change of interest ownership gain related to equity-method investments. This control deficiency resulted in the restatement of our condensed consolidated financial statements originally reported in our Quarterly Report on Form 10-Q for the period ended June 30, 2011. Accordingly, we determined that this control deficiency constituted a material weakness as of September 30, 2011.
 
Our current CEO (Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer) and management have taken appropriate measures to remediate the material weakness noted above. These enhanced control procedures over unusual investee transactions and related process improvements, have remediated this material weakness. The Company updated its accounting policies to require recognition of a non-cash change in interest gain or loss upon the issuance of equity in exchange for nonmonetary assets for equity-method investments in the period the equity issuance occurs. If the fair value of non-monetary assets or the equity issued is not determined at the time of the transaction, the Company will record an estimate to reflect the gain or loss resulting from the change in interest ownership. In addition, the Company updated its procedures to require having periodic communications with its equity-method investees for review of the investees’ financial results and inquiring on key events or unusual transactions and ensuring the financial statements are prepared in accordance with GAAP.
 
 
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Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act. Under the supervision and with the participation of our management, including our CEO (Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer), we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).
 
Our internal control over financial reporting includes policies and procedures that pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of assets, provide reasonable assurances that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that receipts and expenditures are being made in accordance with authorizations of our management and directors; and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisitions, use or disposition of our assets that could have a material effect on our financial statements.
 
Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2011. Based on this evaluation, our management concluded that we maintained effective internal control over financial reporting as of December 31, 2011, based on criteria in Internal Control—Integrated Framework issued by the COSO .
 
 
 
Changes in Internal Control over Financial Reporting
 
Other than the change in internal control noted above, there have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act) during the quarter ended December 31, 2011 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
 
This annual report does not include an attestation report of the Company’s independent registered public accounting firm regarding internal control over financial reporting.  Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report.
 

 
ITEM 9B.  OTHER INFORMATION
 
None.
 

 
 
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PART III


ITEM 10.  DIRECTORS , EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

DIRECTORS

The name of and certain information regarding each director as of March 22, 2012, is set forth below.  There are no family relationships among directors, director nominees or executive officers of Remark Media.  Each director is elected to serve until the next Annual Meeting of Stockholders.
 
 
Name
 
Age
 
Position at December 31, 2011
         
Scott Booth
    43  
Chairman of the Board of Directors
           
Theodore P. Botts
    66  
Director
           
Gregory M Swayne
    53  
Director
           
 Kai-Shing Tao
    35  
Director
           
 
 
Scott Booth , age 43, has served as a member of Remark Media’s Board of Directors since December 2009 and effective December 14, 2011, he became the Chairman of the Board of Directors.  Mr. Booth is the Managing Partner for Eastern Advisors, LLC, an investment fund that invests in public and private companies, and has served in that capacity since the fund’s formation in April 2003. Mr. Booth is Remark Media’s designated director on the board of our investee, Sharecare, Inc.    Among his other experience, qualifications, attributes and skills, Mr. Booth’s knowledge and experience in the finance, investment management, and Asian markets led to the conclusion of our Nominating and Governance Committee and of our full Board that he should serve as a director of our Company in light of our business and structure.

Theodore P. Botts , age 66, has served as a member of Remark Media’s Board of Directors since 2007.  He is also President of Kensington Gate Capital, LLC, a private corporate finance advisory firm.  From July 2007 until September 2008, Mr. Botts served as Chief Financial Officer of StereoVision Entertainment, Inc.  From 2002 until its merger with HSW International, currently known as Remark Media, Mr. Botts served on INTAC International’s Board of Directors as chairman of the audit committee.  Prior to 2000, Mr. Botts served in executive capacities at UBS Group and Goldman Sachs.  Mr. Botts is also a member of the Board of Trustees and head of development for REACH Prep, a non-profit organization serving the educational needs of underprivileged African-American and Latino children in Fairfield and Westchester counties since 2003.  Mr. Botts graduated with honors from Williams College and received an MBA from the NYU Graduate School of Business Administration.   Among other experience, qualifications, attributes and skills, Mr. Botts’ knowledge and experience in the corporate finance industry and in senior leadership roles in organizations in the technology industry led to the conclusion of our Nominating and Governance Committee and of our full Board that he should serve as a director of our Company in light of our business and structure.
 
 
66
 
 
Gregory M. Swayne , age 53, has served as a member of Remark Media’s Board of Directors since December 2009. Mr. Swayne was the Chairman of the Board of Directors from December 2009 until December 14, 2011 and Chief Executive Officer of Remark Media from September 2009 until December 14, 2011.  Previously, he was our President and Chief Operating Officer since October 2007.  Prior to joining Remark Media in 2006, Mr. Swayne led HowStuffWorks, Inc., which h as since been acquired by Discovery Communications, as President and Chief Operating Officer and was a member of the management teams of The Convex Group and N2 Broadband.  Mr. Swayne was the co-founder and President of publicly-listed A.D.A.M., Inc. and its predecessor Medical Legal Illustrations, Inc.  A.D.A.M. provided health information services and benefit management solutions through its online offerings to healthcare organizations, employers, benefit brokers, consumers and the educational market.  Mr. Swayne holds a Bachelor of Arts from the University of South Carolina and a Master of Science in Medical Illustration from the Medical College of Georgia. Among other experience, qualifications, attributes and skills, as our Chief Executive Officer from 2009 to 2011and our President and Chief Operating Officer from 2007 to 2009, Mr. Swayne’s unique experience and perspective on our business led to the conclusion of our Nominating and Corporate Governance Committee and of our full Board that he should serve as a director of our Company in light of our business and structure.

Kai-Shing Tao , age 35, has served as a member of Remark Media’s Board of Directors since 2007.  He is also Chairman and Chief Investment Officer of Pacific Star Capital, a private investment group.  Prior to founding Pacific Star Capital, Mr. Tao was a Partner at FALA Capital Group, a single family investment office, where he headed the global liquid investments outside the operating companies.  Mr. Tao is also a member of the Real Estate Roundtable and U.S.-China and U.S.-Taiwan Business Council.  Mr. Tao graduated from the New York University Stern School of Business.  Among other experience, qualifications, attributes and skills, Mr. Tao’s knowledge and experience in the investment industry and Asian market led to the conclusion of our Nominating and Governance Committee and of our full Board that he should serve as a director of our Company in light of our business and structure.
 

EXECUTIVE OFFICERS AND KEY EMPLOYEES
 
The following table sets certain information about each of our executive officers and key employees as of March 22, 2012.

Name
 
Age
 
Position
         
Carrie B. Ferman
    36  
Chief Executive Officer
Eric J. Orme
    37  
Chief Technology Officer
Bradley T. Zimmer
    33  
Chief Operating Officer and General Counsel
 

 
Executive Officers

As of December 14, 2011, Greg M. Swayne resigned his position as our Chief Executive Officer. Additionally, on December 31, 2011, Shawn G. Meredith resigned her position as Chief Financial Officer. Effective December 14, 2011, the Board of Directors appointed Carrie B. Ferman as our Chief Executive Officer, Principal Financial Officer and Principal Accounting Officer. The Board of Directors also established an executive committee for the Company consisting of Carrie B. Ferman, Eric J. Orme, and Bradley T. Zimmer. The executive committee reports directly to the Board of Directors.
 
 
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Carrie B. Ferman has been our Chief Executive Officer since December 14, 2011.  Prior to that, Ms. Ferman served as the Company’s Executive Vice President of Corporate Strategy & Business Development since July 2011.  From 2007 to 2011, she worked at NBC Universal, serving in several key roles including Vice President, Strategy for NBC Universal’s Local Media division with responsibilities that included revenue-generating business initiatives and cross-platform partnerships. Before joining NBC Universal, Ms. Ferman held finance, strategy and operations positions within several major U.S. media and entertainment companies including Time Warner, Inc. and The Walt Disney Company.  Ms. Ferman brings to Remark Media a broad range of discipline experience including television, film, publishing, cable distribution, and digital and social media.  Ms. Ferman holds an MBA from Dartmouth College and a BA in Economics from University of California, Los Angeles. 
Eric J. Orme has been our Chief Technology Officer since November 2007. Prior to that, he has served as Director of IT and Operations at PCDI, LLC, since May 2004, and has been involved in information technology leadership in the web hosting, education technology and online media markets for the past fifteen years.  His technical background includes work for both start-ups and larger global corporations, including Georgia-Pacific, web.com, and Ashworth University.  Mr. Orme has been central in orchestrating the launch of the Company’s websites in China and Brazil.

Bradley T. Zimmer is our Chief Operating Officer, General Counsel and Corporate Secretary since December 14, 2011.  Prior to that, he served as our Executive Vice President, General Counsel and Corporate Secretary since December 2007.  Prior to that, he served as General Counsel and Corporate Secretary of The Convex Group, an entertainment and media company, and its subsidiary HowStuffWorks, Inc. from 2003 through the companies’ acquisition by Discovery Communications in December 2007.  Prior to The Convex Group, Mr. Zimmer was responsible for business strategy at Southeast Interactive Technology Funds, a venture capital firm focused on information technology and communications investments.  Mr. Zimmer holds a Bachelor of Arts in Public Policy and Juris Doctor from Duke University. He is a member of the American Bar Association and North Carolina State Bar, and is a member of the Boards of Directors of the Duke Law Alumni Association and several privately held companies.
 
 
 
CORPORATE GOVERNANCE MATTERS

Audit Committee

The Audit Committee of our Board of Directors is responsible for overseeing the qualifications, performance and independence of our independent auditors, the integrity of our financial statements and disclosures, the performance of our internal audit function and internal controls, and compliance with legal and regulatory requirements.  The Audit Committee currently consists of Theodore P. Botts (Chairman), Kai-Shing Tao and Scott Booth, all of whom are independent directors as defined in Rule 4200(a)(14) of the NASDAQ listing standards and Rule 10A(m)(3) of the Exchange Act.  The Board has determined that Mr. Botts qualifies as our “audit committee financial expert” as defined in Item 407(d) of Regulation S-K promulgated by the SEC.
     

 
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Selection of Nominees for the Board of Directors
     
The Nominating Committee of our Board of Directors is responsible for establishing the procedures for our stockholders to nominate candidates to the Board of Directors.  There were no material changes in 2011 to the procedures by which security holders may recommend nominees to our Board of Directors.


Code of Business Conduct and Ethics
     
We have adopted a Code of Business Conduct and Ethics that is designed to promote high standards of ethical conduct by our directors and employees.  The Code requires that our directors and employees avoid conflicts of interest, comply with all laws and other legal requirements, conduct business in an honest and ethical manner, and otherwise act with integrity and in Remark Media’s best interest.  It includes a code of ethics for our Chief Executive Officer, Controller, and persons performing finance and accounting functions.

As a mechanism to encourage compliance with the Code of Business Conduct and the Code of Ethics, we have established procedures to receive, retain, and address complaints received regarding accounting or auditing matters.  These procedures ensure that individuals may submit concerns regarding questionable accounting or auditing matters in a confidential and anonymous manner. In addition, the Board of Directors routinely reviews its own performance to ensure that the Board is acting in the best interests of Remark Media and its stockholders.
     
Our Code of Business Conduct and Ethics is available for review under the Corporate Governance section on our website at ir.remarkmedia.com.


Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act requires our officers and directors, and persons who own more than 10% of a registered class of our equity securities, to file reports of ownership on Form 3 and changes in ownership on Form 4 or Form 5 with the Securities and Exchange Commission and NASDAQ.  Officers, directors and stockholders with 10% or more beneficial ownership interest in our common stock are also required by SEC rules to furnish us with copies of all such forms that they file.  Based solely on a review of the copies of forms received by Remark Media, or written representations from reporting persons, we believe that during 2011, all of our officers, directors and stockholders with 10% or more beneficial ownership interest in our common stock complied with applicable Section 16(a) filing requirements other than Scott Booth, who did not file a Form 4 upon becoming a director in December 2009, but filed a Form 4 in April 2011 reporting that he was a director.  Additionally, Mr. Booth did not file a Form 4 for the grant of 4,000 shares of restricted stock on February 2, 2011 which vested on December 31, 2011.
 
 
 
ITEM 11.  EXECUTIVE COMPENSATION

Compensation Discussion and Analysis

Introduction
 
 
69
 

 
The Compensation Committee of the Board of Directors approves all compensation and awards to the individuals included in the Summary Compensation Table (the “named executive officers”).  Annually, the Compensation Committee reviews the performance and compensation of the Chief Executive Officer (“CEO”), the Chief Operating Officer (“COO”) and the Chief Technology Officer (“CTO”), following discussions with the CEO, COO and CTO and, where it deems appropriate, other advisors, modifies executives’ compensation levels for the subsequent year.  For the remaining named executive officers, the CEO makes recommendations to the Compensation Committee for approval.

The Compensation Committee met three times in 2011.  The Compensation Committee’s charter provides that it will (i) develop, approve, and report to the Board regarding the Company’s overall compensation philosophy and strategy, (ii) establish corporate goals and objectives relevant to CEO compensation, evaluate the CEO’s performance in light of those goals and objectives, and determine and approve the CEO’s compensation level based on this evaluation, (iii) review and approve the compensation structure for the other executive officers and review and approve the CEO’s recommendations with respect to executive officers compensation, (iv) oversee CEO and executive succession planning and development, and (v) make recommendations to the Board with respect to director compensation.  In addition to the committee members, the CEO and other officers from the Company have been asked to attend meetings from time to time as the committee deems appropriate.  The Compensation Committee makes reports to the full Board of Directors based on its activities and, for certain activities, such as the determination of Board of Directors compensation, the Compensation Committee will make recommendations to the full Board for approval.

Philosophy and Objectives

We work to attract and retain proven, talented executives who we believe will help to put us in the best position for growth and to meet our Company’s objectives.  We attempt to recruit executives with technology, internet, media or other experience that we believe is transferable to our business with the expectation that they will share their knowledge to create and develop a successful organization.  We strive to provide our named executive officers with a compensation package that is competitive for a given position in our industry and geographic region.  The purpose of our executive compensation program is to provide incentives for our executives to meet or exceed expectations.  We believe our compensation objectives are achieved through a combination of base salary, incentive bonus, equity compensation and other benefits.  With the exception of equity, or stock-based compensation, the compensation is paid in cash.

We offer a market-competitive base salary for executive positions so as to mitigate the volatility we might experience in our equity pricing.  It is our philosophy that bonuses are to be used to provide an added incentive to meet additional objectives which exceed ordinary expectations and not as salary itself, and, as such, bonuses are based on both individual and company-wide performance and objectives. Our stock-based compensation provides a means for our executives to obtain a degree of ownership in our Company in an attempt to align corporate and individual goals.  The issuance of equity compensation is generally a component of each officer’s total compensation package. However, there were some instances of equity compensation granted based on performance. 

 
 
70
 
 
Elements of Compensation

During 2011, the compensation packages for our named executive officers included three principal elements:  base salary; cash bonuses; and equity incentive awards.

Base Salary . Base salary for our executives is determined based on the specific level and experience of the executive and responsibilities of his or her position.  Generally, the goal is to achieve a salary that is competitive with the salary for similar positions in similar industries within our Company’s geographic region.  The Compensation Committee reviews salaries during its annual review process when an increase, if any, is determined.  Any increase in salary for the named executive officers is subject to Compensation Committee approval.  In addition, base salaries may be adjusted, at the Compensation Committee’s discretion, to realign a particular salary with current market conditions.
 
Bonus . Bonuses are to be used to provide an added incentive to meet additional objectives which exceed ordinary expectations and not as salary itself, and, as such, bonuses are based on both individual and company-wide performance and objectives.

Equity Incentive Awards.   Granting equity incentive awards stock encourages our executives to focus on the Company’s long-term success. The Company generally grants two types of equity awards: Restricted Stock and Stock Options.
 
 
Restricted Stock:  The Company issues grants for restricted stock under the 2006 Equity Incentive Plan adopted April 13, 2006, and the 2010 Equity Incentive Plan adopted June 15, 2010 (collectively, the “Equity Incentive Plans”).  The number of restricted shares that vest or recipients receive is generally based on their particular position within the Company and achievement of certain performance metrics established by the Board.  All grants require the approval of the Compensation Committee of our Board of Directors.

Stock Options: The Company issues grants for stock options under the Equity Incentive Plans.  The number of grants recipients receive is generally based on their particular position within the Company.  All grants require the approval of the Compensation Committee of our Board of Directors.  In the event of a change in control in Remark Media, any unvested options held by each of our named executive officers will fully vest on the date of the change of control. 

Change of Control or Termination Payments.   Certain of the stock option awards to our named executive officers and certain other members of management contain provisions providing for any unvested options to fully vest on the date of a change in control in Remark Media.  If a change of control had occurred on December 31, 2011, the value of the options that would have vested was $0.4 million.


Summary Compensation Table

The following table sets forth information concerning the compensation awarded to, earned by, or paid for services rendered to us and our subsidiaries in all capacities during the years ended December 31, 2011, and December 31, 2010, by our current principal executive officer (Principal Executive, Principal Financial and Principal Accounting Officer), and our two most highly compensated executive officers who were serving as executive officers at the end of the last completed fiscal year.   In addition, the table presents the compensation awarded to our former Principal Executive Officer and Former Principal Financial Officer. The officers listed on the table set forth below are referred to collectively in this annual report as the named executive officers.
 
 
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Year
 
Salary
 ($)
   
Bonus
($)
   
Equity Awards (1)
 ($)
   
All Other Compensation (2) ($)
   
Total
 ($)
 
Carrie Ferman (3)
2011
  $ 98,076     $ -     $ -     $ 189     $ 98,265  
Current Chief Executive Officer
2010
    -       -       -       -       -  
                                           
Eric Orme (4)
2011
    275,000       50,000       80,255       2,079       407,334  
Chief Technology Officer
2010
    250,000       -       356,400       -       606,400  
                                           
Bradley Zimmer (5)
2011
    200,000       -       77,375       1,725       279,100  
Chief Operating Officer and General Counsel
2010
    200,000       -       27,240       -       227,240  
                                           
Gregory Swayne   (6)
2011
    287,500       -       78,207       105,983       471,690  
Former Chief Executive Officer and Chairman
2010
    300,000       -       356,400       -       656,400  
                                           
Shawn Meredith (7)
2011
    200,000       -       28,713       55,424       284,137  
Former Chief Financial Officer
2010
    200,059       -       -       -       200,059  

  (1 )
Reflect the total grant date fair value for awards granted in 2011 and 2010 and do not reflect actual compensation realized by our named executive officers.  The aggregate grant date fair value of restricted stock and options awards granted within the fiscal year was determined in accordance with ASC 718 “ Compensation, Stock Compensation” .
 
  (2 )
Includes payments for club membership dues, premiums paid on life insurance plan, short-term and long-term disability plans and health club membership dues. In addition, Greg Swayne’s all other compensation included an accrual of $100,000 related to the Separation and Release Agreement in addition to Cobra payments of $4,528 which will be paid in 2012. Ms. Meredith’s all other compensation included an accrual of $50,000 in addition to Cobra payments of $2,229 related to the Agreement and General Release which will be paid in 2012.
 
  (3 )
Effective December 14, 2011, Ms. Ferman was appointed by our Board of Directors as our Chief Executive Officer. Prior thereto, she was our Executive Vice President of Corporate Strategy & Business Development since July 2011.  Ms. Ferman’s compensation reflects her earnings for the full year of 2011.
 
  (4 )
Mr. Orme was paid a bonus of $50,000 during 2011.
  (5 )
Effective December 14, 2011, Mr. Zimmer was appointed by our Board of Directors as our Chief Operating Officer, General Counsel and Secretary. Prior thereto, he was our Executive Vice President, General Counsel and Secretary since December 2007.  Mr. Zimmer’s compensation reflects his earnings for the full year of 2011 and 2010.
 
  (6 )
Effective December 14, 2011, Mr. Swayne resigned his position as our Chief Executive Officer. Mr. Swayne’s all other compensation included an accrual of $100,000 related to the Separation and Release Agreement in addition to Cobra payments for $4,528 which will be paid in 2012.
 
  (7 )
Effective December 31, 2011, Ms. Meredith resigned her position as our Chief Financial Officer.  Ms. Meredith’s all other compensation included an accrual of $50,000 related to the Agreement and General Release in addition to Cobra payments of $2,229 related to the Agreement and General Release which will be paid in 2012.

 
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Outstanding Equity Awards at Year-End 2011

The following table provides information about the number and value of unexercised options for the named executive officers as of December 31, 2011.  No named executive officers exercised any stock options during fiscal years 2011 or 2010 and no stock appreciation rights have been granted.

   
Number of Securities Underlying Unexercised Options
   
Option Exercise Price ($)
   
Option Expiration Date
 
   
Exercisable (#)
   
Unexercisable (#)
             
                         
Carrie B. Ferman
    -       -       -       -  
Gregory M. Swayne
    10,000       -       65.00    
Aug. 23, 2016
 
Gregory M. Swayne
    10,000       -       71.00    
Oct. 10, 2017
 
Gregory M. Swayne
    1,002       -       32.50    
Aug. 12, 2018
 
Gregory M. Swayne
    31,000       -       3.90    
Nov. 5, 2019
 
Gregory M. Swayne
    15,000       -       6.06    
Sep. 21, 2020
 
Gregory M. Swayne
    21,575       -       2.88    
Feb. 25, 2021
 
Eric J. Orme
    2,500       -       70.30    
Nov. 9, 2017
 
Eric J. Orme
    334       -       32.50    
Aug. 12, 2018
 
Eric J. Orme
    16,945       5,555       3.90    
Nov. 5, 2019
 
Eric J. Orme
    15,000       45,000       6.06    
Sep. 21, 2020
 
Eric J. Orme
    11,470       16,030       2.88    
Feb. 25, 2021
 
Bradley Zimmer
    5,000       -       65.00    
Aug. 23, 2016
 
Bradley Zimmer
    15,000       -       71.00    
Oct. 10, 2017
 
Bradley Zimmer
    501       -       32.50    
Aug. 12, 2018
 
Bradley Zimmer
    13,480       -       3.85    
Nov. 20, 2019
 
Bradley Zimmer
    4,022       4,998       3.85    
Jul. 19, 2020
 
Bradley Zimmer
    11,470       16,030       2.88    
Feb. 25, 2021
 
Shawn Meredith
    2,500       -       38.00    
May 28, 2018
 
Shawn Meredith
    2,500       -       32.50    
Aug. 12, 2018
 
Shawn Meredith
    334       -       32.50    
Aug. 12, 2018
 
Shawn Meredith
    15,829       -       3.85    
Nov. 20, 2019
 
Shawn Meredith
    6,250       -       2.88    
Feb. 25, 2021
 
                                 

 
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Employment Agreements

Carrie Ferman, Chief Executive Office r. Ms. Ferman’s employment is governed by a Letter Agreement effective as of July 27, 2011, which Ms. Ferman entered into when she commenced employment with the Company as Executive Vice President of Corporate Strategy & Business Development.  The Letter Agreement has a term that commences upon the commencement of employment and ends upon the termination of employment. Ms. Ferman’s initial base salary is $225,000 per year, and she is eligible for one-time bonuses ranging from $25,000 to $50,000 based upon the Company’s entering into specified sponsorship or partnering agreements.  Ms. Ferman will also receive a 2% commission, up to a total of $50,000, on net revenue over $1 million the Company receives from advertising and sponsorship agreements Ms. Ferman successfully completes.  Ms. Ferman is also entitled to participate in employee benefit plans to which she is eligible according to the Company’s policy.  Subject to the Board of Directors approval, the Company shall grant Ms. Ferman options to purchase 1% of the outstanding common stock of the Company at an exercise price equal to 100% of the fair market value on the date of the award and shall vest in sixteen equal amounts upon three-month anniversary of the Commencement date, over a period of four years. If the Company or Ms. Ferman terminates employment, all unvested options shall terminate with such termination.  If a Change in Control occurs, as defined in the Letter Agreement, all unvested options shall become fully vested as of the date of said Change in Control. If Remark Media terminates Ms. Ferman’s employment without cause (as defined in the Letter Agreement) and Ms. Ferman executes a release acceptable to Remark Media, Ms. Ferman will be entitled to amounts earned or vested as of her termination date, plus her base salary in effect as of her termination date and certain continuing medical benefits for a period of three months from the date of termination, plus one additional month for each year of her employment with the Company, up to a maximum of a combined total of 12 months.  The Letter Agreement also contains non-compete and non-solicitation covenants.    
 
               Eric Orme, Chief Technology Officer .  Mr. Orme’s employment is governed by a Letter Agreement dated October 1, 2009, with a term of three years.  Mr. Orme’s initial base salary was $225,000 per year and increased to $250,000 per year effective January 1, 2010, and to $275,000 effective January 1, 2011, and will be reviewed annually thereafter by the Board for any discretionary merit-based increases.  Mr. Orme also received in 2011 a one-time bonus of $50,000,  Mr. Orme received and is entitled to receive option awards upon approval by the Board of Directors. All options vest automatically upon a change of control, as defined in the Letter Agreement.   Remark Media may terminate Mr. Orme’s employment on thirty days’ written notice, provided that the Company may provide continued base salary payments and medical benefits for all or a portion of the 30 day notice period in lieu of the notice.  Upon expiration of the term, the Letter Agreement will terminate, and, unless either party elects in writing not to continue Mr. Orme’s employment, he will become an at-will employee of the Company.  If Remark Media terminates Mr. Orme’s employment without cause (as defined in the Letter Agreement) and Mr. Orme executes a release acceptable to Remark Media, Mr. Orme will be entitled to amounts earned or vested as of his termination date, plus his base salary in effect as of his termination date and continuing medical benefits for a period of (a) nine months if he is terminated between October 1, 2010 and September 30, 2011, or (b) six months if he is terminated between October 1, 2011 and the end of the term of the employment agreement.  The Letter Agreement also contains non-compete and non-solicitation covenants. In the event of a Change in Control in Remark Media, any unvested options held by each of Mr. Orme will fully vest on the date of the Change of Control.  

 
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Gregory Swayne, Former Chief Executive Officer . On December 14, 2011, Gregory M. Swayne’s employment as Chief Executive Officer of Remark Media, Inc. terminated. Effective February 14, 2012, the Board approved a Separation and Release Agreement and Independent Contractor Agreement pursuant to which Mr. Swayne resigned his employment, and the Company agreed to compensate Mr. Swayne a total of $100,000 payable over a six-month period, and his COBRA insurance payments for the same, as of January 1, 2012, in exchange for specified consulting services and a release of the Company by Mr. Swayne.
 

 
Compensation of Non-Executive Directors

Our certificate of incorporation and bylaws specifically grant to our Board of Directors the authority to fix the compensation of the directors.  For 2011 service, we paid our non-executive directors the amounts set forth in the following table:

Name
 
Fees Earned
or Paid in Cash (1)
($)
   
Stock
Awards (2)
($)
   
Option Awards
($)
   
All Other Compensation
($)
   
Total
($)
 
Scott V. Booth
  $ 41,409     $ 14,080     $ -     $ -     $ 55,489  
Theodore P. Botts
    38,909       14,080       -       -       52,989  
Arthur F. Kingsbury (3)
    36,409       14,080       -       -       50,489  
Kai-Shing Tao
    33,909       6,477       -       -       40,386  
James Rosenstock (4)
    -       -       -       -       -  


(1)
Includes annual retainers for members of the Board of Directors, and the chairman of each of the Audit, Compensation and Nominating Committees.
 
(2)
Represents the fair value of restricted stock awards granted during 2011 and is measured based on the closing price of our stock as reported by NASDAQ on the grant date.
(3)
Mr. Kingsbury did not stand for reelection at the annual meeting of Stockholders which was held on December 30, 2011. 
 
(4)
Mr. Rosenstock resigned his position as a director effective September 30, 2011 and received no compensation during 2011.
 
 
 
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On February 2, 2011, our Board of Directors adopted a Director Compensation Plan for the year ended December 31, 2011, for its independent directors. The plan provides for the following:
 
Annual minimum cash retainer
  $ 5,000  
Annual restricted stock grant value
    35,000  
Total annual compensation
  $ 40,000  

In the event the Calculated Shares exceed 4,000, the value (calculated using the Per-Share Price) of the Calculated Shares in excess of 4,000 shall be added to the annual cash retainer.  In addition, the chairman of our Compensation and Nominating and Governance Committees receives additional cash compensation of $2,500 per year, and the chairman of our Audit Committee receives additional compensation of $5,000 per year.  The restricted stock grant is limited to the per share price for 4,000 shares.  We also reimburse all directors for the Company-related travel expenses in accordance with our Company-wide policy.
 
  
The terms for the payment of our independent director compensation include the following:
 
  •  
Cash retainers were paid quarterly in arrears.
  •  
Restricted stock was granted at the beginning of the year in an amount then equal to the specified cash value determined as the average of the first 15 trading days of the year, resulting in a per share value for our 2011 grant of $3.52.
  •  
The number of restricted stock shares granted was calculated by dividing $35,000 by the volume weighted average trading price of the Company’s common stock for the first fifteen trading days of 2011 (the “Per-Share Price”).  Since the resulting quotient exceeded 4,000 shares, the value (calculated using the Per-Share Price) of the shares in excess shall be added to the annual cash retainer.
  •  
Restricted stock vested in full on December 31 of the year of grant, contingent upon the recipient having attended at least 75% of board meetings held during the year; otherwise, vesting was prorated based on attendance.
 
On February 2, 2011, our independent directors, Messrs. Booth, Botts, Kingsbury and Tao each were granted 4,000 shares described above. The restricted stock granted to Messrs Booth, Botts, Kingsbury vested in full on December 31, 2011. Only 1,840 shares of the restricted stock granted to Mr. Tao vested on December 31, 2011 and the remainder was forfeited.
 
 
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ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The following table sets forth certain information regarding the beneficial ownership of our common stock as of March 22, 2012 for the following:
·  
Each person or entity known to own beneficially more than 5% of the outstanding common stock;
·  
Each director;
·  
Each of the executive officers named in the Summary Compensation table; and,
·  
All current executive officers and directors as a group.
Applicable percentage ownership is based on 6,367,072   shares of common stock outstanding as of March 22, 2012, together with applicable options for each stockholder.  Beneficial ownership is determined in accordance with the rules of the SEC, based on factors including voting and investment power with respect to shares.  Common stock subject to options and warrants currently exercisable, or exercisable within 60 days after March 22, 2012, are deemed outstanding for the purpose of computing the percentage ownership of the person holding those options, but are not deemed outstanding for computing the percentage ownership of any other person.  The address of each executive officer and director is c/o Remark Media, Inc., Six Concourse Parkway, Suite 1500, Atlanta, Georgia 30328.   For information relating to beneficial owners of greater than 5% of our common stock who are not insiders, we rely upon the reports filed by such persons or entities on Schedule 13G.  
 
 
Name of Beneficial Owners
Number of Shares
Beneficially Owned
   
Percentage of
Ownership
         
Discovery Communications, Inc. (1)
2,299,072
   
36.1%
 
One Discovery Place
         
Silver Spring, Maryland 20814
         
           
 Jeffrey T. Arnold (2)
 356,000
   
5.3%
 
 3280 Peachtree Road Suite 600
         
 Atlanta, Georgia 30305
         
           
Eastern Advisors Capital Group, Ltd. (3)
576,481
   
9.1%
 
c/o Caledonian Fund Services (Cayman) Limited
         
Caledonian House
         
69 Dr. Roy’s Drive
         
Grand Cayman KY1 – 1102
         
Cayman Islands
         
           
Capital Research Global Investors (4)
368,638
   
5.8%
 
333 South Hope Street
         
Los Angeles, California 90071
         
           
Special Situations Technology Fund II, L.P. (5)
588,888
   
9.2%
 
527 Madison Avenue, Suite 2600
         
New York, New York 10022
         
           
Special Situations Private Equity Fund, L.P. (5)
588,888
   
9.2%
 
527 Madison Avenue, Suite 2600
         
New York, New York 10022
         
           
Special Situations Technology Fund II. L.P . (5)
588,888
   
9.2%
 
527 Madison Avenue, Suite 2600
         
New York, New York 10022
         
           
Austin Marxe (6)
588,888
   
9.2%
 
527 Madison Avenue, Suite 2600
         
New York, New York 10022
         
           
David Greenhouse (6)
588,888
   
9.2%
 
527 Madison Avenue, Suite 2600
         
New York, New York 10022
         
 
 
 
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Name of Beneficial Owners
 
Number of Shares Beneficially Owned
   
Percentage of Ownership
 
             
Executive Officers and Current Directors:
           
Scott V. Booth (7)
    626,566       9.8 %
Theodore P. Botts (8)
    18,827       *  
Eric J. Orme (9)
    63,148       1.0 %
Gregory M. Swayne (10)
    98,885       1.5 %
Kai-Shing Tao (11)
    4,909       *  
Carrie B. Ferman (12)
    14,690       *  
Bradley T. Zimmer (13)
    67,225       1.0 %
All Executive Officers and Directors as a Group (7 People)
    894,250       13.6 %
* Represents less than 1%

 
(1)
Includes 2,294,072 shares of our common stock and 5,000 exercisable warrants beneficially owned by HowStuffWorks, Inc.
 
(2)
Includes 355,000 shares of our common stock that may be acquired upon the exercise of options and 1,000 shares owned directly by Mr. Arnold.
 
 
 
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(3)
Based on information contained in Schedule 13D filed with the SEC on February 14, 2012, by Eastern Advisors Capital Group, LLC, Eastern Advisors Capital, Ltd. and Scott Booth.  All three parties shared voting and dispositive power over the shares.  The address for Eastern Advisors Capital Group, LLC and Scott Booth is 101 Park Avenue, 48th floor, New York, New York 10178.
 
(4)
Based on information contained in Schedule 13G/A filed with the SEC on February 14, 2012 by Capital Research Global Investors.
 
(5)
Includes 355,556, 166,666 and 66,666 shares of our common stock beneficially owned by Special Situations Technology Fund II, L.P., Special Situations Private Equity Fund, L.P. and Special Situations Technology Fund, L.P., respectively, all of which Funds are under common control.
 
(6)
Includes 355,556, 166,666 and 66,666 shares of our common stock beneficially owned by Special Situations Technology Fund II, L.P., Special Situations Private Equity Fund, L.P., and Special Situations Technology Fund, L.P., respectively, over which Messrs Marxe and Greenhouse could be deemed to have voting and dispositive power in their capacity as Managing Directors of the general partner of each such Funds.
 
(7)
Includes 576,481 shares of our common stock beneficially owned by Eastern Advisors Capital Group, Ltd., over which Mr. Booth could be deemed to have voting and dispositive power in his capacity as Managing Partner of Eastern Advisors Capital Group.  Includes 50,085 shares owned by Mr. Booth.
 
(8)
Includes 10,000 shares of our common stock that may be acquired upon the exercise of options. Includes 8,827 shares of our common stock owned by Mr. Botts.
 
(9)
Includes 57,046 shares of our common stock that may be acquired upon the exercise of options and 6,102 shares owned by Mr. Orme.
 
(10)
Includes 88,577 shares of our common stock that may be acquired upon the exercise of options and 10,308 shares owned by Mr. Swayne.
 
(11)
Represents 4,909 shares of our common stock owned by Mr. Tao.
 
(12)
Includes 14,690 shares of our common stock that may be acquired upon the exercise of options granted to Ms. Ferman.
 
(13)
Includes 62,071 shares of our common stock that may be acquired upon the exercise of options and 5,154 shares owned by Mr. Zimmer.
 

 
 
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  Equity Compensation Plans
 
The following table sets forth the indicated information as of December 31, 2011 with respect to our equity compensation plans:
 
Plan Category
 
Number of securities to be issued upon exercise of outstanding options, warrants and rights
   
Weighted-average exercise price of outstanding options, warrants and rights
   
Number of securities remaining available for future issuance under equity compensation plans
 
Equity compensation
     plans approved by
     our stockholders
    989,192     $ 39.70       366,325  
Equity compensation
     plans not approved by
     our stockholders
    -       -       -  
Total
    989,192     $ 39.70       366,325  

 
Our equity compensation plan consists of the 2010 Equity Plan and 2006 Equity Incentive Plan, both of which were approved by our stockholders. We do not have any equity compensation plans or arrangements that have not been approved by our stockholders.
 

 
ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Director Independence
Our Board of Directors is currently composed of four directors, three of whom our Board has determined to be independent on December 31, 2011 within the meaning of the NASDAQ Marketplace Rules.  These three directors are Messrs. Booth, Botts, and Tao.  As part of such determination of independence, our Board has affirmatively determined that none of these directors have any relationship with the Company that would interfere with the exercise of independent judgment in carrying out their responsibilities as directors.


Related Party Transactions

Our policy regarding transactions with our officers, directors, principal stockholders and their affiliates is that they may be made on terms no less favorable to us than could have been obtained from unaffiliated third parties.  All transactions between us and our officers, directors, principal stockholders and their affiliates must be approved by our Audit Committee or a majority of the disinterested directors, and must continue to be on terms no less favorable to us than could be obtained from unaffiliated third parties.

 
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Contribution Agreements

Pursuant to the terms of two contribution agreements, HowStuffWorks contributed content owned by or licensed to HowStuffWorks to us by granting to us a perpetual, fully paid, royalty-free, sublicensable, exclusive license in certain territories.  The content specifically consists of the right to render Chinese and Portuguese translations of, the right to publish or use any or all actual renderings in the translated languages and all such actual renderings of, such licensed and sublicensed content, including derivative works, solely in digital and/or electronic form.  All sublicensed content is subject to the terms, conditions and restrictions set forth in the applicable third party licenses from which the sublicensed content is sublicensed.  HowStuffWorks is the sole and exclusive owner of the licensed content, the applicable third party licensors are the sole and exclusive owners of the applicable sublicensed content and we are the sole and exclusive owner of the content, subject to HowStuffWorks and its licensors’ rights in the underlying content.

HowStuffWorks also granted to us a limited, perpetual, fully paid, royalty-free, non-sublicensable, non-transferable, exclusive license in the territories to (i) use the content solely for purposes of translating it into the translation languages, and (ii) use limited excerpts of the licensed content translated into the translation languages in print format with limited distribution to businesses solely for purposes of marketing, business development, financings and other similar legitimate business purposes, provided that any such limited print excerpts are not distributed publicly.

HowStuffWorks may terminate the licenses in either of the territories upon written notice to us if: (i) we file a petition for bankruptcy or are adjudicated bankrupt; (ii) a petition in bankruptcy is filed against us and this petition is not dismissed within ninety calendar days; (iii) we become insolvent or make an assignment for the benefit of our creditors or an arrangement for our creditors pursuant to any bankruptcy law; (iv) we discontinue the business that is covered by either of the contribution agreements; (v) a receiver is appointed for us or our business; or (vi) we are in material breach of any of the terms or conditions set forth in either of the contribution agreements, which breach remains uncured 30 days after written notice of such breach from HowStuffWorks so long as such material breach was not caused by any action or inaction of HowStuffWorks, and HowStuffWorks did not prevent or limit our attempts to cure such breach.

Pursuant to the terms of an update agreement, HowStuffWorks will provide all updates (i.e., modifications and new content) to us for our purchase.  With respect to updated content that we elect to purchase, HowStuffWorks will grant to us the same license rights as those granted pursuant to the contribution agreements with respect to any updates to the content licensed pursuant to the contribution agreement for a fee equal to (i) one percent per territory of HowStuffWorks’ fully allocated costs directly attributable to producing the updates purchased by us and (ii) HowStuffWorks’ actual cost in transferring the purchased updates to us, plus (iii) five percent of (i) and (ii) above.  Sublicensed content restrictions, ownership rights and termination rights are the same as those granted pursuant to the contribution agreements.  HowStuffWorks may suspend its obligation to provide updates to us if we fail to pay any update fee for 90 days after such fee was due or if we become insolvent.

 
Stockholders Agreement

Corporate Governance.   Remark Media and HowStuffWorks have entered into a First Amendment to Amended and Restated Stockholders Agreement.  HowStuffWorks has the right to designate three directors of Remark Media (one of whom shall be an independent director), and HowStuffWorks has the right to designate the chairperson of the Nominating and Governance Committee. All shares of Remark Media owned by HowStuffWorks in excess of 45%
 
 
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of the outstanding shares of Remark Media as of any applicable record date, if any, shall be voted in exact proportion to the vote of Remark Media stockholders other than HowStuffWorks.  HowStuffWorks will have the right to vote in its discretion its shares up to and including 45% of the outstanding shares as of any applicable record date.  Currently, Scott Booth is the only HowStuffWorks-designated member.

Additional Content.   If we acquire any rights in any text, images, designs, graphics, artwork or other content (referred to in this Annual Report on Form 10-K as the additional content), we will use commercially reasonable efforts to obtain, as a part of such acquisition, (i) the worldwide digital publishing rights to such additional content and (ii) digital publishing rights for HowStuffWorks in respect of such additional content for use outside the territories ((i) and (ii), referred to as the additional rights).  Notwithstanding the foregoing, we will not be required to pay or be obligated to incur additional fees or costs for additional rights obtained for HowStuffWorks unless HowStuffWorks agrees to bear such additional fees and/or costs.

Non-Competition.   We agree that, during the term of the Stockholders Agreement, we will not, and will use our best efforts to cause each of our subsidiaries to not, within the United States, (a) enter into any agreement with, hold any equity or financial interest in, or permit our name or any part thereof to be associated in business with, any person that provides any services or products that compete with any services or products of HowStuffWorks in the United States, or (b) otherwise provide any services or products that compete with any services or products of HowStuffWorks in the United States, except with the prior written consent of HowStuffWorks.

Termination.   The Stockholders Agreement may be terminated by written agreement of all parties with rights under the Stockholders Agreement, or upon the expiration of (i) all rights created pursuant to the Stockholders Agreement and (ii) all applicable statutes of limitations applicable to the enforcement of claims under the Stockholders Agreement, except that our right to participate in other markets transactions and HowStuffWorks’ rights to any additional content will terminate three years after the date of the stockholders agreement.  The rights of HowStuffWorks pursuant to the provisions regarding transfer restrictions and corporate governance will terminate on the date HowStuffWorks beneficially owns less than 10% of our common stock on a fully diluted basis.  The transfer restrictions will terminate upon a change of control of us or a sale of all or substantially all of our assets.
  
 
Registration Rights Agreements

In connection with the INTAC merger of 2007, we also entered into a registration rights agreement with HowStuffWorks that provides them the right to make three requests to us to register their shares on Form S-3, and unlimited requests to us to include shares on other registration statements filed by us. No such requests have been made.
 

Sharecare Transactions
 
On October 30, 2009, we entered into and effectuated a series of transactions with Sharecare, Inc.  As a result of these transactions, Remark Media received an equity stake in Sharecare, sold substantially all of the assets of its Daily Strength subsidiary to Sharecare, agreed to provide management and website development services to Sharecare, and received a limited license to use the Sharecare Web platform for its own businesses.  Additionally, Remark Media
 
 
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issued a promissory note to Sharecare, the majority of which was offset by services Remark Media provided to Sharecare.  Finally, Sharecare assumed certain Daily Strength liabilities, including the earn-out payment of up to $3.525 million under the merger agreement by which Remark Media acquired Daily Strength.
 
The original equity stake represented 20% of the company at the time of purchase.   Subsequent issuances of equity by Sharecare have reduced Remark Media ownership percentage in Sharecare to approximately 15.8% at December 31, 2011.

On November 17, 2010, Sharecare completed a sale of its equity securities to its founding stockholders.  Rather than purchase its pro rata share of equity securities offered in the financing, The Company purchased an option to purchase at a later date its pro rata share of Sharecare’s equity securities.  The Company purchased the option for a percentage of the purchase price of its pro rata share of equity securities offered in the financing which was to expire on July 30, 2011. The Company did not exercise the option.
 
Pursuant to the agreements, Remark Media performed services related to the design, development, hosting and related services necessary to launch and operate the Sharecare website through our direct activities and management of third party vendors.  The Company continued to provide services to Sharecare through December 31, 2011, at which time its agreement with Sharecare expired. The Company does not expect to provide any further significant development services to Sharecare in 2012. Under the License Agreement with Sharecare and each of ZoCo 1, LLC, Discovery SC Investment, Inc., Oz Works, L.L.C., and Arnold Media Group, LLC, Sharecare granted each of the other parties to the agreement a perpetual, fully paid, royalty-free, worldwide, non-transferable, non-exclusive quitclaim license to software, programs, business processes and methodologies developed and owned by Sharecare and deployed into production as the technical platform for the Sharecare website, but expressly excluding the “look and feel” elements of the Sharecare website.  The license includes the right to modify and adapt the technology to create derivative works and to use and combine the technology with other products and material.  No more than twice every six months for five years, each licensee may request from Sharecare, and Sharecare will provide and grant a license to the licensee, all then-existing derivative works of the technology Sharecare has developed.  The licensees may not use the licensed technology in or for the benefit of a business involved in the creation, aggregation, archiving, hosting or distribution of health and wellness information and content.  Sharecare granted the license in return for contributions from each of the licensees of assets valuable to Sharecare in the development and launch of its business.


Discovery Communications Services Agreement

In April 2010, the Company entered into a services agreement with Discovery Communications, LLC.  Discovery’s subsidiary HowStuffWorks is our largest stockholder.  The parties agreed that our Company would provide consulting services to Discovery as described in a statement of work, and any additional statement of work as may be entered into between the parties, in accordance with the specifications, payment schedule and timetable set forth in each statement of work. The agreement continued for 12 months from the effective date of the agreement or until the expiration of the last statement of work, whichever is longer.  Discovery could terminate the agreement without any further obligation to our Company in the event of a force majeure which lasts for a period of ten (10) consecutive days or fifteen (15) days in aggregate during any six-month period. The agreement expired on December 31, 2011 and we have not entered into any new agreements with Discovery for 2012.

 
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ITEM 14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES

Summary of Auditor Fees and Pre-Approval Policy

Our Audit Committee has adopted a policy that requires pre-approval of all audit and permitted non-audit services that may be performed by our independent registered public accounting firm.  Under this policy, each year, at the time it engages the auditors, the Audit Committee pre-approves the audit engagement terms and fees and may also pre-approve detailed types of audit-related and permitted tax services, subject to certain dollar limits, to be performed during the year.  All other permitted non-audit services are required to be pre-approved by the Audit Committee on an engagement-by-engagement basis.  All of the auditor fees for the last two years, as detailed below, were pre-approved by the Audit Committee or full Board of Directors.  The Audit Committee may delegate its authority to pre-approve services to one or more of its members, whose activities are reported to the Audit Committee at each regularly scheduled meeting.

As disclosed in our 8-K filed with the SEC on December 20, 2011, the Company dismissed, its independent registered accounting firm PricewaterhouseCoopers LLP  on December 16, 2011  and engaged on the same day Cherry, Bekaert & Holland, L.L.P. as its new independent registered accounting firm.

The following table represents a summary of the fees billed for professional services rendered to Remark Media by Cherry, Bekaert & Holland L.L.P. for the annual audit of 2011 and by PricewaterhouseCoopers LLP for the reviews of Remark Media’s financial statements included in the quarterly reports on Form 10-Q for the years 2011 and 2010 and the annual audit of 2010.
   
2011
   
2010
 
Audit-Related Fees
  $ 279,000     $ 355,983  
Other Fees
    1,500       1,500  
Total
  $ 280,500     $ 357,483  

Taxes services for 2011 and 2010 were not provided by Cherry Bekaert & Holland or PricewaterhouseCoopers LLP. Other fees are related to subscription fees associated with an online accounting research tool obtained from PricewaterhouseCoopers LLP.

 
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PART IV

ITEM 15.  EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

SCHEDULE II:  VALUATION AND QUALIFYING ACCOUNTS


Classification
 
Balance at beginning of year
   
Additions charged to costs and expenses
   
Deductions
   
Balance at end of year
 
                         
Valuation allowance for deferred taxes:
                       
Year ended December 31, 2011
  $ 20,999,839     $ 2,317,930     $ (108,090 )   $ 23,209,679  
Year ended December 31, 2010
    19,081,594       1,922,775       (4,530 )     20,999,829  
                                 


The Company did not have an allowance for doubtful accounts at December 31, 2011 and 2010. There were no other accounts that should be reported under schedule II- Valuation and Qualifying Accounts.


 
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SIGNATURES
 
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 
Remark Media ,  INC.
     
  March  22, 2012
By:
/s/ Carrie B. Ferman
   
Carrie B. Ferman
   
Chief Executive Officer
 
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the Registrant and in the capacities.

       
Name
 
Title
 
       
/s/ Carrie B. Ferman
 
Chief Executive Officer
March 22, 2012
Carrie B. Ferman
 
    (Principal Executive Officer, Principal Financial Officer
 
   
  and Principal Accounting Officer)
 
       
/s/ Scott V. Booth
 
Chairman of the Board of Directors
March 22, 2012
Scott V. Booth
     
       
/s/ Gregory M. Swayne
 
Director
March 22, 2012
Gregory M. Swayne
     
       
/s/ Theodore P. Botts
 
Director
March 22, 2012
Theodore P. Botts
     
       
/s/ Kai-Shing Tao
 
Director
 
Kai-Shing Tao
     
       

 

 
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INDEX TO EXHIBITS

Exhibit
     
Registrant’s
     
Exhibit
 
Filed
Number
 
Description of Document
 
Form
 
Dated
 
Number
 
Herewith
                     
2.1
 
Agreement and Plan of Merger, dated as of April 20, 2006, among HowStuffWorks, Inc., HSW International, Inc. (now known as Remark Media, Inc.), HSW International  Merger Corporation and INTAC International, Inc.
 
S-4/A
 
07/10/07
 
Annex A
   
                     
2.2
 
First Amendment to Agreement and Plan of Merger, dated January 29, 2007, among HowStuffWorks, Inc. (now known as Remark Media, Inc.), HSW International, Inc., HSW International Merger Corporation and INTAC International, Inc.
 
S-4/A
 
07/10/07
 
Annex B
   
                     
2.3
 
Second Amendment to Agreement and Plan of Merger, dated August 23, 2007, among HowStuffWorks, Inc. (now known as Remark Media, Inc.), HSW International, Inc., HSW International Merger Corporation and INTAC International, Inc.
 
S-1/A
 
01/14/08
 
2.3
   
                     
2.4
 
Share Purchase Agreement among INTAC International, Inc., China Trend Holdings Ltd. and Wei Zhou, dated February 15, 2008
 
8-K
 
2/20/08
 
2.4
   
                     
2.5†
 
Agreement and Plan of Merger dated as of November 26, 2008, by and among HSW International, Inc. (now known as Remark Media, Inc.), DS Newco, Inc., DailyStrength, Inc. and Douglas J. Hirsch
 
8-K
 
12/03/08
 
10.25
   
                     
2.6 (1)
 
Asset Purchase Agreement by and among HSW International, Inc. (now known as Remark Media, Inc.), DailyStrength, Inc., DS Acquisition, Inc. and Sharecare, Inc., dated as of October 30, 2009
 
10-Q
 
11/16/09
 
10.28
   
                     
2.7(1)
 
Agreement and Plan of Merger among Remark Media, Inc. Remark Florida, Inc. and Banks.com, Inc. dated February 26, 2012
 
8-K
 
2/28/12
 
2.1
   
                     
3.1
 
Second Restated Certificate of Incorporation of Remark Media, Inc.
             
X
                     
3.2
 
Second Amended and Restated Bylaws of HSW International, Inc. (now known as Remark Media, Inc.)
 
8-K
 
12/18/07
 
3.2
   
                     
4.1
 
Specimen certificate of common stock of Remark Media, Inc.
             
X
 
 
87
 
 
                     
4.2
 
HSW International 2006 Equity Incentive Plan
 
S-8
 
11/05/07
 
4.2
   
                     
4.3
 
HSW International, Inc. 2010 Equity Plan
 
8-K
 
6/21/10
 
10.34
   
                     
4.4
 
Registration Rights Agreement among HSW International, Inc. (now known as Remark Media, Inc.) , HowStuffWorks, Inc. and Wei Zhou dated as of October 2, 2007
 
8-K
 
10/09/07
 
10.6
   
                     
4.5
 
Registration Rights Agreement among HSW International, Inc.  (now known as Remark Media, Inc.) and American investors dated as of October 2, 2007
 
8-K
 
10/09/07
 
10.5
   
                     
4.6**
 
Affiliate Registration Rights Agreement dated as of October 2, 2007
 
8-K
 
10/09/07
 
10.7
   
                     
4.7
 
Common Stock Purchase Warrant dated March 4, 2011 issued to Theorem Capital LLC
 
8-K
 
3/10/11
 
4.6
   
                     
4.8
 
Form of Warrant to Purchase Common Stock dated February 27, 2012 issued to investors
 
8-K
 
2/28/12
 
4.1
   
                     
4.9
 
Warrant to Purchase Common Stock dated February 27, 2012 issued to Janney Montgomery Scott LLC
 
8-K
 
2/28/12
 
4.2
   
                     
4.10
 
Registration Agreement dated February 27, 2012, among Remark Media, Inc. and the investors named therein
 
8-K
 
02/28/12
 
10.2
   
                     
10.1
 
Amended and Restated Stockholders Agreement, dated as of January 29, 2007, among HowStuffWorks, Inc., HSW International, Inc. (now known as Remark Media, Inc.) and Wei Zhou
 
S-4/A
 
07/10/07
 
Annex H
   
                     
10.2
 
First Amendment to Amended and Restated Stockholders Agreement, dated as of December 17, 2007, among HowStuffWorks, Inc., HSW International and (now known as Remark Media, Inc.) Wei Zhou
 
S-1/A
 
01/14/08
 
10.2
   
                     
10.3
 
Contribution Agreement (PRC Territories) between HowStuffWorks, Inc.  and HSW International, Inc. (now known as Remark Media, Inc.), dated as of October 2, 2007
 
8-K
 
10/09/07
 
10.2
   
                     
10.4
 
Contribution Agreement (Brazil) between HowStuffWorks, Inc. and HSW International, Inc.  (now known as Remark Media, Inc.) dated as of October 2, 2007
 
8-K
 
10/09/07
 
10.1
   
 
 
88
 
 
                     
10.5
 
Update Agreement between HowStuffWorks, Inc. and HSW International, Inc. (now known as Remark Media, Inc.) dated as of October 2, 2007
 
8-K
 
10/09/07
 
10.4
   
                     
10.6
 
Stock Purchase Agreement dated as of January 29, 2007 between HSW International, Inc. (now known as Remark Media, Inc.) and Ashford Capital
 
S-4/A
 
07/10/07
 
Annex I-c
   
                     
10.7
 
First Amendment to Stock Purchase Agreement dated as of August 23, 2007 between HSW International, Inc. (now known as Remark Media, Inc.) and Ashford Capital
 
S-1/A
 
01/14/08
 
10.11
   
                     
10.8
 
Stock Purchase Agreement dated April 20, 2006 between HSW International (now known as Remark Media, Inc.) and  Harvest 2004, LLC
 
S-4/A
 
07/10/07
 
Annex K
   
                     
10.9
 
First Amendment to Stock Purchase Agreement dated as of August 23, 2007 between HSW International (now known as Remark Media, Inc.) and Harvest 2004, LLC
 
S-4/A
 
07/10/07
 
Annex L
   
                     
10.10
 
Stock Purchase Agreement dated as of January 29, 2007 between HSW International, Inc. (now known as Remark Media, Inc.) and the Purchasers named therein
 
S-4/A
 
07/10/07
 
Annex I-c
   
                     
10.11
 
First Amendment to Stock Purchase Agreement dated as of August 23, 2007 between HSW International, Inc. (now known as Remark Media, Inc.) and the purchasers named therein
 
S-1/A
 
01/14/08
 
10.11
   
                     
10.12
 
Stock Purchase Agreement dated April 20, 2006 between HSW International, Inc. (now known as Remark Media, Inc.) and DWS Finanz-Service GmbH
 
S-4/A
 
07/10/07
 
Annex K
   
                     
10.13
 
First Amendment to Stock Purchase Agreement dated January 29, 2007 between HSW International, Inc. (now known as Remark Media, Inc.) and DWS Finanz-Service GmbH
 
S-4/A
 
07/10/07
 
Annex L
   
                     
10.14**
 
Amended and Restated Consulting Agreement dated August 23, 2006 between HSW International, Inc. (now known as Remark Media, Inc.) and Jeffrey T. Arnold
 
S-4
 
03/14/07
 
10.11
   
 
 
89
 
 
                     
10.14.1**
 
Amendment No. 1 to the Amended and Restated Consulting Agreement dated August 23, 2006 between HSW International, Inc.  (now known as Remark Media, Inc.) and Jeffrey T. Arnold
 
8-K
 
9/23/08
 
10.14
   
10.15
 
Amended and Restated Letter Agreement between HowStuffWorks, Inc. and HSW International, Inc. (now known as Remark Media, Inc.)  related to certain rights in India and Russia dated as of December 17, 2007
 
S-1/A
 
01/14/08
 
10.15
   
                     
10.16
 
Amended and Restated Letter Agreement between HowStuffWorks, Inc. and HSW International, Inc. (now known as Remark Media, Inc.) related to certain trademark rights dated as of December 17, 2007
 
S-1/A
 
01/14/08
 
10.16
   
                     
10.17**
 
Employment Agreement dated October 16, 2001 between INTAC International, Inc. and Wei Zhou (filed by INTAC International, Inc., Commission File No 000-32621)
 
8-K
 
10/30/01
 
10.5
   
                     
10.18
 
Share Purchase Agreement, dated January 29, 2007, among INTAC International, Inc., INTAC International Holdings Limited, INTAC (Tianjin) International Trading Company, Cyber Proof Investments Ltd. and Wei Zhou
 
S-4/A
 
07/10/07
 
Annex R
   
                     
 10.19
 
First Amendment to Share Purchase Agreement dated as of August 23, 2007 among INTAC International, Inc., INTAC International Holdings Limited, INTAC (Tianjin) International Trading Company, Cyber Proof Investments Ltd. and Wei Zhou
 
S-1/A
 
01/14/08
 
10.19
   
                     
10.20
 
Termination Agreement by and between HSW International, Inc. (now known as Remark Media, Inc.) and HowStuffWorks, Inc., dated as of December 17, 2007
 
S-1/A
 
01/14/08
 
10.20
   
                     
10.21
 
Stock Purchase Agreement between HSW International, Inc. (now known as Remark Media, Inc.) and the investors named therein, dated February 15, 2008
 
8-K
 
2/20/08
 
10.21
   
                     
10.22**
 
Separation Agreement with J. David Darnell dated May 13, 2008
 
10-Q
 
5/15/08
 
10.22
   
                     
10.23†**
 
2008 Executive Compensation Plan
 
 
8-K/A
 
1/16/09
 
10.23
   
 
 
90
 
 
                     
10.24†
 
Content License Agreement dated September 17, 2008 between HSW International, Inc. (now known as Remark Media, Inc.) and World Book, Inc. and Amendment
 
10-Q
 
11/14/08
 
10.24
   
                     
10.25
 
Form of Director and Officer Indemnification Agreement
 
8-K
 
1/16/09
 
10.1
   
                     
10.26**
 
Letter Agreement by and between HSW International, Inc. (now known as Remark Media, Inc.) and Gregory Swayne dated September 28, 2009
 
10-Q
 
11/16/09
 
10.26
   
                     
10.27**
 
Confidential Separation and Release Agreement dated as of September 28, 2009, by and between HSW International, Inc. (now known as Remark Media, Inc.) and Henry Adorno
 
10-Q
 
11/16/09
 
10.27
   
                     
10.29
 
Subscription Agreement by and between HSW International, Inc. (now known as Remark Media, Inc.) and Sharecare, Inc., dated as of October 30, 2009
 
10-Q
 
11/16/09
 
10.29
   
                     
10.30
 
Secured Promissory Note issued by HSW International, Inc. (now known as Remark Media, Inc.) to Sharecare, Inc., dated as of October 30, 2009
 
10-Q
 
11/16/09
 
10.30
   
                     
10.31†
 
Letter Agreement for Services Agreement by and between HSW International, Inc. (now known as Remark Media, Inc.) and Sharecare, Inc., dated as of October 30, 2009
 
10-Q/A
 
1/22/10
 
10.31
   
                     
10.31.1
 
First Amendment to the Letter Agreement for Services by and between Sharecare, Inc. and HSW International, Inc. (now known as Remark Media, Inc.) dated December 30, 2009
 
8-K
 
1/7/10
 
10.31.1
   
                     
10.31.2
 
Second Amendment to the Letter Agreement for Services by and between Sharecare Inc (now known as Remark Media, Inc.) and HSW International, Inc. dated June 30, 2010
 
10-Q
 
8/12/2010
 
10.35
   
                     
10.32
 
License Agreement dated as of October 30, 2009, by and among HSW International, Inc. (now known as Remark Media, Inc.), Sharecare Inc. ZoCo 1, LLC, Discovery SC Investment, Inc., Oz Works, L.L.C., and Arnold Media Group, LLC
 
10-Q/A
 
1/22/10
 
10.31
   
 
 
91
 
 
                     
10.33
 
Sublease Agreement by and between HSW International, Inc. (now known as Remark Media, Inc.) and Sharecare, Inc. dated as of March 30, 2010
 
8-K
 
4/5/10
 
10.33
   
                     
10.34**
 
Letter Agreement by and between HSW International, Inc. (now known as Remark Media, Inc.) and Eric Orme
 
10-Q
 
5/14/10
 
10.34
   
                     
10.37
 
Senior Revolving Credit Agreement dated March 4, 2011 between HSW International, Inc. (now known as Remark Media, Inc.) and Theorem Capital LLC
 
8-K
 
3/10/11
 
10.37
   
                     
10.38
 
Revolving Promissory Note dated march 4, 2011 issued to Theorem Capital LLC
 
8-K
 
3/10/11
 
10.38
   
                     
10.39†
 
Option to Purchase Shares of Common Stock between HSW International Inc. (now known as Remark Media, Inc.) and Sharecare Inc. dated November 17, 2010
 
10-K
 
3/29/11
 
10.39
   
                     
10.40
 
Services Agreement effective as of April 19, 2010, between HSW International, Inc. (now known as Remark Media, Inc.) and Discovery Communications, LLC.
 
10-K
 
3/29/11
 
10.40
   
                     
10.41**
 
Letter Agreement between HSW International, Inc. (now known as Remark Media, Inc.) and Carrie Ferman
             
 
X
                     
10.42**
 
Separation and Release Agreement and Independent Contractor Agreement dated February 14, 2012 between Remark Media, Inc. and Gregory M. Swayne
             
 
X
                     
10.43**
 
Separation and Release Agreement and Independent Contractor Agreement dated February 14, 2012 between Remark Media, Inc. and Shawn G. Meredith
             
 
X
                     
10.44(1)
 
Purchase Agreement dated February 27, 2012, among Remark Media, Inc. and the investors named therein
 
8-K
 
02/28/12
 
10.1
   
14.1
 
HSW International, Inc. Amended and Restated Code of Business Conduct and Ethics
 
8-K
 
4/18/08
 
14.1
   
                     
21.1
 
Subsidiaries
             
X
                     
23.1
 
Consent of PricewaterhouseCoopers LLP
 
             
X
 
 
92
 
 
23.2
 
Consent of Cherry, Bekaert & Holland
             
X
                     
31.1
 
Certification by the Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer pursuant to Section 240.13a-14 or section 240.15d-14 of the Securities and Exchange Act of 1934, as amended
             
X
                     
32.1*
 
Certification by the Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
             
X *
101.INS*
 
 
XBRL Instance Document
 
             
X
101.SCH*
 
 
XBRL Taxonomy Extension Schema
             
X
101.CAL*
 
 
 
XBRL Taxonomy Extension Calculation Linkbase
 
             
X
101.CAL*
 
XBRL Taxonomy Definition Linkbase
 
             
X
101.LAB*
 
 
XBRL Taxonomy Extension Label Linkbase
 
             
X
101.PRE*
 
 
 
XBRL Taxonomy Extension Presentation Linkbase
             
X
                     

 
 
 

 
(1) Schedules and exhibits have been omitted from the exhibits. A list of omitted schedules and exhibits is set forth immediately following the table of contents of the exhibit.  Copies will be provided to the Commission upon request.

† The registrant has requested confidential treatment with respect to certain portions of this exhibit.  Such portions have been omitted from this exhibit and have been filed separately with the United States Securities and Exchange Commission.

* These exhibits are furnished to the SEC as accompanying documents and are not to be deemed “filed” for purposes of Sections 11 and 12 of the Securities Act of 1933, as amended, and Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities of these Sections nor shall they be deemed incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934.


**Executive Compensation Arrangement pursuant to 601(b)(10)(iii)(A) of Regulation S-K
 
 
93
 


Exhibit 3.1

SECOND RESTATED
 
CERTIFICATE OF INCORPORATION
 
OF
 
REMARK MEDIA, INC.
 
* * * * * * * *
 
REMARK MEDIA, INC., a corporation organized and existing under the laws of the State of Delaware, hereby certifies as follows:
 
1.             The name of the corporation is Remark Media, Inc. The original Certificate of Incorporation of the corporation was filed with the Secretary of State of the State of Delaware on March 14, 2006. At the date of such filing, the name of the corporation was HSW International, Inc.
 
2.             Pursuant to Section 245 of the General Corporation Law of the State of Delaware, this Second Restated Certificate of Incorporation (this “Restated Certificate”) restates and integrates the provisions of the Certificate of Incorporation of Remark Media, Inc.  The Certificate of Incorporation is not amended herein in any manner or respect.
 
3.             This Restated Certificate of Incorporation was duly adopted by the written consent of the Board of Directors of Remark Media, Inc. in accordance with the applicable provisions of Section 245 of the General Corporation Law of the State of Delaware.  No stockholder approval was required in accordance with the applicable provisions of Section 245(b) of the General Corporation Law of the State of Delaware.
 
The text of the Certificate of Incorporation of Remark Media, Inc. is hereby restated to read in its entirety as follows:
 

ARTICLE I

Name
 
The name of the corporation is Remark Media, Inc. (the “ Corporation ”).
 





ARTICLE II

Registered Office and Registered Agent
 
 
The address of the registered office of the Corporation in the State of Delaware is Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, in the county of New Castle, Delaware 19801.
 
 
The name of the registered agent of the Corporation at such address is The Corporation Trust Company.
 
 
 
 

ARTICLE III

Corporate Purpose
 
The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware (the “ General Corporation Law ”).
 

ARTICLE IV

Capital Stock
 
Section 1.  Shares, Classes and Series Authorized . The total number of shares of all classes of capital stock which the Corporation shall have authority to issue after giving effect to the reverse stock split in Section 5(e) below is Twenty-one Million (21,000,000) shares, of which Twenty Million (20,000,000) shares shall be Common Stock, par value $0.001 per share (hereinafter called “Common Stock”) and One Million (1,000,000) shares shall be Preferred Stock, par value $0.001 per share (hereinafter called “Preferred Stock”).
 
Section 2.  Description of Capital Stock . The following is a description of each of the classes of capital stock which the Corporation has authority to issue with the designations, preferences, voting powers and participating, optional or other special rights and the qualifications, limitations or restrictions thereof:
 
(a)           Rights and Restrictions of Preferred Stock . Authority is hereby expressly vested in the Board of Directors of the Corporation (the “ Board ”), subject to the provisions of this Article IV and to the limitations prescribed by law, without shareholder action, to authorize the issue from time to time of one or more series of Preferred Stock and with respect to each such series to fix by resolution or resolutions of the Board providing for the issue of such series the voting powers, full or limited, if any, of the shares of such series and the designations, preferences and relative, participating, optional or other special rights and the qualifications, limitations or restrictions thereof. The authority of the Board with respect to each series shall include, but not be limited to, the determination or fixing of the following:
 
(i)            The designation of such series.
 
(ii)           The dividend rate of such series, the conditions and dates upon which such dividends shall be payable, the relation which such dividends shall bear to the dividends payable on any other class or classes or series of the Corporation’s capital stock, and whether such dividends shall be cumulative or non-cumulative.
 
(iii)          Whether the shares of such series shall be subject to redemption for cash, property or rights, including securities of the Corporation or of any other corporation, by the Corporation at the option of either the Corporation or the holder or both or upon the happening of a specified event, and, if made subject to any such redemption, the times or events, prices and other terms and conditions of such redemption.
 
(iv)          The terms and amount of any sinking fund provided for the purchase or redemption of the shares of such series.
 
(v)           Whether or not the shares of such series shall be convertible into, or exchangeable for, at the option of either the holder or the Corporation or upon the happening of a specified event, shares of any other class or classes or of any other series of the same or any other class or classes of the Corporation’s capital stock, and, if provision be made for conversion or exchange, the times or events, prices, rates, adjustments and other terms and conditions of such conversions or exchanges.
 
(vi)          The restrictions, if any, on the issue or reissue of any additional Preferred Stock.
 
 
 
 
 
(vii)         The rights of the holders of the shares of such series upon the voluntary or involuntary liquidation, dissolution or winding-up of the Corporation.
 
(viii)        The provisions as to voting (which may be one or more votes per share or a fraction of a vote per share), optional and/or other special rights and preferences, if any.
 
For all purposes, this Certificate of Incorporation shall include each certificate of designations (if any) setting forth the terms of a series of Preferred Stock.
 
(b)           Rights and Restrictions of Common Stock . The powers, preferences, rights, qualifications, limitations or restrictions thereof in respect to the Common Stock are as follows:
 
(i)            The Common Stock is junior to the Preferred Stock and is subject to all the powers, rights, privileges, preferences and priorities of the Preferred Stock as herein or in any resolution or resolutions adopted by the Board pursuant to authority expressly vested in it by the provisions of Section 2 of this Article IV.
 
(ii)           The Common Stock shall have voting rights for the election of directors and for all other purposes, each holder of Common Stock being entitled to one vote for each share thereof held by such holder, except as otherwise required by law. The ability of the stockholders to engage in cumulative voting is hereby specifically denied.
 
(iii)          Subject to the rights of the holders of any series of Preferred Stock, holders of Common Stock shall be entitled to receive such dividends and distributions (whether payable in cash or otherwise) as may be declared on the shares of Common Stock by the Board from time to time out of assets or funds of the Corporation legally available therefor.
 
(iv)          Subject to the rights of the holders of any series of Preferred Stock, in the event of any liquidation, dissolution or winding-up of the Corporation (whether voluntary or involuntary), the assets of the Corporation available for distribution to stockholders shall be distributed in equal amounts per share to the holders of Common Stock.
 
(c)           Increase or Decrease in Amount of Authorized Shares . The number of authorized shares of any class or classes of capital stock of the Corporation may be increased or decreased by an amendment to this Certificate of Incorporation authorized by the affirmative vote of the holders of a majority of the total shares of the Common Stock outstanding and entitled to vote thereon and, except as expressly provided in this Certificate of Incorporation or in any resolution or resolutions adopted by the Board pursuant to authority expressly vested in it by the provisions of Section 2 of this Article IV with respect to the Preferred Stock and except as otherwise provided by law, no vote by holders of capital stock of the Corporation other than the Common Stock shall be required to approve such action.
 
(d)           Shares Entitled to More or Less Than One Vote . If any class or series of the Corporation’s capital stock shall be entitled to more or less than one vote for any share, on any matter, every reference in this Certificate of Incorporation and in any relevant provision of law to a majority or other proportion of stock shall refer to such majority or other proportion of the votes of such stock.

(e)            Reverse Stock Split.   Effective upon filing on February 16, 2010 of a Certificate of Amendment to the Amended and Restated Certificate of Incorporation of the Corporation with the Secretary of State of the State of Delaware (the “ Effective Time ”), each share of the Corporation’s Common Stock, par value $0.001 per share, authorized, including those that are issued and outstanding at 5:00 P.M. Eastern time on February 10, 2010 (the “ Old Common Stock ”), were automatically reclassified as and converted into one-tenth of a share of Common Stock, par value $0.001 per share (the “ New Common Stock ”) of the Corporation.  No fractional shares of New Common Stock of the Corporation were issued.  As soon as practicable following the Effective Time, the Corporation notified its shareholders of record on the Record Date to transmit outstanding share certificates to the Corporation’s exchange agent and registrar (“ Exchange Agent ”) and the Corporation  caused the Exchange Agent to issue new book entries representing one share of common stock for every 10 shares transmitted and held of record on the Record Date; and in settlement of fractional interests that might arise as a result of such combination on the Record Date, caused the Exchange Agent to disburse to such holders a cash payment in an amount equal to the product obtained by multiplying (i) the closing sales price of the Corporation’s Common Stock on the day of the Effective Time as reported on The Nasdaq Global Market by (ii) the number of shares of the Corporation’s Common Stock held by a holder that would otherwise have been exchanged for a fractional share interest, as determined by the Board.

 
 
 
 
 
ARTICLE V

Directors
 
Section 1.   General Powers . The business and affairs of the Corporation shall be managed by the Board, which may exercise all such powers of the Corporation and do all such lawful acts and things as are not by law, this Certificate of Incorporation or the Bylaws directed or required to be exercised or done by stockholders.
 
Section 2.  Number and Term of Office . The Board shall consist of seven (7) members. Directors need not be stockholders. At all times, a majority of the directors on the Board shall be independent directors and the independent directors (including those designated by any stockholder) shall meet all requirements regarding the independence of directors as may be applicable to the Corporation pursuant to applicable law or the rules of the stock exchange on which the shares of Common Stock are listed. Directors shall be elected at the annual meeting of the stockholders. If, for any cause, the directors shall not have been elected at an annual meeting, they may be elected as soon thereafter as convenient at a special meeting of the stockholders called for that purpose in the manner provided in the Bylaws. Each director shall serve until his successor is duly elected and qualified or until his death, resignation or removal. No decrease in the number of directors constituting the Board shall shorten the term of any incumbent director.
 
Section 3.  Resignation . Any director may resign at any time by delivering his written resignation to the Secretary, such resignation to specify whether it will be effective at a particular time, upon receipt by the Secretary or at the pleasure of the Board. If no such specification is made, it shall be deemed effective at the pleasure of the Board. When one or more directors shall resign from the Board, a majority of the remaining directors then in office shall have the power to fill such vacancy or vacancies, the vote thereon to take effect on the later of the date of such vote or when such resignation or resignations shall become effective, and each director so chosen shall hold office for the unexpired portion of the term of the director whose place shall be vacated and until his successor shall have been duly elected and qualified.
 
Section 4.  Removal . Subject to the rights of the holders of any series of Preferred Stock then outstanding, except as provided herein otherwise, (a) any director, or the entire Board, may be removed from office at any time, with or without cause, by the affirmative vote of the holders of record of outstanding shares representing a majority of the voting power of all the shares of capital stock of the Corporation then entitled to vote generally in the election of directors, voting together as a single class, and (b) any director may be removed from office at any time, but only for cause, by the affirmative vote of a majority of all directors of the Board.
 
Section 5.  Vacancies . Any vacancies on the Board resulting from death, resignation, disqualification, removal or other causes, and any newly created directorships resulting from any increase in the number of directors, shall be filled only by the affirmative vote of a majority of the remaining directors, even though less than a quorum of the Board. Any director elected to fill a vacancy in accordance with the preceding sentence shall hold office for the remainder of the full term of the director with respect to which the vacancy was created or occurred and until such director’s successor shall have been elected and qualified, and any director so elected to fill a newly-created directorship shall hold office until the next annual meeting of the stockholders and until such director’s successor shall have been elected and qualified. A vacancy in the Board shall be deemed to exist in the case of the death, removal or resignation of any director.
 
Section 6.  Meetings . (a)  Annual Meetings . The annual meeting of the Board shall be held immediately before or after the annual meeting of stockholders and may be at the place where such meeting is held. No notice of an annual meeting of the Board shall be necessary and such meeting shall be held for the purpose of electing officers and transacting such other business as may lawfully come before it.
 
 
 
 
 
(b) Regular Meetings . Except as hereinafter otherwise provided, regular meetings of the Board shall be held in the office of the Corporation required to be maintained pursuant to Section 1.02 of the Bylaws. Regular meetings of the Board may also be held at any place within or without the State of Delaware that has been designated by resolution of the Board or the written consent of all directors.
 
(c) Special Meetings . Special meetings of the Board may be held at any time and place within or without the State of Delaware whenever called by the Chairman of the Board, the Vice Chairman or any two of the directors.
 
(d) Telephone Meetings . Any member of the Board, or of any committee thereof, may participate in a meeting by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other and participation in a meeting by such means shall constitute presence in person at such meeting.
 
(e) Notice of Meetings . Notice of the time and place of all special meetings of the Board shall be oral or in writing, by telephone, facsimile, electronic mail, telegraph or telex, during normal business hours in the Eastern time zone in the United States, at least twenty-four (24) hours before the date and time of the meeting, or sent in writing to each director by first class mail, charges prepaid, at least three (3) days before the date of the meeting. Notice of any meeting may be waived in writing at any time before or after the meeting and will be waived by any director by attendance thereat, except when the director attends the meeting for the express purpose of objecting at the beginning of the meeting to the transaction of any business because the meeting is not lawfully called or convened.
 
(f) Waiver of Notice . The transaction of all business at any meeting of the Board, or any committee thereof, however called or noticed, or wherever held, shall be as valid as though passed at a meeting duly held after regular call and notice, if a quorum be present and if, either before or after the meeting, each of the directors not present shall sign a written waiver of notice. All such waivers shall be filed with the corporate records or made a part of the minutes of the meeting.
 
(g) Quorum and Manner of Acting . Except as otherwise expressly required by law, this Certificate of Incorporation or the Bylaws, a majority of the total number of directors then in office shall be present in person at any meeting of the Board in order to constitute a quorum for the transaction of business at such meeting, and the vote of a majority of those directors present at any such meeting at which a quorum is present shall be necessary for the passage of any resolution or act of the Board. In the absence of a quorum for any such meeting, a majority of the directors present thereat may adjourn such meeting from time to time until a quorum shall be present.
 
(h) Organization . At each meeting of the Board, one of the following shall act as chairman of the meeting and preside, in the following order of precedence:
 
(i)            the Chairman;
 
(ii)           the Vice Chairman; and
 
(iii)          any director chosen by a majority of the directors present.
 
The Secretary or, in the case of his absence, any person (who shall be an Assistant Secretary, if an Assistant Secretary is present) whom the chairman of the meeting shall appoint shall act as secretary of such meeting and keep the minutes thereof.
 
 
 
 
 
Section 7.  Committees of the Board . (a)  The Board may, by resolution passed by a majority of the entire board, designate one or more committees, each committee to consist of one or more directors. The Board may, by resolution passed by a majority of the entire board, designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of such committee. In the absence or disqualification of a member of a committee and if the Board has not designated one or more alternates (or if such alternate(s) are then absent or disqualified), the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another director to act at the meeting in the place of any such absent or disqualified member or alternate. Any such committee, to the extent provided in the resolution of the Board designating such committee or in the Bylaws, shall have and may exercise all the powers and authority of the Board in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it; provided, however, that no such committee shall have such power or authority in reference to amending this Certificate of Incorporation (except that such a committee may, to the extent authorized in the resolution or resolutions providing for the issuance of shares of stock adopted by the Board as provided in Section 151(a) of the General Corporation Law, fix the designations and any of the preferences or rights of such shares relating to dividends, redemption, dissolution, any distribution of assets of the Corporation or the conversion into, or the exchange of such shares for, shares of any other class or classes of stock of the Corporation or fix the number of shares of any series of stock or authorize the increase or decrease of the shares of any series), adopting an agreement of merger or consolidation under Section 251 or 252 of the General Corporation Law, recommending to the stockholders the sale, lease or exchange of all or substantially all the Corporation’s property and assets, recommending to the stockholders a dissolution of the Corporation or the revocation of a dissolution, or amending the Bylaws; provided further, however, that, unless expressly so provided in the resolution of the Board designating such committee, no such committee shall have the power or authority to declare a dividend, to authorize the issuance of stock, or to adopt a certificate of ownership and merger pursuant to Section 253 of the General Corporation Law. Each committee of the Board shall keep regular minutes of its proceedings and report the same to the Board when so requested by the Board.
 
(b) In addition to any other committees that may be established by the Board, the Corporation shall have four standing committees: the special committee (the “ Special Committee ”), the audit committee (the “ Audit Committee ”), the compensation committee (the “ Compensation Committee ”) and the nominating committee (the “ Nominating Committee ”). Each such standing committee shall consist of at least three (3) directors. Except as otherwise provided in this Certificate of Incorporation or the Bylaws, each such standing committee shall have such powers and authority as shall be determined by resolutions of the Board. Notwithstanding the foregoing, all members of the Audit Committee, the Compensation Committee and the Nominating Committee shall also qualify as “independent” as defined by the Marketplace Rules of the Nasdaq Stock Market (the “ Nasdaq Rules ”) applicable to each such committee, and members of the Audit Committee may not receive compensation from the Corporation other than for service as a board or committee member.
 
Section 8.  Directors’ Consent in Lieu of Meeting . Any action required or permitted to be taken at any meeting of the Board or of any committee thereof may be taken without a meeting, without prior notice and without a vote, if a consent in writing or by electronic transmission, setting forth the action so taken, shall be signed by all the members of the Board or such committee and such consent or electronic transmission or transmissions is filed with the minutes of the proceedings of the Board or such committee. Such filing shall be in paper form if the minutes are maintained in paper form and shall be in electronic form if the minutes are maintained in electronic form.
 
Section 9.  Compensation . The Board may determine the compensation of directors. In addition, as determined by the Board, directors may be reimbursed by the Corporation for their expenses, if any, in the performance of their duties as directors. No such compensation or reimbursement shall preclude any director from serving the Corporation in any other capacity and receiving compensation therefor.
 
Section 10.  Other Constituencies . In taking any action, including action that may involve or relate to a change or potential change in the control of the Corporation, a director of the Corporation may consider, among other things, both the long-term and short-term interest of the Corporation and its stockholders and the effects that the Corporation’s actions may have in the short term or long term upon any one or more of the following matters:
 
(i)            the prospects for potential growth, development, productivity and profitability of the Corporation;
 
 
 
 
 
(ii)           the Corporation’s current employees;
 
(iii)          the Corporation’s employees and other beneficiaries receiving or entitled to receive retirement, welfare or similar benefits from or pursuant to any plan sponsored, or agreement entered into, by the Corporation;
 
(iv)          the Corporation’s customers and creditors;
 
(v)           the ability of the Corporation to provide, as a going concern, goods, services, employment opportunities and employment benefits and otherwise to contribute to the communities in which it does business; and
 
(vi)          such other additional factors as a director may consider appropriate in such circumstances.
 
Nothing in this Section 10 shall create any duty owed by any director of the Corporation to any person or entity to consider, or afford any particular weight to, any of the foregoing matters or to limit his or her consideration to the foregoing matters. No such employee, former employee, beneficiary, customer, creditor or community or member thereof shall have any rights against any director of the Corporation or the Corporation under this Section 10.
 

ARTICLE VI

Meetings of Stockholders;
Corporation Books
 
Section 1.  Stockholders Meetings . Meetings of holders of capital stock of the Corporation may be held outside the State of Delaware if the Bylaws so provide. Any action required or permitted to be taken by the holders of capital stock of the Corporation must be effected at a duly called annual or special meeting of holders of capital stock of the Corporation, and no action shall be taken by such holders by written consent without a meeting. Special meetings of holders of capital stock of the Corporation may be called only by the Board. The ability of the stockholders to call a special meeting of stockholders of the Corporation is specifically denied.
 
Section 2.  Books of Corporation . Except as otherwise provided by law, the books of the Corporation may be kept outside the State of Delaware at such place or places as may be designated from time to time by the Board or in the Bylaws of the Corporation.
 

ARTICLE VII

Limitation of Directors’ Liability; Indemnification by Corporation; Insurance
 
Section 1.   Limitation of Directors’ Liability . (a)  No director of the Corporation shall be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except, to the extent provided by applicable law, for liability (i) for breach of the director’s duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) pursuant to Section 174 of the Delaware General Corporation Law or (iv) for any transaction from which the director derived an improper personal benefit. If the Delaware General Corporation Law is hereafter amended to authorize corporate action further limiting or eliminating the personal liability of directors, then the liability of each director of the Corporation shall be limited or eliminated to the full extent permitted by the Delaware General Corporation Law as so amended from time to time.
 
(b) Neither the amendment nor repeal of this Section 1, nor the adoption of any provision of this Certificate of Incorporation inconsistent with this Section 1, shall eliminate or reduce the effect of this Section 1 in respect of any matter occurring, or any cause of action, suit or claim that, but for this Section 1, would accrue or arise, prior to such amendment, repeal or adoption of an inconsistent provision.
 
 
 
 
 
Section 2.  Indemnification by Corporation . (a)  The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation) by reason of the fact that the person is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by the person in connection with such action, suit or proceeding if the person acted in good faith and in a manner the person reasonably believed to be in, or not opposed to, the best interests of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe the person’s conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which the person reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that the person’s conduct was unlawful.
 
(b) The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that the person is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys’ fees) actually and reasonably incurred by the person in connection with the defense or settlement of such action or suit if the person acted in good faith and in a manner the person reasonably believed to be in or not opposed to the best interests of the Corporation and except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the Corporation unless and only to the extent that the Court of Chancery of the State of Delaware or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper.
 
(c) To the extent that a present or former director or officer of the Corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in Sections 2(a) and (b), or in defense of any claim, issue or matter therein, such person shall be indemnified against expenses (including attorneys’ fees) actually and reasonably incurred by such person in connection therewith.
 
(d) Any indemnification under Sections 2(a) and (b) (unless ordered by a court) shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of the present or former director, officer, employee or agent is proper in the circumstances because the person has met the applicable standard of conduct set forth in Sections 2(a) and (b). Such determination shall be made, with respect to a person who is a director or officer at the time of such determination, (i) by a majority vote of the directors who are not parties to such action, suit or proceeding, even though less than a quorum, or (ii) by a committee of such directors designated by majority vote of such directors, even though less than a quorum, or (iii) if there are no such directors, or if such directors so direct, by independent legal counsel in a written opinion, or (iv) by the stockholders of the Corporation.
 
(e) Expenses (including attorneys’ fees) incurred by an officer or director in defending any civil, criminal, administrative or investigative action, suit or proceeding may be paid by the Corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such director or officer to repay such amount if it shall ultimately be determined that such person is not entitled to be indemnified by the Corporation pursuant to this Article VII. Such expenses (including attorneys’ fees) incurred by former directors and officers or other employees and agents may be so paid upon such terms and conditions, if any, as the Corporation deems appropriate.
 
(f) The indemnification and advancement of expenses provided by, or granted pursuant to, this Article VII shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any law, bylaw, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in such person’s official capacity and as to action in another capacity while holding such office.
  
 
 
 
 
(g) For purposes of this Article VII, references to “the Corporation” shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, and employees or agents so that any person who is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under the provisions of this Article VII with respect to the resulting or surviving corporation as such person would have with respect to such constituent corporation if its separate existence had continued.
 
(h) For purposes of this Article VII, references to “other enterprises” shall include employee benefit plans; references to “fines” shall include any excise taxes assessed on a person with respect to an employee benefit plan; and references to “serving at the request of the Corporation” shall include any service as a director, officer, employee or agent of the Corporation which imposes duties on, or involves service by, such director, officer, employee or agent with respect to an employee benefit plan, its participants, or beneficiaries; and a person who acted in good faith and in a manner such person reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner “not opposed to the best interests of the Corporation” as referred to in this Article VII.
 
(i) The indemnification and advancement of expenses provided by, or granted pursuant to, this Article VII shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person.
 
Section 3.  Insurance . The Corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, trustee, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against such person and incurred by such person in any such capacity, or arising out of such person’s status as such, whether or not the Corporation would have the power to indemnify such person against such liability under the provisions of Section 145 of the General Corporation Law.
 

ARTICLE VIII

Bylaws
 
The Board shall have the power to adopt, amend or repeal the Bylaws of the Corporation.
 
ARTICLE IX
Reorganization
 
Whenever a compromise or arrangement is proposed between this Corporation and its creditors or any class of them and/or between this Corporation and its stockholders or any class of them, any court of equitable jurisdiction within the State of Delaware may, on the application in a summary way of this Corporation or of any creditor or stockholder thereof or on the application of any receiver or receivers appointed for this Corporation under Section 291 of Title 8 of the General Corporation Law or on the application of trustees in dissolution or of any receiver or receivers appointed for this Corporation under Section 279 of Title 8 of the General Corporation Law order a meeting of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this Corporation, as the case may be, to be summoned in such manner as the said court directs. If a majority in number representing [a majority] in value of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this Corporation, as the case may be, agree to any compromise or arrangement and to any reorganization of this Corporation as a consequence of such compromise or arrangement, the said compromise or arrangement and the said reorganization shall, if sanctioned by the court to which the said application has been made, be binding on all the creditors or class of creditors, and/or on all the stockholders or class of stockholders, of this Corporation, as the case may be, and also on this Corporation.
 
 
 
 
 

ARTICLE X

Personal Liability of Directors or Officers
 
A director or any officer of the Corporation shall not be personally liable to the Corporation or its stockholders for the breach of any duty owed to the Corporation or its stockholders except to the extent that an exemption from personal liability is not permitted by the General Corporation Law of the State of Delaware.
 

ARTICLE XI

Denial of Preemptive Rights
 
No holder of any class of capital stock of the Corporation, whether now or hereafter authorized, shall be entitled, as such, as a matter of right, to subscribe for or purchase any part of any new or additional issues of capital stock of the Corporation of any class whatsoever, or of securities convertible into or exchangeable for capital stock of the Corporation of any class whatsoever, whether now or hereafter authorized, or whether issued for cash, property or services.
 



ARTICLE XII
 
Amendment
 
The Corporation reserves the right to amend, alter, change or repeal any provisions contained in this Certificate of Incorporation in the manner now or hereafter prescribed by law, and all the provisions of this Certificate of Incorporation and all rights and powers conferred in this Certificate of Incorporation on stockholders, directors and officers are subject to this reserved power.
 
 

IN WITNESS WHEREOF, the undersigned has executed this Second Restated Certificate of Incorporation this 21 st day of March, 2012.


REMARK MEDIA, INC.


By:            /s/ Bradley T. Zimmer                                                       
Bradley T. Zimmer
Corporate Secretary

 
 
 
Exhibit 4.1
 
N U M B E R
 
 
 
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
 
SHARES
       
CUSIP 75954w 107
       
SEE REVERSE FOR CERTAIN DEFINITIONS
 
REMARK MEDIA, INC.
 

This is to certify that ______________________________________________________________ is the owner of
 
__________________________________________________________________________fully paid and non-assessable shares of the above Corporation transferable only on the books of the Corporation by the holder hereof in person or by a duly authorized Attorney upon surrender of this Certificate properly endorsed.
               
         WITNESS the facsimile seal of the Corporation and the facsimile signatures of its duly authorized officers.
 
 
Dated:
                                                                            
 
   
COUNTERSIGNED AND REGISTERED
  COMPUTERSHARE SHAREOWNER SERVICES, LLC
  TRANSFER AGENT AND REGISTRAR
 
 
                       
   
SEAL
 
 
   
    ______________________________________________________
SECRETARY
     
_________________________________________
AUTHORIZED SIGNATURE
 
 
 
 
 
 

 
                The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations:
 
TEN COM
 
—
 
as tenants in common
 
UNIF GIFT MIN ACT—
   
Custodian
 
TEN ENT
 
—
 
as tenants by the entireties
     
(Cust)
 
(Minor)
JT TEN
 
—
 
as joint tenants with right of survivorship and not as tenants in common
     
under Uniform Gifts to Minors Act
               
(State)
 
Additional abbreviations may also be used though not in the above list.
 
For value received,                                          hereby sell, assign and transfer unto
 
PLEASE INSERT SOCIAL SECURITY OR OTHER
 
IDENTIFYING NUMBER OF ASSIGNEE
 
   
 
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING POSTAL ZIP CODE OF ASSIGNEE
 
 
 
Shares represented by the within Certificate, and do hereby irrevocably
constitute and appoint
 
Attorney to transfer the said Shares on the books of the within-named Corporation with full power of substitution in the premises.
     
 
Dated
       
         
     
Signature(s):
         
   
X
   
         
   
X
   
   
NOTICE:
 
THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME(S) AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.
 
 
Signature(s) Guaranteed
 
By
   
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15.
 
 
 
KEEP THIS CERTIFICATE IN A SAFE PLACE. IF IT IS LOST, STOLEN, MUTILATED OR DESTROYED, THE CORPORATION WILL REQUIRE A BOND OF INDEMNITY AS A CONDITION TO THE ISSUANCE OF A REPLACEMENT CERTIFICATE.
 
Exhibit 10.41

July 6, 2011

Miss. Carrie B. Ferman
225 West 12 th Street, 1F
New York, NY  10011

Dear Carrie:

 On behalf of HSW International, Inc. (“ HSW International ” or the “ Company ”), I am pleased to offer you employment as Executive Vice President of Business Development and Strategy of HSW International under the terms set forth below in this letter agreement (the “ Letter Agreement ”), commencing on July 27, 2011 (the “ Commencement Date ”).  The terms of your employment are set forth as follows:

1.   Services and Duties.

(a)   Position .  You will serve as Executive Vice President of Business Development and Strategy of HSW International, and shall perform all duties consistent with that position and such duties as shall be reasonably prescribed from time to time by the Company.  You will be an at-will employee of the Company, with the “ Term ” commencing upon the Commencement Date and ending upon the termination of employment.

(b)   Devotion of Time .  During the term of this Letter Agreement, you agree to devote your full attention, energies and best efforts to rendering services on behalf of HSW International (or its parent, subsidiaries or other affiliates if directed to do so by the Company).  You shall not engage in any outside employment or consulting without the express written consent of the Company.  Notwithstanding the above, you shall be permitted, to the extent such activities do not interfere with the performance of your duties and responsibilities hereunder to (i) manage your personal, financial and legal affairs, (ii) serve on civic or charitable boards or committees, subject to the consent of the Company; and, (iii) investing or trading in stocks, bonds, commodities or other forms of investment, including real property.

2.   Compensation and Related Matters .

(a)   Base Salary .  Your “ Base Salary ” upon the Commencement Date will be $225,000 annually.  The Base Salary will be paid to you (minus applicable federal, state and local payroll taxes, and other withholdings required by law or authorized by you) in accordance with HSW International’s normal payroll practices, presently the 15 th and last day of each month.

(b)   Bonus Compensation .  In addition to the Base Salary, you will be eligible for the following one-time bonuses based upon the following performance criteria achieved during the first year of employment (“ Bonus Plan ”):

 
(i)   $50,000, upon the Company’s entrance into a binding definitive written agreement for a long-term network media partnership you have successfully completed with Fox, CNBC, Bloomberg or another similarly mainstream television media for promotion and other benefits containing terms approved by the Company’s chief executive officer;
 
(ii)   $25,000, upon the Company’s entrance into a binding definitive written agreement for a national sponsorship you have successfully completed containing a minimum commitment by the sponsor of at least $1 million per year for at least a one-year term; this portion of the Bonus Play would be payable upon the receipt of the first cash payment from the sponsor with an expectation that the sponsor would pay a quarterly amount of at least $250,000; and,
 
 
 
 
 
(iii)   $25,000, upon the Company’s entrance into a binding definitive written agreement with a large financial services professional expert group you have successfully completed that results in at least 500 qualified experts creating accounts for participation in the Company’s personal finance website.
 

 
(c)   Commission .  Additionally, during your first year of employment you will be eligible to earn a “ Commission ” of two percent (2%) of the net revenue received by the Company from advertising and sponsorship agreements you successfully complete.  The Commission will only apply to those amounts in excess of the first $1 million of such revenue received by the Company, and shall not exceed $50,000 in total Commission payments.  Following the first year, the Commission plan is subject to review and modification by the Company.

(d)   Expenses .  During your employment hereunder, you will be reimbursed for those reasonable business and entertainment expenses incurred by you in performing services hereunder and pre-approved by the Company, provided that you properly account therefor to the Company.  All such reimbursements shall be subject to HSW International’s policies and procedures.

(e)   Other Benefits .  Beginning on the Commencement Date, you shall be entitled to participate in other benefit plans to which you are eligible pursuant to Company policy, which may be amended from time to time in the Company’s discretion, and the applicable plan documents (the “ Standard Benefit Plans ”).

(f)   Vacations .  You shall be entitled to three weeks of paid vacation per year in accordance with HSW International’s policies and procedures.

(g)   Stock Options .  The Company shall recommend that the Board of Directors grant you options to acquire shares of HSW International’s common stock (the “ Options ”) in accordance with the Company’s then-current Equity Incentive Plan (the “ Incentive Plan ”).  The number of Options shall be equal to one percent (1%) of the Company’s issued and outstanding common stock as measured at the time the Board of Directors awards the Options, which shall occur after the funding contemplated to close in July 2011.
 
(h)      Unless otherwise defined herein, capitalized terms used in this sub-Section have the meanings assigned such terms in the Incentive Plan.  The Award Agreement will reflect HSW International’s standard terms and conditions for stock option grants except as follows:
 
(i)   The Options shall have an exercise price equal to 100% of the Fair Market Value on the date of the Award.
 
(ii)   The Options shall vest in sixteen equal amounts upon each three-month anniversary of the Commencement Date, over a period of four years.  Except as provided elsewhere in this Letter Agreement, vesting shall occur at the times indicated only if you remain an employee of the Company and this Letter Agreement is then in effect.
 
(iii)   If either party should terminate your employment for any reason, then all un-vested Options shall terminate with such termination.
 
(iv)   If a Change in Control (as defined below) should occur during the Term, then all un-vested Options shall become fully vested as of the date of said Change in Control.  “Change of Control” means any of the following: (a) a merger or consolidation of HSW International into or with any other person or persons, or a transfer of equity interests in a single transaction or a related series of transactions, in which in any case the equity holders of HSW International immediately prior to such merger, consolidation, sale, exchange, conveyance or other disposition or first of such series of transactions possess less than a majority of the voting power of Employer’s or any successor entity’s issued and outstanding equity securities immediately after such transaction or series of such transactions; or (b) a single transaction or related series of transactions, pursuant to which a person or persons acquire all or substantially all of HSW International’s assets determined on a consolidated basis.
 
 
 
 

 
3.   Termination .

During the Term, your employment hereunder may be terminated by HSW International or by you under the following circumstances:

(a)   Mutual Agreement .  Your employment may be terminated by mutual written agreement between you and the Company.

(b)   Death .  Your employment shall terminate immediately upon your death.

(c)   Disability .  The Company may terminate your employment if you are unable to perform the essential functions of your job under this Letter Agreement due to a physical or mental impairment (“ Disability ”).  However, under no circumstances will the Company terminate your employment pursuant to its rights in this subsection provided that such Disability does not continue past 30 days.

(d)   Cause .  Your employment may be terminated immediately for Cause.  “Cause” means the occurrence or existence of any of the following with respect to you:

(i)   any act of dishonesty resulting in an adverse effect upon the Company or material misappropriation, embezzlement, fraud or similar conduct;
(ii)   the conviction or a plea of nolo contendere, guilty or the equivalent with respect to a crime, or any conduct by you in violation of any criminal statute involving moral turpitude or dishonesty;
(iii)   any intentional damage by you of a material nature to any property of HSW International or any affiliate;
(iv)   conduct by you which constitutes gross negligence in serving in your capacity as an employee of  the Company or any affiliate which includes, but is not limited to, the disclosing of trade secrets or confidential information of the Company or any affiliate to persons not entitled to receive such information, violation of insider trading or federal corrupt practices act policies, or violation of the Company’s bylaws or other governing policies;
(v)   any breach of a non-competition or non-solicitation agreement between you and HSW International or any affiliate;
(vi)   any material breach by you of any material obligation under this Letter Agreement, or any breach of any fiduciary duties to HSW International or any affiliate;
(vii)   any conduct by you which is seriously prejudicial to the best interests of the Company or is likely to bring the Company into public disrepute, contempt, scandal or ridicule, or which is likely to reflect unfavorably upon the Company; or
(viii)   the engaging by you in employment practices which violate federal, state or local law.

(e)   Termination Without Cause .  Notwithstanding any provisions of this Letter Agreement to the contrary, prior to the expiration of the Term, HSW International may terminate your employment for any reason other than those specified in the foregoing paragraphs (a), (b), (c) or (d) (or for no reason) at any time effective upon written notice.

(f)   Termination by You with Notice .  You may terminate your employment (resign) at any time effective upon written notice to the Company.
 
 
 
 


4.   Compensation and Payments Upon Termination .

You will be entitled to the following compensation from HSW International (in lieu of all other sums payable to you hereunder) upon the termination of your employment.

(a)   Mutual Agreement .  If your employment is terminated as a result of mutual agreement, HSW International shall pay your Base Salary, plus all accrued, earned and unused benefits under the Standard Benefit Plans, in each case, through the date of termination, plus the amount actually earned under any Bonus Plan or the Commission as of the date of your termination (for all purposes of this Letter Agreement, all such accrued, earned and unpaid items through the applicable date of termination (minus applicable federal, state and local payroll taxes, and other withholdings required by law or authorized by you) are referred to as the “ Earned Amounts ”).

(b)   Death .  If your employment is terminated as a result of death, HSW International will pay to your estate the Earned Amounts and shall have no further obligations to you or your heirs or estate.

(c)   Disability .  If your employment is terminated as a result of Disability, you will be provided long term disability benefits to which you may be eligible (if any), in accordance with HSW International’s then existing Standard Benefit Plans and HSW International shall pay to you the Earned Amounts and shall have no further obligations to you.

(d)   Cause .  If your employment is terminated for Cause, HSW International shall pay to you the Earned Amounts and shall have no further obligations to you.

(e)   Termination Without Cause .  If HSW International shall elect to terminate your employment for a reason other than those described in (a), (b), (c), or (d) of Section 4 of this Letter Agreement (or for no reason), then, HSW International shall pay to you the following and shall have no further obligations to you:

(i)   the Earned Amounts; plus,

(ii)   your Base Salary and medical and health benefits in effect as of the date of termination for a period of: (A) three months from the date of termination; plus (B) one additional month for each year of your employment with the Company, up to a maximum combined total including the three months specified in clause A of twelve months; each, payable (minus applicable federal, state and local payroll taxes, and other withholdings required by law or authorized by you) as if you remained an active employee of the Company (the “ Severance Payment ”); provided , however , no Severance Payment shall be payable under this Subsection 5(e)(ii) unless you execute and deliver to the Company, in a form acceptable to the Company and its counsel, a general release of claims against the Company (the “Release”), which Release is not revoked by you within any time period allowed for revocation under applicable law.  Such Release must be signed by you and any revocation period must have expired within sixty (60) days after the effective date of your termination of employment.  For the avoidance of doubt, you would need to be employed by the Company for 9 years in order to earn the maximum 12 months’ severance should be terminated without cause pursuant to this Section.

(f)   Termination by You with Notice .  In the event that you terminate your employment (resign), HSW International shall pay to you the Earned Amounts and shall have no further obligations to you.

 
 
 

5.   Non-Disclosure .

(a)   Proprietary Information .  By virtue of your employment with HSW International, you will have access to confidential, proprietary, and highly sensitive information relating to the business of the Company and which is a competitive asset of the Company (“ Proprietary Information ”).  Such Proprietary Information includes all information that relates to the business of the Company, which is or has been disclosed to you orally or in writing by the Company or obtained by virtue of work performed for the Company, is or was developed by the Company, and is not generally available to or known by individuals or entities within the industry in which the Company is or may become engaged or readily accessible by independent investigation.  The Proprietary Information sought to be protected includes, without limitation, information pertaining to:  (i) the identities of customers and clients with which or whom the Company does or seeks to do business, as well as the point of contact persons and decision-makers at these customers and clients, including their names, addresses, e-mail addresses and positions; (ii) the past or present purchasing history and the past and/or current job requirements of each past and/or existing customer and client; (iii) the volume of business and the nature of the business relationship between the Company and its customers and clients; (iv) the pricing of the Company’s products or services, including any deviations from its standard pricing for particular customers and clients; (v) the Company’s business plans and strategy; (vi) information regarding the Company’s employees, including their identities, skills, talents, knowledge, experience, and compensation; (vii) the Company’s financial results and business condition; and (viii) computer programs and software developed by the Company and tailored to the Company’s needs by its employees, independent contractors, or vendors; (ix) information relating to the Company’s vendors or other key suppliers; (x) any past or present merchandise or supply sources in the future; (xi) system designs, procedure manuals, automated data programs, reports, personnel procedures, and supply and service resources.  Proprietary Information may be contained on HSW International’s computer network, in computerized documents or files, or in any written or printed documents, including any written reports summarizing such information.

(b)   Non-Disclosure of Proprietary Information .  You acknowledge that HSW International’s Proprietary Information will be disclosed to you throughout your employment at the Company in order to enable you to perform your duties for the Company.  Finally, you acknowledge that the unauthorized disclosure of Proprietary Information could place the Company at a competitive disadvantage.  Consequently, during your employment and for a period of five (5) years thereafter, you agree not to use, publish, disclose or divulge, directly or indirectly, any Proprietary Information except in the performance of your duties to the Company.  You further agree not to make un-authorized copies of any Proprietary Information during your employment.

(c)   Survival of Your Obligations .  You understand and agree that your obligations under this Section shall survive the termination of this Letter Agreement and/or your employment with HSW International for a period of five years, except for Proprietary Information that constitutes trade secrets in which case the obligations of confidentiality shall continue in perpetuity.  You further understand and agree that your obligations under this Section are in addition to, and not in limitation or preemption of, all other obligations of confidentiality which you have to HSW International under general legal or equitable principles, or other policies implemented by the Company.

6.   Return of Company Property .

You acknowledge that all memoranda, notes, correspondence, databases, computer discs, computer files, computer equipment and/or accessories, pagers, telephones, passwords or pass codes, records, reports, manuals, books, papers, letters, CD-ROM diskettes, keys, Internet database access codes, client profile data, job orders, client and customer lists, contracts, software programs (including source code), information and records, drafts of instructions, guides and manuals, and other documentation (whether in draft or final form), and other sales, financial or technological information relating to the Company’s business, and any and all other documents containing Proprietary Information furnished to you by any representative of the Company or otherwise acquired or developed by you in connection with you association with the Company (collectively, “ Recipient Materials ”) shall at all times be the property of the Company.  Within forty-eight (48) hours of the termination of your employment for any reason, you will return to the Company any Recipient Materials (inclusive of any copies) that are in your possession, custody or control.
 
 
 
 

 
7.   Non-Compete and Non-Solicitation of Customers/Clients .

(a)   Access to Proprietary Information .  You acknowledge that the special relationship of trust and confidence between you, HSW International, and its clients and customers creates a high risk and opportunity for the misappropriation of the relationship and goodwill existing between HSW International and its clients and customers.  You further acknowledge and agree that it is fair and reasonable for HSW International to take steps to protect itself from the risk of such misappropriation.  You further acknowledge that, at the outset of your employment with HSW International and/or throughout your employment with the Company, you have been or will be provided with access to and informed of HSW International’s Proprietary Information, which will enable you to benefit from the Company’s goodwill and know-how.

(b)   Inevitable Disclosure .  You acknowledge that it would be inevitable in the performance of your duties as a director, officer, employee, investor, agent or executive of any person, association, entity, or company which competes with HSW International to disclose and/or use HSW International’s Proprietary Information, as well as to misappropriate HSW International’s goodwill and know-how, to or for the benefit of such other person, association, entity, or company.  You also acknowledge that, in exchange for the execution of the non-solicitation restriction set forth in Section 8(c), you have received substantial, valuable consideration.  You further acknowledge and agree that this consideration constitutes fair and adequate consideration for the execution of the non-solicitation restriction set forth in this Section 7.

(c)   Covenant Not to Compete .  You agree that during your employment with HSW International and, if terminated, for a period following employment that continues for the later of (i) so long as any Severance Payment is being made, or (ii) two months (the “ Restrictive Period ”), you shall not, without the prior written consent of the Board, directly or indirectly, on your own behalf or in the service of or on behalf of others, within the Territory, perform the same or substantially the same duties you performed for HSW International, on behalf of any business that competes with HSW International.  You and the Company acknowledge that the business of the Company is very broad in scope and that your duties are equally broad in scope because you are the Executive Vice President of Business Development and Strategy with overall business development and strategy responsibility for the entire business, which has a national focus.  Consequently, “ Territory ” means the United States of America.

(d)   Non-Solicitation of Customers .  Ancillary to the enforceable promises set forth in this Letter Agreement as well as to protect the vital interests described in this Letter Agreement, you agree that, while you are employed by HSW International and for the later of (i) so long as any Severance Payment is being made, or (ii) six months, you will not, without the prior written consent of HSW International, directly or indirectly, solicit any customer for the purpose of providing products or services that compete with products and services provided by the HSW International.  This restriction is limited to customers with whom you had material contact during your employment for the purpose of performing your job duties at the Company.  You also agree that, while you are employed by HSW International and for twelve months thereafter, you will not, without the prior written consent of HSW International, directly or indirectly, solicit any business partner of HSW International for the purpose of enticing that business partner to alter, limit or terminate its relationship with HSW International.  This restriction is limited to business partners with whom you had material contact during your employment for the purpose of performing your job duties at the Company.

(e)   Reasonable Restrictions .  You agree that the restrictions set forth above are ancillary to an otherwise enforceable agreement, are supported by independent valuable consideration, and that the limitations as to time, geographical area, and scope of activity to be restrained by this Section 7 are reasonable and acceptable, and do not impose any greater restraint than is reasonably necessary to protect the goodwill and other business interests of HSW International.  You agree that if, at some later date, a court of competent jurisdiction determines that the non-competition and/or the non-solicitation provisions set forth in this Section 7 do not meet the criteria set forth in applicable law, this Section 7 may be reformed by the court and enforced to the maximum extent permitted under applicable law.
 
 
 
 
 
(f)   Breach .  If you are found to have violated any of the provisions of this Section 7, you agree that the restrictive period of each covenant so violated shall be extended by a period of time equal to the period of such violation.  You understand that your obligations under this Section 7 shall survive the termination of your employment with the Company and shall not be assignable by you.

8.   Non-Solicitation of Employees and Executives .

You acknowledge that, as part of your employment or association with HSW International, you will become familiar with the capabilities, experiences, skill and desires of the Company’s employees, and in certain instances their salary and pay scale.  In order to protect the confidentiality of such information, as well as HSW International’s investment in and relationships with such employees, you agree that, for a period of 12 months following the termination of your employment with HSW International, whether such termination occurs at the insistence of you or the Company, you shall not directly or indirectly recruit or solicit employees of HSW International with whom you had contact for the purpose of performing your job duties.  This restriction is limited to recruiting or soliciting for the purpose of enticing the employee to end his or her relationship with HSW International.  Your obligations under this Section 8 shall survive the termination of this Letter Agreement and your employment with HSW International.

9.   Remedies .

You hereby acknowledge and agree that in the event that you violate any of the provisions set forth in Sections 5, 6, 7, or 8 of this Letter Agreement, HSW International will suffer immediate and irreparable harm which cannot be accurately calculated in monetary damages.  Consequently, you acknowledge and agree that the Company shall – without limitation to or waiver of any other relief available to the Company – be entitled to immediate injunctive relief, either by temporary or permanent injunction, to prevent such a violation.

10.   Notification of Prospective Employment .

Prior to accepting employment or an association with any third party which is engaged in a business competitive to the business conducted by HSW International or which, because of the nature of your proposed or potential position with the third party, may require you to use or disclose the Company’s Proprietary Information, you agree to notify such third party that you are bound by the terms of this Letter Agreement.  You also agree that the Company may, at any time while any of the non-disclosure or non-solicitation covenants contained in this Letter Agreement are in force, provide notice of the existence of this Letter Agreement to any third party with whom or which you propose to negotiate or are negotiating concerning employment or an association or to accept employment, or with whom or which you have accepted employment or an association, without any liability to you for any such notice.

11.   Inventions, Ideas/Patentable Inventions .

You agree to disclose, fully and promptly, and only to HSW International, all ideas, methods, plans, improvements or patentable inventions of any kind which are made or discovered, in whole or in part, by you during the performance of your job duties; that result from any aid, support, or assistance by HSW International; or that are created during your work time with HSW International.  In connection with any invention, discovery, concept or idea subject to the foregoing Sections, you will promptly execute a specific assignment of any title, shop-right or license to the Company, and, if requested to do so, will cooperate fully with the Company to secure a patent, shop-right, or license therefor in the United States and/or foreign countries.  However, nothing in this Letter Agreement shall require any assignment otherwise prohibited by law.  You further agree that any and all work product created or performed by you while you are working with or on behalf of the Company, is a “work for hire” under the terms of the United States Copyright Act, and shall be and remain the exclusive property of the Company.  You hereby assign any and all rights, title, and ownership interests that you may now have or hereafter acquire in or to such work product to HSW International.  In the event the Company is unable for any reason, after reasonable effort, to secure your
 
 
 
 
 
signature on any document needed in connection with the actions specified in the preceding paragraph, you hereby irrevocably designate and appoint the Company and its duly authorized officers and agents as your agent and attorney in fact, which appointment is coupled with an interest, to act for and in your behalf to execute, verify and file any such documents and to do all other lawfully permitted acts to further the purposes of the preceding paragraph with the same legal force and effect as if executed by you.  You hereby waive and quitclaim to the Company any and all claims, of any nature whatsoever, which you now or may hereafter have for infringement of any invention, discovery, concept or idea assigned hereunder to the Company.

12.   No Conflicting Obligations.

You hereby represent that, except as you have disclosed in writing to the Company, you are not bound by the terms of any agreement with any other party to refrain from using or disclosing any trade secret or confidential or proprietary information in the course of your employment with the Company or to refrain from competing, directly or indirectly, with the business of such previous employer or any other party. You hereby further represent that your performance of all the terms of this Letter Agreement and as an employee of the Company does not and shall not breach any agreement to keep in confidence proprietary information, knowledge or data acquired by you in confidence or in trust prior to your employment with the Company, and you will not disclose to the Company or induce the Company to use any confidential or proprietary information or material belonging to any third party.

13.   Successors; Binding Agreement .

 This Letter Agreement shall be binding upon, and insure to the benefit of, HSW International, you, and their respective successors, assigns, personal and legal representatives, executors, administrators, heirs, distributees, devisees, and legatees, as applicable.  Without limiting the generality of the foregoing, HSW International may assign this Letter Agreement to any successor of HSW International (or the same may remain with HSW International as a subsidiary of a larger institution), without your consent, with such assignee being required to perform the Company’s obligations hereunder.

14.   Complete Agreement; Survival .

This Letter Agreement sets forth the entire agreement among HSW International and you concerning the subject matter hereof, and supersedes all prior written or oral understandings of the parties.  Sections 5, 6, 7, 8, 9, 10 and 11 of this Letter Agreement shall survive the termination of Employee’s employment regardless of the party terminating the employment and regardless of the manner of such termination.

15.   Notice .

For purposes of this Letter Agreement, notices and all other communications provided for shall be in writing and shall be deemed to have been duly given when (i) delivered personally; (ii) sent by telecopy or similar electronic device and confirmed; (iii) delivered by overnight express; or (iv) sent by registered or certified mail, postage prepaid, addressed as follows:

If to you:
Carrie B. Ferman
225 West 12 th Street, 1F
New York, NY  10011

If to HSW International:

HSW International, Inc.
Six Concourse Parkway, Suite 1500
Atlanta, GA 30328
Attention: General Counsel

or to such other address as any party may have furnished to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt.
 
 
 
 

 
16.   Taxes.

The Company shall withhold such amounts from any compensation or other benefits payable to you under this Letter Agreement on account of payroll and other taxes as may be required by applicable law or regulation of any governmental authority. You hereby acknowledge and agree that you are responsible for the review with your own personal tax advisors the federal, state, local and foreign (if applicable) tax consequences of any grant or transactions contemplated by this Letter Agreement and you are relying solely on such advisors and not on any statements or representations of the Company or any of its agents with respect to any such tax consequences.  You (and not the Company) shall be responsible for your own tax liability that may arise as a result of any grants or transactions contemplated by this Letter Agreement.

17.   Miscellaneous .

No provision of this Letter Agreement may be modified, waived, or discharged unless such waiver, modification, or discharge is agreed to in writing signed by you and the Company.  No waiver by either party hereto of, or compliance with, any condition or provision of this Letter Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time.  No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not set forth expressly in this Letter Agreement.

18.   Governing Law .

This Letter Agreement is being made and is intended to be performed in the State of Georgia, and shall be governed, construed, interpreted, and enforced in accordance with the substantive laws of the State of Georgia.

19.   Counterparts .

This Letter Agreement may be executed in several counterparts, each of which shall be deemed to be an original, but all of which together will constitute one and the same agreement.

20.   Voluntary Agreement .

The parties acknowledge that each has had an opportunity to consult with an attorney or other counselor concerning the meaning, import, and legal significance of this Letter Agreement, and each has read this Letter Agreement, as signified by their respective signatures hereto, and each is voluntarily executing the same after, if sought, advice of counsel for the purposes and consideration herein expressed.

[ signatures follow on next page ]
 

 

 

 
 
 

To accept this offer, please sign and date this Letter Agreement in the space provided below and return it to me.  A second copy of the document has been provided for you to keep for your records.
 

 
Sincerely,
 

 

               ______________________________________________
HSW International, Inc.
 

 
I accept this offer of employment with HSW International, Inc. and agree to the terms and conditions outlined in this letter.
 

 

 
________________________                                ________________________________                                                               
 
By:   Carrie Ferman                                                                 Date
 

Exhibit 10.42

SEPARATION AND RELEASE AGREEMENT

This SEPARATION AND RELEASE AGREEMENT (the “Agreement”) is made as of the date last written on the signature page hereof by and between Gregory Swayne, a citizen and resident of Atlanta, Georgia (hereinafter referred to as “Executive”), and, HSW International, Inc., a Delaware corporation with its principal place of business in Atlanta, Georgia (the “Company”).  (The Company and Executive are sometimes collectively referred to hereinafter as the “Parties.”)

WHEREAS, Executive has been employed by the Company as its Chief Executive Officer and Chairman of the Board; and

WHEREAS, Executive has tendered his resignation to the Company, which the Company has accepted; and

WHEREAS, in exchange for the consideration provided for herein, to which Executive would not have been otherwise entitled, the parties are willing to agree to the terms and conditions of this Agreement.

NOW, THEREFORE, in consideration of the foregoing, the mutual promises herein contained, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, hereby agree as follows.

1.            Termination; Notice .

(a)           Effective as of December 14, 2011 (the “Termination Date”), Executive has resigned from Executive’s employment as Chief Executive Officer and Chairman of the Board, and the Company has accepted Executive’s resignation.  Executive will continue as a member of the Company’s Board of Directors and is standing for reelection to the Board of Directors at the Company’s Annual Meeting of Stockholders on December 30, 2011.  If reelected to the Board on December 30, 2011, Executive would be compensated in accordance with the then-effective Director Compensation established for members of the Company’s Board of Directors.  Except as set out in this Agreement, as provided by the specific terms of a benefit plan or as required by law, as of the Termination Date, all of Executive’s employee benefits with the Company will be terminated.  Executive also hereby represents that Executive has returned to the Company all Company-owned materials, other than the laptop computer and Blackberry handset presently requisitioned to Executive, which Executive may retain.  The Company agrees to cooperate with Executive to transfer such Blackberry handset and its associated mobile phone number to Executive’s personal account for which continued service would be at Executive’s expense.  In addition, upon receipt of Executive’s final paycheck from the Company, Executive agrees and acknowledges that Executive will have been paid by the Company for all of the time that Executive worked for the Company through the Termination Date.

2.            Separation Pay .  If Executive signs this Agreement and does not revoke Executive’s acceptance as provided in Section 8 below, the Company will extend the termination date of those stock options awarded pursuant to Award Number 4 on November 5, 2009, Award Number 5 on September 21, 2010, and Award Number Six on February 25, 2011, (as further summarized below) which vested during Executive’s employment, for a period of two years from the date on which Executive ceases to be a member of the Company’s Board of Directors (the “Separation Pay”).  The maximum termination date for the stock options above shall not exceed the Expiration Date set forth for such option in its Award.  All Option Grants 1 – 6 are attached as Exhibit “A”

Award Number                                  Award Date                        Shares Vested                                             Strike Price
4                            November 5, 2009                                           30,000                                          $3.90
5                            September 21, 2010                                         15,000                                          $6.06
6                            February 25, 2011                                            21,575                                          $2.88

 
 
 
 
Additionally as a component of the Separation Pay, Executive and Company agree to simultaneously enter into a Consulting Agreement mutually satisfactory to the parties which shall include the terms of the Executive providing certain consulting services through June 30, 2012, in exchange for payment by the Company of $100,000.  Executive agrees to cooperate with and perform such duties as may be reasonably requested of Executive from time to time by the Company to assist with the Company’s transition of principal executive officers.

If Executive does not sign this Agreement and return it to the Company within twenty one (21) days, or if Executive signs this Agreement and revokes it, Executive will not be entitled to receive the Separation Pay described above.

3.            Release of Claims .  In exchange for the Company’s providing Executive with the Separation Pay described in Section 2, above, by signing this Agreement, Executive releases and forever discharges the Company, as well as its parent companies, affiliates, subsidiaries, divisions, officers, directors, stockholders, employees, agents, representatives, attorneys, lessors, lessees, licensors and licensees, and their respective successors, assigns, heirs, executors and administrators (collectively, the “the Company Parties”), from any and all claims, demands, and causes of action of every kind and nature, whether known or unknown, direct or indirect, accrued, contingent or potential, which Executive ever had or now has, including but not limited to any claims arising out of or related to Executive’s employment with the Company and the termination thereof (except and to the extent that such a release is expressly prohibited or made void by law).  The release includes, without limitation, Executive’s release of the Company Parties from any claims by Executive for lost wages or benefits, stock options, compensatory damages, punitive damages, attorneys’ fees and costs, equitable relief or any other form of damages or relief.  In addition, this release is meant to release the Company Parties from all common law claims, including claims in contract or tort, including, without limitation, claims for breach of contract, wrongful or constructive discharge, intentional or negligent infliction of emotional distress, misrepresentation, tortious interference with contract or prospective economic advantage, invasion of privacy, defamation, negligence or breach of any covenant of good faith and fair dealing.  Executive also specifically and forever releases the Company Parties (except and to the extent that such a release is expressly prohibited or made void by law) from any claims based on unlawful employment discrimination or harassment, including the Federal Age Discrimination in Employment Act (29 U.S.C. § 621 et   seq .).

By signing this Agreement, Executive agrees and acknowledges that Executive has no cause to believe there has been any violation of any local, state, or federal law that has occurred with respect to Executive’s employment or separation of employment from the Company.  Executive acknowledges that this release applies both to known and unknown claims that may exist between Executive and the Company and the Company Parties.  Executive expressly waives and relinquishes all rights and benefits which Executive may have under any state or federal statute or common law principle that would otherwise limit the effect of this Agreement to claims known or suspected prior to the date Executive executes this Agreement, and does so understanding and acknowledging the significance and consequences of such specific waiver.  Provided, however, that nothing in this Agreement extinguishes any claims Executive may have against the Company for breach of this Agreement.  The foregoing does not limit Executive’s right to indemnity by the Company pursuant to the obligations set forth in written agreements such as the Company’s Certificate of Incorporation.

In exchange for the Executive’s execution of this Agreement and his continued cooperation with the Company as provided above, the Company releases and forever discharges Executive, as well as his legal representatives, successors, assigns, heirs, executors and administrators (collectively, “the Executive Parties”), from any and all claims, demands, and causes of action of every kind and nature, whether known or unknown, direct or indirect, accrued, contingent or potential, which the Company ever had or now has, including but not limited to any claims arising out of or related to Executive’s employment with the Company and the termination thereof (except and to the extent that such a release is expressly prohibited or made void by law).  The release includes, without limitation, the Company’s release of Executive from any claims by the Company for compensatory damages, punitive damages, attorneys’ fees and costs, equitable relief or any other form of damages or relief.  In addition, this release is meant to release Executive from all common law claims, including claims in contract or tort, including, without limitation, claims for breach of contract, misrepresentation, tortious interference with contract or prospective economic advantage, defamation, negligence or breach of any covenant of good faith and fair dealing.  Notwithstanding the foregoing, the release of claims against Executive by the Company contained in this Section 3, shall not apply in any respect to any claims the Company may assert against Executive based in fraud, for embezzlement or arising from a violation of criminal law by Executive (the “Reserved Claims.”)
 
 
 
 
 
By signing this Agreement, the Company agrees and acknowledges that the Company has no cause to believe there has been any violation of any local, state, or federal law that has occurred with respect to Executive’s employment or separation of employment from the Company.  The Company acknowledges that this release applies both to known and unknown claims that may exist between the Company and Executive (excepting the Reserved Claims).  The Company expressly waives and relinquishes all rights and benefits which the Company may have under any state or federal statute or common law principle that would otherwise limit the effect of this Agreement to claims known or suspected prior to the date the Company executes this Agreement, and does so understanding and acknowledging the significance and consequences of such specific waiver.  Provided, however, that nothing in this Agreement extinguishes any claims the Company may have against Executive for breach of this Agreement.

4.            No Admissions .  The Parties hereby acknowledge and agree that the releases set out above in Section 3 of this Agreement constitute a final compromise of any potential claims by one Party against the other in connection with Executive’s employment by the Company (excepting the Reserved Claims), and is not an admission by any Party that any such claims exist or that any Party is liable for any such claims.  Unless prohibited by applicable law or regulation, the Parties further agree not to hereafter, directly or indirectly, sue, assist in or be a voluntary party to any litigation against the other Party for any claims relating to events occurring prior to or simultaneously with the execution of this Agreement, including but not limited to Executive’s termination of employment with the Company (excepting the Reserved Claims).

Notwithstanding the foregoing, nothing in this Agreement prohibits Executive from filing a charge with, or participating in any investigation or proceeding conducted by, the U.S. Equal Employment Opportunity Commission or a comparable state or federal fair employment practices agency; provided, however, that this Agreement fully and finally resolves all monetary matters between Executive and the Company and the Company Parties, and by signing this Agreement, Executive is waiving any right to monetary damages, attorneys’ fees and/or costs related to or arising from any such charge, complaint or lawsuit filed by Executive or on Executive’s behalf, individually or collectively.

5.            Confidentiality; Cooperation .

(a)            Confidentiality .  Executive hereby represents and agrees that Executive has not and will not (except as required by law) disclose information regarding the specific terms of this Agreement, and particularly the amount or nature of Executive’s Separation Pay, to anyone except Executive’s immediate family, Executive’s attorney and accountant or financial advisor as reasonably necessary.

(b)            Cooperation .  Executive hereby agrees that he will cooperate with and assist the Company in any dispute, grievance, investigation, litigation or administrative claim involving any matters relating to the period of time that Executive was employed by the Company.

(c)            Board Seat .  Notwithstanding Executive’s resignation as an employee of the Company, Executive shall remain a member of the Company’s Board of Directors (the “Board”) until such time as the next meeting at which the election of directors shall take place.

6.            Relief and Enforcement .  Executive understands and agrees that any breach of this Agreement by Executive will relieve the Company of its obligation to provide any unpaid Separation Pay as set out in Section 2, above.  Executive also understands and agrees that if Executive violates the terms of Section 5 of this Agreement, Executive will cause injury to the Company and/or one or more of the Company Parties) that will be difficult to quantify or repair, so that the Company (and/or the Company Parties) will have no adequate remedy at law.  Accordingly, Executive agrees that if Executive violates Section 5 of this Agreement, the Company (or the Company Parties) will be entitled as a matter of right to obtain an injunction from a court of law, restraining Executive from any further violation of this Agreement.  The right to an injunction is in addition to and not in lieu of any other remedies that the Company (or the Company Parties) has at law or in equity.

7.            No Modifications; Governing Law; Entire Agreement .  This Agreement cannot be changed or terminated orally, and no modification or waiver of any of the provisions of this Agreement is effective unless in writing and signed by all of the parties hereto.  The parties agree that this Agreement is to be governed by and construed in accordance with the laws of the State of Georgia, and that any suit, action or charge arising out of or relating to this Agreement will be adjudicated in the state or federal courts in Fulton County, Georgia.  This Agreement sets forth the entire and fully integrated understanding between the parties, and there are no representations, warranties, covenants or understandings, oral or otherwise, that are not expressly set out herein.
 
 
 
 
 
8.            Right to Revoke .  ONCE SIGNED BY EXECUTIVE, THIS AGREEMENT IS REVOCABLE IN WRITING FOR A PERIOD OF SEVEN (7) DAYS (THE “REVOCATION PERIOD”).  IN ORDER TO REVOKE EXECUTIVE’S ACCEPTANCE OF THIS AGREEMENT, EXECUTIVE MUST DELIVER WRITTEN NOTICE TO THE COMPANY CARE OF BRADLEY T. ZIMMER, AND SUCH WRITTEN NOTICE MUST ACTUALLY BE RECEIVED WITH THE SEVEN (7) DAY REVOCATION PERIOD.

9.            Voluntary Execution .  By signing below, Executive acknowledges that Executive has read this Agreement, that Executive understands its contents and that Executive has relied upon or had the opportunity to seek the legal advice of Executive’s attorney, who is the attorney of Executive’s own choosing.  Executive further acknowledges and agrees that the Company advised Executive in writing to consult with any attorney before executing this Agreement.

10.            Due Authority .  The Company has full authority necessary to enter into this Agreement, and such has been approved by the Board of Directors of the Company or a committee thereof in which sufficient authority is vested.

11.            Miscellaneous .

(a)           Should any portion, term or provision of this Agreement be declared or determined by any court to be illegal, invalid or unenforceable, the validity or the remaining portions, terms and provisions shall not be affected thereby, and the illegal, invalid or unenforceable portion, term or provision shall be deemed not to be part of this Agreement.

(b)           The Parties agree that the failure of a party at any time to require performance of any provision of this Agreement shall not affect, diminish, obviate or void in any way the party’s full right or ability to require performance of the same or any other provision of this Agreement at any time thereafter.

(c)           This Agreement shall inure to the benefit of and shall be binding upon Executive, Executive’s heirs, administrators, representatives, executors, successors and assigns and upon the successors and assigns of the Company.

(d)           The headings of the paragraphs of this Agreement are for convenience only and are not binding on any interpretation of this Agreement.  This Agreement may be executed in counterparts.

EXECUTIVE HEREBY ACKNOWLEDGES THAT EXECUTIVE HAS BEEN GIVEN A PERIOD OF AT LEAST TWENTY-ONE (21) DAYS TO CONSIDER WHETHER TO EXECUTE THIS AGREEMENT, WHICH EXECUTIVE MAY WAIVE BY SIGNING AT ANY TIME PRIOR TO THE EXPIRATION OF THE 21 DAY CONSIDERATION PERIOD.  EXECUTIVE ALSO ACKNOWLEDGES THAT EXECUTIVE WAS ADVISED BY THE COMPANY IN WRITING TO CONSULT WITH AN ATTORNEY BEFORE SIGNING THIS AGREEMENT .

[ The next page is the signature page. ]

 
 
 

EMPLOYEE:


/s/ Gregory Swayne                                                                 (SEAL)
(Signature)


Gregory Swayne

Date:            January 24, 2012                                                       



THE COMPANY:

HSW INTERNATIONAL, INC.


By:            /s/ Bradley T. Zimmer                                                                 

Name:                       Bradley T. Zimmer                                                       

Title:            General Counsel                                                       

Date:            January 24, 2012                                                       

 
 
 

INDEPENDENT CONTRACTOR AGREEMENT


THIS INDEPENDENT CONTRACTOR AGREEMENT (this “ Agreement ”), effective December 15, 2011, by and between HSW International, Inc. having an address at Six Concourse Parkway, Suite 1500, Atlanta, Georgia 30328 (hereinafter “ HSW ”) and Greg Swayne, having an address at 760 Lake Mist Cove, Alpharetta, GA  30004 (collectively and hereinafter “ Contractor ”).

For good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Parties mutually agree to enter into a Consulting Agreement as follows:

1.   Services .  Contractor will provide the consulting services (“ Services ”) to HSW as described on Exhibit A attached hereto.  During the term hereof, Contractor will, in Contractor’s reasonable discretion, agree to provide services requested by HSW in addition to those specifically described on Exhibit A (“ Additional Services ”).

2.   Term of Agreement .  The term of this Agreement (the “ Term ”) shall commence on the effective date set forth above, and, unless otherwise terminated as provided herein, shall continue until June 30, 2012.

3.   Fees, Expenses and Payment .  In consideration for the Services:

(a)   HSW shall pay Contractor the fee (“ Fee ”) of one hundred thousand dollars ($100,000) during the Term, divided into equal amounts payable over a six month period commencing as of January 1, 2012, in accordance with the HSW’s standard pay practices. Additionally, upon signing, HSW shall pay Contractor a lump sum of $4528.38, which is equal to the amount of Contractor’s COBRA premiums from January 1, 2012 thru June 30, 2012. Contactor will be responsible for electing COBRA and paying all COBRA Premiums directly to HSW’s insurance provider. As a condition to HSW’s obligation to make payments hereunder to Contractor, Contractor must have a completed and accurate W-9 (for US-based Contractors) on file with HSW or a completed and accurate W-8 (for non-US-based Contractors) on file with HSW.

(b)   HSW shall not be liable to Contractor for any expenses paid or incurred by Contractor unless otherwise agreed to and approved in advance in writing by HSW (the “ Expenses ”). Any such Expenses shall be in connection with this Agreement and fully conform with HSW’s then-current policies, as communicated from time to time.

(c)   Contractor will invoice HSW for Expenses, which shall be due and payable within thirty (30) days of receipt of an invoice from Contractor.  Contractor will include these expenses in a monthly invoice, and shall include supporting documentation for such expenses.

(d)   Payroll taxes, including federal, state and local taxes, shall not be withheld or paid by HSW on behalf of Contractor. Contractor shall not be treated as an employee for federal or state tax purposes with respect to the services performed under this agreement. Contractor shall be responsible to pay all taxes as mandated by law.

4.   Performance .  Contractor shall personally perform Contractor’s obligations hereunder in a workmanlike and professional manner, and shall not employ or utilize any other persons for the performance of such.  Any materials provided to HSW by Contractor hereunder shall be Contractor’s original work, unencumbered by any third parties, unless expressly authorized in writing by HSW on a case-by-case basis.  Contractor agrees to cooperate with HSW on any matters related to the performance of services hereunder.

5.   Indemnification . Contractor agrees to indemnify and hold harmless HSW and its directors, officers, agents and employees from and against any claims, liabilities, losses, damages, proceedings or actions (whether pending or threatened) related to or arising out of the Services.  HSW shall give reasonable notice to the other of any such claim, loss, action, damage, expense or other liability.  HSW agrees to indemnify and hold harmless Contractor and its directors, officers, agents and employees from and against any claims, liabilities, losses, damages, proceedings or actions (whether pending or threatened) arising out of any materials provided by HSW to Contractor and incorporated by Contractor into a public disclosure approved by HSW.  This Section 5 shall survive the termination of this Agreement.
 
 
 
 
 
6.   Notices .  All notices required by either Party under this Agreement shall be in writing, and shall be deemed to have been given on the date such noticed is presented personally, or transmitted by facsimile (receipt confirmed), two (2) business days after delivery by a nationally recognized courier service, or three (3) days after mailed registered or certified, return receipt requested, to the other Party at the following address , or such other address as a Party may designate by notice to the other Party:

If to HSW:                                HSW International, Inc.
Attn: Legal Department
Six Concourse Parkway, Suite 1500
Atlanta, Georgia 30328

If to Contractor:                                Greg Swayne
­­­­­­­760 Lake Mist Cove
Alpharetta, GA  30004


7.   Ownership of Materials .

(a)   Contractor covenants and agrees that all of Contractor’s Work Product (as defined below) for HSW, and all of the ideas and other intellectual property contained therein, shall be the sole and exclusive property of HSW and HSW shall maintain all worldwide right, title and interest therein. Contractor agrees (without further compensation) to execute any applications, agreements and instruments (including any assignment agreements and instruments) and to do all other things reasonably requested by HSW, at HSW’s expense (both during and after the Term of this Agreement) in order to vest more fully in HSW all worldwide ownership rights in such Work Product, including, without limitation, United States and foreign patent or other proprietary rights and copyrights. For purposes hereof, "Work Product" shall mean all works of authorship created, conceived or developed by Contractor in the performance of Contractor’s consulting duties.

(b)   If any one or more of the Work Product are protectible by copyright and are deemed in any way to fall within the definition of "work made for hire," as such term is defined in 17 U.S.C. § 101, such work shall be considered a "work made for hire," the copyright of which shall be owned solely, completely and exclusively by HSW. If any one or more of the aforementioned items are protectible by copyright and are not considered to be included in the categories of works covered by the "work made for hire" definition contained in 17 U.S.C. § 101, such items shall be deemed to be assigned and transferred by Contractor completely and exclusively to HSW by virtue of the execution of this Agreement.

(c)   Contractor hereby waives any and all claims that Contractor may have in any jurisdiction to “moral rights” or rights of “droit moral” with respect to the Work Product and acknowledges, confirms and agrees that HSW, without the necessity of any further consideration or action on the part of HSW or Contractor, shall have the right to make (or have others on HSW’s behalf make) enhancements and derivative works of the same and that HSW or its designee shall own all worldwide right, title and interest in and to all such enhancements and derivative works.

(d)   Upon completion or termination of this Agreement, Contractor agrees to return to HSW all lists, books, records, company property, and Confidential Information obtained in connection with HSW’s business, and any copies made thereof.

8.   Arbitration .  If any dispute arises under this Agreement that is not settled promptly in the ordinary course of business, the Parties shall seek to resolve any such dispute between them; first, by negotiating promptly with each other in face-to-face negotiations.  Any controversy or claim arising out of or relating to the interpretation, enforcement or breach of this Agreement or relating to the Services (other than actions for injunction or other equitable relief) that cannot be resolved within fifteen (15) business days (or such period as the Parties shall otherwise agree) through face-to-face negotiations shall be resolved by binding arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association.  Arbitration shall be by a single arbitrator experienced in the matters at issue and selected by the Parties in accordance with the Commercial Arbitration Rules of the American Arbitration Association.  The arbitration shall only be held in Atlanta, Georgia.  The decision of the arbitrator shall be final and binding and may be enforced in any court having jurisdiction over the subject matter or either of the Parties.  The arbitrator shall determine to what extent each of the Parties shall bear the costs and expenses incurred in connection with any such arbitration proceeding (including reasonable attorneys’ fees and expenses) on the basis of the arbitrator’s assessment of the relative merits of the Parties’ positions.

 
 
 
 
9.   Relationship of the Parties .  Contractor is and shall be treated as an independent contractor, and nothing herein shall be deemed to cause this Agreement to create an agency, partnership, or joint venture between the Parties.  Nothing in this Agreement shall be interpreted or construed as creating or establishing the relationship of employer and employee between HSW and either Contractor or any employee, contractor or agent of Contractor.  Contractor has no authority to enter into contracts on behalf of HSW or its affiliates or its subsidiaries.  As an independent contractor, Contractor shall be solely liable for tax consequences of this Agreement and the payments hereunder and shall indemnify HSW from any claims for taxes related to the compensation hereunder as further provided in paragraph 3. Contractor agrees not to act, or assist any other party in acting, adverse to the interests of HSW.

10.   Assignment .  Upon advance written notice HSW may assign this Agreement in its entirety to a parent, subsidiary or successor in interest to the business of the Party, provided such assignee is able to and does fulfill the obligations of the assignor.  Notwithstanding any such assignment, the assignor shall remain primarily liable to the other Party for the assignee’s performance under this Agreement.  This Agreement may not be otherwise assigned or transferred.

11.   Termination .  This Agreement may be terminated by Contractor at any time upon written notice to HSW.  HSW shall not have the right to terminate this Agreement prior to the expiration of the Term.  If this Agreement is otherwise terminated by HSW prior to the expiration of the Term, HSW’s obligations to pay the Fee to Contractor shall survive the termination.  All representations, warranties, covenants and agreements contained in this Agreement shall survive the termination of this Agreement.

12.   Confidential Information .  The terms set forth on Exhibit B, entitled “ Confidential Information ,” are incorporated herein by this reference.  Without limiting such Exhibit B, each of the parties hereto agrees that it will not, without the written consent of the other party in each instance, (i) use in advertising, publicity or otherwise (including, without limitation, on the Internet) the other party’s name, domain name, any trademark, trade name, symbol or any abbreviation or contraction thereof owned by or referring to that party; or (ii) represent, directly or indirectly, that any product or service offered by the party has been approved or endorsed by the other party.

13.   Covenant Not To Compete .  During the Term of this Agreement, Contractor will not engage directly or indirectly an employee, consultant, manager, proprietor or solicitor for himself or others in a similar or competitive business which it is here contracted by HSW to do and perform, in any city or state where or within which it shall have worked for HSW under this Agreement.

14.   Non-Solicitation/Public Comments . Contractor agrees that during the term of this Agreement and for six months after the termination or expiration of this Agreement, Contractor shall not:

(a)   Solicit for employment and then employ any employee of HSW or any of its affiliates or subsidiaries;

(b)   Make any public statement concerning HSW, any of its affiliates or subsidiaries, employees, officers and directors unless such statement is previously approved by an officer of HSW, except as required by law;

(c)   Disparage HSW and its affiliated entities, or its and/or their owners, officers, directors, members, employees or agents, or its and/or their business, policies, practices or services, in any way whatsoever.

 
 
 
 
(d)   Induce, attempt to induce or knowingly encourage any Customer of HSW or any of its affiliates or subsidiaries to divert any business or income from HSW or its affiliates or subsidiaries or to stop or alter the manner in which they are then doing business with HSW or any of its affiliates or subsidiaries. “Customer” shall mean any individual or entity that was or is a customer or client or whose business was actively solicited by HSW or its affiliates or subsidiaries at any time, regardless of whether such Customer was generated, in whole or in part, by Contractor’s efforts.

15.   Entire Agreement .  These terms and conditions herein, including any Exhibits attached hereto, constitute the entire agreement between the Parties with respect to the subject matter hereof; all prior agreements, representations, statements, negotiations and undertakings, whether written or oral, are superseded hereby.  This agreement may be supplemented, amended or revised only by a writing that is signed by each of the parties.

16.   Governing Law/Jurisdiction and Venue .  This Agreement shall be exclusively governed by and construed under the laws of the State of Georgia, without regard to its conflict of laws provisions and the doctrine of forum non-conveniens.  For any and all disputes between the parties involving, directly or indirectly, any matter arising under or in any way connected with this agreement including the breach thereof shall be brought in the exclusive jurisdiction and venue of the Atlanta, Fulton County, Georgia. Contractor submits to the exclusive jurisdiction of the Courts in Fulton County, Georgia.

17.   Approval Signatures .  Signature by authorized representatives of the respective Parties listed below constitutes acceptance of and notice to proceed with the performance and provision of the Services specified on Exhibit A .  No additional work relating to any other project or engagement, or any other part or phase of the Project than that described in this Agreement, shall be authorized without the express written agreement of both Parties hereto.

18.   Non Waiver .  The failure of either party to this agreement to exercise any of its rights under this agreement at any time does not constitute a breach of this agreement and shall not be deemed to be a waiver of such rights or a waiver of any subsequent breach.

19.   Compliance With Laws .  Contractor represents that he has complied and will continue to comply with all relevant federal, state and local laws and regulations.

20.   Severability .  If any part of this agreement is held to be unenforceable, the rest of this agreement shall nevertheless remain in full force and effect.



IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed by their duly authorized representatives.

CONTRACTOR:
HSW:

Gregory Swayne
HSW International, Inc.


By:   /s/ Gregory Swayne                                                        By:   /s/ Bradley T. Zimmer                                                                 

Name:  Gregory Swayne                                                                           Name:  Bradley T. Zimmer

Title:  General Counsel

Date:  January 23, 2012                                                                           Date:  January 23, 2012

 
 
 

EXHIBIT A

Consulting Services


Contractor will provide the following Services to HSW.

1.  
Assist with HSW’s corporate development efforts; not to exceed a reasonable number of hours per month, and,
2.  
Assist with HSW’s oversight and management of its investments, including its interests in BoWenWang, ComoTudoFunciona and Sharecare, not to exceed a reasonable number of hours per month.
3.  
Should HSW require more than eight hours of Services per month, the parties will agree on mutually satisfactory compensation for such.

 
 
 

EXHIBIT B

Confidential Information

During the course of this relationship, it may be necessary or convenient for HSW to divulge Confidential Information (as herein defined) to Contractor. If Confidential Information is disclosed by HSW to Contractor, including any such disclosed prior to the effective date of this Agreement, then the following shall apply.

1.  
The term “ Confidential Information ” means all non-public information that: (i) HSW designates as being confidential information in connection with the disclosure of such information; or (ii) are of a sensitive or proprietary nature, including without limitation negotiations in progress, terms of agreements, financial data, customer lists, advertising, marketing and promotional plans, and business partner lists, including but not limited to trade secrets.

2.  
Confidential Information shall not include any information that (i) is at the time of disclosure or subsequently becomes publicly available without Contractor’s breach of any obligations owed to HSW pursuant to this agreement; (ii) becomes known to Contractor prior to HSW’s disclosure of such information to Contractor; (iii) becomes or became known to Contractor from a source other than HSW who to Contractor’s actual knowledge without any obligation of inquiry, obtained such information without a breach of an obligation of confidentiality owed to HSW; or (iv) is independently developed by Contractor.

3.  
Contractor shall retain in strict confidence all of HSW’s Confidential Information and to take reasonable security precautions, at least to the same extent as Contractor takes to protect Contractor’s own confidential information, to insure that all of Contractor’s and Contractor’s affiliates’ colleagues and employees hold in strict confidence and do not disclose to any third party any of HSW’s Confidential Information during the term of this agreement and for five years thereafter.  Notwithstanding the foregoing, Contractor shall maintain the confidentiality of any trade secrets in perpetuity.

4.  
If Contractor has any questions or uncertainties as to what constitutes Confidential Information, Contractor shall consult with an executive officer of HSW.

5.  
Notwithstanding the foregoing restrictions, Contractor may use and disclose any Confidential Information to the extent required by an order of any court or other governmental authority, but in each case only after HSW has been so notified and has had the opportunity, if possible, to seek and obtain reasonable protection for such information in connection with such disclosure.

6.  
All Confidential Information shall remain the exclusive property of HSW and no license or similar rights of any kind shall be or be deemed to have been created or implied by this Agreement.

7.  
The provisions of this Exhibit B shall survive and be enforceable beyond the termination or completion of this agreement.

8.  
Without limiting the remedies available to HSW, Contractor acknowledges that a breach of any of the covenants contained in this Exhibit B may result in material irreparable injury to HSW or any of its subsidiaries or affiliates for which there is no adequate remedy at law, that it will not be possible to measure damages for such injuries precisely and that, in the event of such a breach or threat thereof, HSW shall be entitled to obtain a temporary restraining order or a preliminary injunction or permanent injunction restraining Contractor from engaging in activities from engaging in activities prohibited by this Exhibit B or such other relief as may be required to specifically enforce any of the covenants contained herein.

Exhibit 10.43

AGREEMENT AND GENERAL RELEASE

Remark Media, Inc., its subsidiaries, divisions and affiliates (" Company ") and
Shawn Meredith , her heirs, executors, administrators, successors, and assigns (collectively referred to throughout this Agreement as " Employee "), agree that:

1.            Last Day of Employment . Employee's last day of employment with Company is December 31, 2011.

2.            Consideration . In consideration for signing this Agreement and General Release, Company agrees:

a.           to pay to Employee three months of salary at her normal rate of pay (which total amount is Fifty Thousand Dollars ($50,000)   minus any applicable taxes).

b.           to pay to Employee the cash equivalent of what the Company would otherwise pay for the Employee's current medical and dental benefits coverage utilizing COBRA through March 31, 2012, which is an amount equal to $2294.19.

3.            No Consideration Absent Execution of this Agreement . Employee understands and agrees that she would not receive the monies and/or benefits specified in paragraph "2" above, except for her execution of this Agreement and General Release and the fulfillment of the promises contained herein.

4.            General Release of All Claims . Employee knowingly and voluntarily releases and forever discharges Company, its parent corporation, affiliates, subsidiaries, divisions, predecessors, successors and assigns and the current and former Employees, attorneys, officers, directors and agents thereof both individually and in their official capacities (collectively referred to throughout the remainder of this Agreement as " Company "), of and from any and all claims, known and unknown, asserted or unasserted which the Employee has or may have against Company as of the date of execution of this Agreement and General Release, including, but not limited to, any alleged violation of:

§   Title VII of the Civil Rights Act of 1964;

§   Sections 1981 through 1988 of Title 42 of the United States Code;

§   The Employee Retirement Income Security Act of 1974 ("ERISA") (except for any vested benefits under any tax qualified benefit plan);

§   The Immigration Reform and Control Act;

§   The Americans with Disabilities Act of 1990;

§   The Workers Adjustment and Retraining Notification Act;

§   The Fair Credit Reporting Act;

§   Any other federal, state or local law, rule, regulation, or ordinance;

§   Any public policy, contract, tort, or common law; or

§   Any basis for recovering costs, fees. or other expenses including attorneys' fees incurred in these matters.
 
 
 
 

 
In the event a regulatory agency, including, but not limited to the Equal Employment Opportunity Commission (“EEOC”), or any similar state or local human rights agency, files a petition or claim on Employee’s behalf, or attempts in any way to bring an action against the Company by alleging damages or injury sustained by Employee, Employee will request such agency, in writing, to withdraw such petition or claim.
Nothing herein is intended to or shall preclude Employee from filing a complaint and/or charge with any appropriate federal, state or local government agency and/or cooperating with said agencies in their investigation.

5.            Age Discrimination in Employment Act.   Employee hereby acknowledges and agrees that this Agreement and the termination of Employee’s employment are in compliance with the Age Discrimination in Employment Act and the Older Workers’ Benefits Protection Act and that the releases and waivers set forth in this Agreement shall be applicable, without limitation, to any claims brought under these Acts.  Employee further acknowledges and agrees that:

(a)           The release given by Employee in this Agreement is given solely in exchange for the consideration set forth in this Agreement and such consideration from the Company is in addition to anything of value that Employee was entitled to receive prior to entering into this Agreement;

(b)           By entering into this Agreement, Employee does not waive rights or claims that may arise after the effective date of this Agreement;

(c)           Employee has been advised to consult with an attorney prior to executing this Agreement, and this provision of this Agreement satisfies the requirement of the Age Discrimination in Employment Act and the Older Workers’ Benefit Protection Act that Employee be so advised to consult an attorney in writing; and

(d)            Employee has been offered twenty-one (21) days from receipt of this Agreement within which to consider this Agreement.

6.            Affirmations .

Employee affirms that she has not filed, caused to be filed, or presently is a party to, any claim against Company.

Employee affirms that she has reported all hours worked as of the date of this release and has been paid and/or has received all leave (paid or unpaid), compensation, wages, bonuses, commissions, vacation time/pay, and/or benefits to which she may be entitled. Employee further affirms that she has no known workplace injuries or occupational diseases.

Employee agrees that she shall not make, or cause to be made, any statement, or communicate any information (whether verbal or written) that disparages or reflect negatively on the Company and its owners, principals, and partners.  Nothing herein shall preclude Employee from complying with a subpoena or other lawful process.

For a period of twelve (12) months after Employee signs this Agreement, Employee will not, directly or indirectly, attempt in any manner to solicit or otherwise encourage any Employee of the Company with whom Employee had contact during Employee's employment with Company to leave the employ of the Company.

7.            Breach of Agreement . If Employee fails to perform any of the terms of this Agreement or violates any promises or covenant contained herein, Employee agrees to return immediately to the Company all consideration paid pursuant to this Agreement.  In addition, the Company shall retain its full rights available under law.

8.            Confidentiality and Return of Property . Employee agrees not to disclose any information regarding the existence or substance of this Agreement and General Release, except to his spouse, tax advisor, and an attorney with whom Employee chooses to consult regarding her consideration of this Agreement and General Release. Employee also affirms that she has not divulged any proprietary or confidential information of Company and will not divulge such information at anytime hereafter.
 
 
 
 

 
Employee affirms that, by Monday, January 2, 2012, she will return all of Company's property, documents (whether electronic or hardcopy), and any confidential information and trade secrets in his possession or control. Employee will not keep copies of any such documents or information. Employee also affirms that she is in possession of all of Employee's property that Employee had at Company's premises and that Company is not in possession of any of her property.  Notwithstanding the foregoing, Employee may retain the Lenovo ThinkPad laptop issued to her by the Company, and the mobile phone handset issued to her by the Company.

9.            Governing Law and Interpretation . This Agreement and General Release shall be governed and conformed in accordance with the laws of the state in which Employee worked at the time of her last day of employment without regard to its conflict of laws provision. In the event of a breach of any provision of this Agreement and General Release, either party may institute an action specifically to enforce any term or terms of this Agreement and General Release. Should any provision of this Agreement and General Release be declared illegal or unenforceable by any court of competent jurisdiction and cannot be modified to be enforceable, excluding the general release language, such provision shall immediately become null and void, leaving the remainder of this Agreement and General Release in full force and effect.

10.            Nonadmission of Wrongdoing . The Parties agree that neither this Agreement and General Release nor the furnishing of the consideration for this Agreement and General Release shall be deemed or construed at any time for any purpose as an admission or evidence of any liability or unlawful conduct of any kind.

11.            Amendment . This Agreement and General Release may not be modified, altered or changed except in writing and signed by both parties wherein specific reference is made to this Agreement and General Release.

12.            Entire Agreement . This Agreement and General Release sets forth the entire agreement between the parties hereto, and fully supersedes any prior agreements or understandings between the parties, except that any arbitration, noncompete, nonsolicit, nondisclosure or stock option agreement shall remain in full force and effect. Employee acknowledges that she has not relied on any representations, promises, or agreements of any kind made to her in connection with her decision to accept this Agreement and General Release, except for those set forth in this Agreement and General Release.

13.            Revocation . Employee may revoke this Agreement and General Release for a period of seven (7) calendar days following the day she executes this Agreement and General Release. Any revocation within this period must be submitted, in writing, to Bradley T. Zimmer, General Counsel, and state, "I hereby revoke my acceptance of our Agreement and General Release." The revocation must be personally delivered to Mr. Zimmer or his designee, or mailed to Mr. Zimmer’s attention at Remark Media International, Inc., 6 Concourse Parkway, Suite 1500, Atlanta, GA 30328 and postmarked within seven (7) calendar days of execution of this Agreement and General Release. This Agreement and General Release shall not become effective or enforceable until the revocation period has expired. If the last day of the revocation period is a Saturday. Sunday, or legal holiday in the state in which Employee was employed at the time of her last day of employment, then the revocation period shall not expire until the next following day which is not a Saturday, Sunday, or legal holiday.

EMPLOYEE IS HEREBY ADVISED THAT SHE HAS UP TO TWENTY-ONE (21) DAYS TO REVIEW THIS AGREEMENT AND GENERAL RELEASE AND TO CONSULT WITH AN ATTORNEY PRIOR TO EXECUTION OF THIS AGREEMENT AND GENERAL RELEASE.

EMPLOYEE FREELY AND KNOWINGLY, AND AFTER DUE CONSIDERATION, ENTERS INTO THIS AGREEMENT AND GENERAL RELEASE INTENDING TO WAIVE, SETTLE AND RELEASE ALL CLAIMS SHE HAS OR MIGHT HAVE AGAINST COMPANY.
 
 
 
 

 
The parties knowingly and voluntarily sign this Agreement and General Release as of the date(s) set forth below:

SHAWN MEREDITH                                                                                     REMARK MEDIA, INC.

By: ___________________________                                                                                     By: ___________________________
      Shawn Meredith                                                                                           Bradley T. Zimmer,
      General Counsel

Date: __________________________                                                                                     Date: __________________________


 
 
 



INDEPENDENT CONTRACTOR AGREEMENT


THIS INDEPENDENT CONTRACTOR AGREEMENT (this “ Agreement ”), effective January 1, 2012, by and between Remark Media, Inc. having an address at Six Concourse Parkway, Suite 1500, Atlanta, Georgia 30328 (hereinafter “ Remark Media ”) and Shawn Meredith, having an address at 4044 River Ridge Chase SE, Marietta, GA 30067 (collectively and hereinafter “ Contractor ”).

For good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Parties mutually agree to enter into a Consulting Agreement as follows:

1.   Services .  Contractor will provide the consulting services (“ Services ”) to Remark Media as described on Exhibit A attached hereto.  During the term hereof, Contractor will, in Contractor’s reasonable discretion, agree to provide services requested by Remark Media in addition to those specifically described on Exhibit A (“ Additional Services ”).

2.   Term of Agreement .  The term of this Agreement (the “ Term ”) shall commence on the effective date set forth above, and, unless otherwise terminated as provided herein, shall continue for three (3) months.

3.   Fees, Expenses and Payment .  In consideration for the Services:

(a)   Remark Media shall pay Contractor the fee (“ Fee ”) of one hundred dollars ($100) per hour of Services assigned by Remark Media during the Term. Payments will be made net 30 days in arrears upon completion of services and will be paid upon receipt of an invoice from Contractor.  The invoice will include an updated status report on Contractor’s consulting efforts. As a condition to Remark Media’s obligation to make payments hereunder to Contractor, Contractor must have a completed and accurate W-9 (for US-based Contractors) on file with Remark Media or a completed and accurate W-8 (for non-US-based Contractors) on file with Remark Media.

(b)   Remark Media shall not be liable to Contractor for any expenses paid or incurred by Contractor.

(c)   Payroll taxes, including federal, state and local taxes, shall not be withheld or paid by Remark Media on behalf of Contractor. Contractor shall not be treated as an employee for federal or state tax purposes with respect to the services performed under this agreement. Contractor shall be responsible to pay all taxes as mandated by law.

4.   Performance .  Contractor shall personally perform Contractor’s obligations hereunder in a workmanlike and professional manner, and shall not employ or utilize any other persons for the performance of such.  Any materials provided to Remark Media by Contractor hereunder shall be Contractor’s original work, unencumbered by any third parties, unless expressly authorized in writing by Remark Media on a case-by-case basis.  Contractor agrees to cooperate with Remark Media on any matters related to the performance of services hereunder.

5.   Indemnification . Contractor agrees to indemnify and hold harmless Remark Media and its directors, officers, agents and employees from and against any claims, liabilities, losses, damages, proceedings or actions (whether pending or threatened) related to or arising out of the Services.  Remark Media shall give reasonable notice to the other of any such claim, loss, action, damage, expense or other liability.  Remark Media agrees to indemnify and hold harmless Contractor and its directors, officers, agents and employees from and against any claims, liabilities, losses, damages, proceedings or actions (whether pending or threatened) arising out of any materials provided by Remark Media to Contractor and incorporated by Contractor into a public disclosure approved by Remark Media.  This Section 5 shall survive the termination of this Agreement.
 
 
 
 

 
6.   Notices .  All notices required by either Party under this Agreement shall be in writing, and shall be deemed to have been given on the date such noticed is presented personally, or transmitted by facsimile (receipt confirmed), two (2) business days after delivery by a nationally recognized courier service, or three (3) days after mailed registered or certified, return receipt requested, to the other Party at the following address , or such other address as a Party may designate by notice to the other Party:

If to Remark Media:                                           Remark Media, Inc.
Attn: Legal Department
Six Concourse Parkway, Suite 1500
Atlanta, Georgia 30328

If to Contractor:                                Shawn Meredith
­­­­­­­4044 River Ridge Chase SE
Marietta, GA 30067


7.   Ownership of Materials .

(a)   Contractor covenants and agrees that all of Contractor’s Work Product (as defined below) for Remark Media, and all of the ideas and other intellectual property contained therein, shall be the sole and exclusive property of Remark Media and Remark Media shall maintain all worldwide right, title and interest therein. Contractor agrees (without further compensation) to execute any applications, agreements and instruments (including any assignment agreements and instruments) and to do all other things reasonably requested by Remark Media, at Remark Media’s expense (both during and after the Term of this Agreement) in order to vest more fully in Remark Media all worldwide ownership rights in such Work Product, including, without limitation, United States and foreign patent or other proprietary rights and copyrights. For purposes hereof, "Work Product" shall mean all works of authorship created, conceived or developed by Contractor in the performance of Contractor’s consulting duties.

(b)   If any one or more of the Work Product are protectible by copyright and are deemed in any way to fall within the definition of "work made for hire," as such term is defined in 17 U.S.C. § 101, such work shall be considered a "work made for hire," the copyright of which shall be owned solely, completely and exclusively by Remark Media. If any one or more of the aforementioned items are protectible by copyright and are not considered to be included in the categories of works covered by the "work made for hire" definition contained in 17 U.S.C. § 101, such items shall be deemed to be assigned and transferred by Contractor completely and exclusively to Remark Media by virtue of the execution of this Agreement.

(c)   Contractor hereby waives any and all claims that Contractor may have in any jurisdiction to “moral rights” or rights of “droit moral” with respect to the Work Product and acknowledges, confirms and agrees that Remark Media, without the necessity of any further consideration or action on the part of Remark Media or Contractor, shall have the right to make (or have others on Remark Media’s behalf make) enhancements and derivative works of the same and that Remark Media or its designee shall own all worldwide right, title and interest in and to all such enhancements and derivative works.

(d)   Upon completion or termination of this Agreement, Contractor agrees to return to Remark Media all lists, books, records, company property, and Confidential Information obtained in connection with Remark Media’s business, and any copies made thereof.

8.   Arbitration .  If any dispute arises under this Agreement that is not settled promptly in the ordinary course of business, the Parties shall seek to resolve any such dispute between them; first, by negotiating promptly with each other in face-to-face negotiations.  Any controversy or claim arising out of or relating to the interpretation, enforcement or breach of this Agreement or relating to the Services (other than actions for injunction or other equitable relief) that cannot be resolved within fifteen (15) business days (or such period as the Parties shall otherwise agree) through face-to-face negotiations shall be resolved by binding arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association.  Arbitration shall be by a single arbitrator experienced in the matters at issue and selected by the Parties in accordance with the Commercial Arbitration Rules of the American Arbitration Association.  The arbitration shall only be held in Atlanta, Georgia.  The decision of the arbitrator shall be final and binding and may be enforced in any court having jurisdiction over the subject matter or either of the Parties.  The arbitrator shall determine to what extent each of the Parties shall bear the costs and expenses incurred in connection with any such arbitration proceeding (including reasonable attorneys’ fees and expenses) on the basis of the arbitrator’s assessment of the relative merits of the Parties’ positions.
 
 
 
 
 
9.   Relationship of the Parties .  Contractor is and shall be treated as an independent contractor, and nothing herein shall be deemed to cause this Agreement to create an agency, partnership, or joint venture between the Parties.  Nothing in this Agreement shall be interpreted or construed as creating or establishing the relationship of employer and employee between Remark Media and either Contractor or any employee, contractor or agent of Contractor.  Contractor has no authority to enter into contracts on behalf of Remark Media or its affiliates or its subsidiaries.  As an independent contractor, Contractor shall be solely liable for tax consequences of this Agreement and the payments hereunder and shall indemnify Remark Media from any claims for taxes related to the compensation hereunder as further provided in paragraph 3.

10.   Assignment .  Upon advance written notice Remark Media may assign this Agreement in its entirety to a parent, subsidiary or successor in interest to the business of the Party, provided such assignee is able to and does fulfill the obligations of the assignor.  Notwithstanding any such assignment, the assignor shall remain primarily liable to the other Party for the assignee’s performance under this Agreement.  This Agreement may not be otherwise assigned or transferred.

11.   Termination .  This Agreement may be terminated by either Party at any time. All representations, warranties, covenants and agreements contained in this Agreement shall survive the termination of this Agreement.

12.   Confidential Information .  The terms set forth on Exhibit B, entitled “ Confidential Information ,” are incorporated herein by this reference.  Without limiting such Exhibit B, each of the parties hereto agrees that it will not, without the written consent of the other party in each instance, (i) use in advertising, publicity or otherwise (including, without limitation, on the Internet) the other party’s name, domain name, any trademark, trade name, symbol or any abbreviation or contraction thereof owned by or referring to that party; or (ii) represent, directly or indirectly, that any product or service offered by the party has been approved or endorsed by the other party.

13.   Covenant Not To Compete .  During the Term of this Agreement and for a period of three (3) months after its termination or completion, Contractor will not engage directly or indirectly an employee, consultant, manager, proprietor or solicitor for herself or others in a similar or competitive business, defined as offering digital media goods or services consistent with those then-offered by Remark Media, which she is here contracted by Remark Media to do and perform, in any city or state where or within which she shall have worked for Remark Media under this Agreement.

14.   Non-Solicitation/Public Comments . Contractor agrees that during the term of this Agreement and for twelve months after the termination or expiration of this Agreement, Contractor shall not:

(a)   Solicit for employment and then employ any employee of Remark Media or any of its affiliates or subsidiaries;

(b)   Make any public statement concerning Remark Media, any of its affiliates or subsidiaries, employees, officers and directors unless such statement is previously approved by an officer of Remark Media, except as required by law;

(c)   Disparage Remark Media and its affiliated entities, or its and/or their owners, officers, directors, members, employees or agents, or its and/or their business, policies, practices or services, in any way whatsoever.

(d)   Induce, attempt to induce or knowingly encourage any Customer of Remark Media or any of its affiliates or subsidiaries to divert any business or income from Remark Media or its affiliates or subsidiaries or to stop or alter the manner in which they are then doing business with Remark Media or any of its affiliates or subsidiaries. “Customer” shall mean any individual or entity that was or is a customer or client or whose business was actively solicited by Remark Media or its affiliates or subsidiaries at any time, regardless of whether such Customer was generated, in whole or in part, by Contractor’s efforts.

 
15.   Entire Agreement .  These terms and conditions herein, including any Exhibits attached hereto, constitute the entire agreement between the Parties with respect to the subject matter hereof; all prior agreements, representations, statements, negotiations and undertakings, whether written or oral, are superseded hereby.  This agreement may be supplemented, amended or revised only by a writing that is signed by each of the parties.

16.   Governing Law/Jurisdiction and Venue .  This Agreement shall be exclusively governed by and construed under the laws of the State of Georgia, without regard to its conflict of laws provisions and the doctrine of forum non-conveniens.  For any and all disputes between the parties involving, directly or indirectly, any matter arising under or in any way connected with this agreement including the breach thereof shall be brought in the exclusive jurisdiction and venue of the Atlanta, Fulton County, Georgia. Contractor submits to the exclusive jurisdiction of the Courts in Fulton County, Georgia.

17.   Approval Signatures .  Signature by authorized representatives of the respective Parties listed below constitutes acceptance of and notice to proceed with the performance and provision of the Services specified on Exhibit A .  No additional work relating to any other project or engagement, or any other part or phase of the Project than that described in this Agreement, shall be authorized without the express written agreement of both Parties hereto.

18.   Non Waiver .  The failure of either party to this agreement to exercise any of its rights under this agreement at any time does not constitute a breach of this agreement and shall not be deemed to be a waiver of such rights or a waiver of any subsequent breach.

19.   Compliance With Laws .  Contractor represents that he has complied and will continue to comply with all relevant federal, state and local laws and regulations.

20.   Severability .  If any part of this agreement is held to be unenforceable, the rest of this agreement shall nevertheless remain in full force and effect.



IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed by their duly authorized representatives.

CONTRACTOR:
REMARK MEDIA:

Shawn Meredith
Remark Media, Inc.


By:                                                       By:                                                                

Name:  Shawn Meredith                                                                           Name:  Bradley T. Zimmer

Title:  General Counsel

Date:  January 23, 2012                                                                           Date:  January 23, 2012

 
 
 
EXHIBIT A
 
Consulting Services


Contractor will provide the following Services to Remark Media upon Remark Media’s request.  Each request will include a maximum number of hours for Contractor’s performance of such.

1.  
Provide accounting advice and assistance with Remark Media’s financial reporting

 
 
 

EXHIBIT B

Confidential Information

During the course of this relationship, it may be necessary or convenient for Remark Media to divulge Confidential Information (as herein defined) to Contractor. If Confidential Information is disclosed by Remark Media to Contractor, including any such disclosed prior to the effective date of this Agreement, then the following shall apply.

1.  
The term “ Confidential Information ” means all non-public information that: (i) Remark Media designates as being confidential information in connection with the disclosure of such information; or (ii) are of a sensitive or proprietary nature, including without limitation negotiations in progress, terms of agreements, financial data, customer lists, advertising, marketing and promotional plans, and business partner lists, including but not limited to trade secrets.

2.  
Confidential Information shall not include any information that (i) is at the time of disclosure or subsequently becomes publicly available without Contractor’s breach of any obligations owed to Remark Media pursuant to this agreement; (ii) becomes known to Contractor prior to Remark Media’s disclosure of such information to Contractor; (iii) becomes or became known to Contractor from a source other than Remark Media who to Contractor’s actual knowledge without any obligation of inquiry, obtained such information without a breach of an obligation of confidentiality owed to Remark Media; or (iv) is independently developed by Contractor.

3.  
Contractor shall retain in strict confidence all of Remark Media’s Confidential Information and to take reasonable security precautions, at least to the same extent as Contractor takes to protect Contractor’s own confidential information, to insure that all of Contractor’s and Contractor’s affiliates’ colleagues and employees hold in strict confidence and do not disclose to any third party any of Remark Media’s Confidential Information during the term of this agreement and for five years thereafter.  Notwithstanding the foregoing, Contractor shall maintain the confidentiality of any trade secrets in perpetuity.

4.  
If Contractor has any questions or uncertainties as to what constitutes Confidential Information, Contractor shall consult with an executive officer of Remark Media.

5.  
Notwithstanding the foregoing restrictions, Contractor may use and disclose any Confidential Information to the extent required by an order of any court or other governmental authority, but in each case only after Remark Media has been so notified and has had the opportunity, if possible, to seek and obtain reasonable protection for such information in connection with such disclosure.

6.  
All Confidential Information shall remain the exclusive property of Remark Media and no license or similar rights of any kind shall be or be deemed to have been created or implied by this Agreement.

7.  
The provisions of this Exhibit B shall survive and be enforceable beyond the termination or completion of this agreement.

8.  
Without limiting the remedies available to Remark Media, Contractor acknowledges that a breach of any of the covenants contained in this Exhibit B may result in material irreparable injury to Remark Media or any of its subsidiaries or affiliates for which there is no adequate remedy at law, that it will not be possible to measure damages for such injuries precisely and that, in the event of such a breach or threat thereof, Remark Media shall be entitled to obtain a temporary restraining order or a preliminary injunction or permanent injunction restraining Contractor from engaging in activities from engaging in activities prohibited by this Exhibit B or such other relief as may be required to specifically enforce any of the covenants contained herein.

Exhibit 21.1

Subsidiaries

Beijing Intac Meidi Advertising Co., Ltd.
BoNet (Beijing) Technology Limited Liability Company
Bowenwang Technology (Beijing) Limited Liability Company
HSW (HK) Inc. Limited
HSW Brasil – Technologia e Informacao Ltda.
HSWI (HK) Holding Limited
Intac International, Inc.
Remark Florida, Inc.
Exhibit 23.1

 

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


We hereby consent to the incorporation by reference in its Registration Statement on Form S-8 (Nos. 333-147149 and 333-168800) of Remark Media, Inc. (formerly HSW International, Inc.) of our report dated March 22, 2012 related to the financial statements and schedule as of December 31, 2011 and for the year then ended, included in this Annual Report on Form 10-K.


/s/ Cherry, Bekaert & Holland, L.L.P.

Atlanta, GA

March 22, 2012

Exhibit 23.2



 
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 333-147149 and 333-168800) of Remark Media, Inc. and subsidiaries (formerly HSW International, Inc.) of our report dated March 29, 2011 relating to the financial statements and financial statement schedule, which appears in this Form 10-K.
 
 
/s/ PricewaterhouseCoopers LLP
 
Atlanta, Georgia
 
March 22, 2012
Exhibit 31.1

Certification pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002

I, Carrie B. Ferman, certify that:

 
1.
I have reviewed this Annual Report on Form 10-K of Remark Media, Inc.;

 
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

 
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)  
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)  
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)  
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)  
Disclosed in this annual report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)  
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
 
b)  
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


Date: March 22, 2012
 
/s/ Carrie B. Ferman
 
Carrie B. Ferman
Chief Executive Officer, Principal Financial Officer and Principal Accounting Officer
A signed original of this written statement required by Section 302, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 302, has been provided to Remark Media and will be retained by Remark Media, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

 
Exhibit 32.1

Certification pursuant to Title 18 of the United States Code Section 1350,
as adopted pursuant to Section 906 of Sarbanes-Oxley Act of 2002

Pursuant to 18 U.S.C. Section 1350, each of the undersigned officers of Remark Media , Inc. (the “Company”) hereby certifies that the Company’s Annual Report on Form 10-K for the period ended December 31, 2011 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of, and for, the period presented in the Report.



   
March 22, 2012
     
       
By:
/ s/ Carrie B. Ferman
 
   
Carrie B. Ferman
   
Chief Executive Officer, Principal Financial Officer and Principal Accounting Officer

The foregoing certification is being furnished solely pursuant to 18 U.S.C. Section 1350 and is not being filed as part of the Report or as a separate disclosure document.  This certification shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 (“Exchange Act”) or otherwise subject to liability under that section.  This certification shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Exchange Act except to the extent this Exhibit 32 is expressly and specifically incorporated by reference in any such filing.

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Remark Media, Inc. and will be retained by Remark Media, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.