EXPLANATORY NOTE

Subsequent to filing its Quarterly Report on Form 10-Q for the period ended March 31, 2012 (the “Form 10-Q”) with the Securities and Exchange Commission (the “SEC”) on May 15, 2012, Remark Media, Inc. and subsidiaries (the “Company”), together with its auditors, determined that it should have used derivative liability accounting to account for the fair value of the warrants issued by the Company in its February 2012 equity financing (the “Equity Financing”) in recording the proceeds received from that transaction, due to the anti-dilution provision associated with the exercise price of the warrants. The Company previously recorded all of the proceeds from the Equity Financing as stockholders' equity. See Note 9 to the condensed financial statements included in this Amendment No. 1 for further information relating to the restatements.

As a result, to correct those non-cash accounting errors, the Company is filing this Amendment No. 1 to the Form 10-Q (“Amendment No. 1”) for the purpose of restating its condensed financial statements for the three months ended March 31, 2012 included in Part I, “Item 1. Financial Statements.” Conforming changes have been made to Part I, “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.” In addition, Part I, “Item 4. Controls and Procedures” has been revised to reflect management’s re-evaluation of the effectiveness of the Company’s disclosure controls and procedures as of March 31, 2012. Part II, “Item 2. Unregistered Sales of Equity Securities and Use of Proceeds” and “Item 6. Exhibits” have been amended to include the unregistered common shares and warrants issued in connection with the Equity Financing and the new certifications, as reflected in Exhibits 31.1, 32.1, respectively.

Items 1, 2 and 4 of Part I and Item 2 and Item 6 of Part II of the Form 10-Q are the only portions of the Form 10-Q being amended and restated by this Amendment No. 1. The Company has not modified or updated disclosures presented in the Form 10-Q, except to reflect the effects of the restatements. This Amendment No. 1 does not reflect events occurring after the original filing date of the Form 10-Q on May 15, 2012, and does not modify or update those disclosures affected by subsequent events, except as specifically referenced herein with respect to the restatements. Information not affected by the restatements is unchanged and reflects the disclosures made at the time of the original filing of the Form 10-Q. Accordingly, this Amendment No. 1 should be read in conjunction with the Form 10-Q and the Company’s filings with the SEC subsequent to the filing of the Form 10-Q on May 15, 2012.

TABLE OFOF CONTENTS

PART I – FINANCIAL INFORMATION INFORMATION

Item 1. Condensed Consolidated Financial Statements

REMARK MEDIA, INC. and SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(Expressed in U.S. Dollars)

1.  DESCRIPTION OF BUSINESS

Mission

Our mission is to provide uniquedigital experiences that deliver content and foster connections so engaging and dynamic as to inform, entertain and inspire the world. Our fundamentals for immersive digital media experiences across multiple verticals, with a focus oninclude: compelling content trusted brands,that fuels engagement, clean and valuable resources for consumers.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” or the “Company”) is a global digital media company incorporated in Delaware and headquartered in Atlanta, with additional operations in Las Vegas, Miami,New York, Beijing and São Paulo. The Company is comprised of two distinct and complementary segments: “Brands” and “Content and Platform Services”.

Remark Media is listed on The NASDAQ Capital Market.   Market and is currently in compliance with its listing standards.  The Company transferred its listing from The NASDAQ Global Market on May 31, 2011.

Pop Factory AcquisitionBrands

Our Brands segment consists of next-generation digital media properties that we develop, own and operate.  The segment presently includes our translated and localized editions of HowStuffWorks.com in China and Brazil, and our personal finance destination, “DimeSpring”. Additionally, the digital media businesses we acquire through the expected Banks.com Merger will become a part of our Brands segment. See “Banks.com Merger” below.

Content and Platform Services

Our 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. We also offer licensing of 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 brand-customer interactions.  Our prospective client base includes leading media and entertainment companies as well as Fortune 500 brands and boutique businesses. Engagements under the Content and Platform segment included the development and launch of the Dr. Oz website  (http://doctoroz.com) for Sharecare (http://www.sharecare.com) and the development and launch of Curiosity Online for Discovery Communications (http://www.curiosity.com).

Funding and Liquidity Considerations

On March 29, 2013, Remark Media acquired Pop Factory, LLC,February 27, 2012, the ownerCompany entered into definitive equity financing agreements with accredited and operatorinstitutional investors to raise funds in the amount of Bikini.com,$4.25 million through a digital beach lifestyle brand providing websites, branded merchandise, and mobile content, for total cash consideration of $2,351,755, net of cash acquired.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, 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. In addition, the two founders, whoexercise price will be subject to weighted average anti-dilution provision, such that the exercise price will adjusted downward (commonly referred to as a "down-round" provision) on a weighted average basis to the extent the Company issues common stock or common stock equivalents in a financing transaction at a price below the prevailing warrant exercise price (See Note 9). The Company also paid an additional $0.1 million for stock issuance costs, which were charged to additional paid in capital.

As of March  31, 2012, the Company’s total cash and cash equivalents balance was approximately $4.2 million. The Company believes that its cash balance will be sufficient to meet its cash requirements for at least the next twelve months. The Company has incurred net losses in the three months ended March 31, 2012 and in each fiscal year since its inception and has an accumulated deficit of $98.9 million as of March 31, 2012. The Company had remained executivesminimal revenues in the first quarter of Pop Factory, entered into one year employment2012 due to its completion of certain agreements under the Content and Platform Services segment at the end of 2011. The Company is currently focused on

building and acquiring wholly-owned digital media properties for its Brands segment and will continue to pursue new services agreements with Pop Factorynew customers for its Content and noncompetition agreements with the Company.Platform Services segment in 2012.

Banks.com Merger 

On February 26, 2012, the Company entered into an agreement and plan of merger with Banks.com, Inc. (“Banks.com”)(BNNX.PK), pursuant to which Banks.com becamewill 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. The Company completedUpon the acquisition on June 28, 2012 pursuantclosing of the merger, which is subject to whichstandard conditions to closing including the approval of the Banks.com shareholders, Remark Media issued approximately 702,267will issue up to 702,784 shares of Common Stock to the shareholders of Banks.com, and paidplus $300,000 in cash, as consideration for the merger. Also, on the effective date of the merger, the Company paid $131,250 in settlement of a promissory note in the amount of $125,000 (and related unpaid interest), which matured on June 28, 2012.

Sale of Intersearch Corporate Services

On August 2, 2012 Remark Media sold Intersearch Corporate Services, Inc, a subsidiary of Banks.com, for a minimal consideration to better focus its resources on the Company’s core strategy.

Funding and Liquidity Considerations 

As of March 31, 2013, the Company’s total cash and cash equivalents balance was approximately $1.7 million.

The Company has incurred net losses and generated negative cash flow from operations in the three months ended March 31, 2013 and in each fiscal year since its inception and has an accumulated deficit of $106.8 million as of March 31, 2013. The Company had minimal revenues in the first quarter of 2013 due to its transition to owning and operating its own digital media properties.  The Company has been focused on building and acquiring wholly-owned digital media properties. 

On April 2, 2013, the Company entered into a $4.0 million Promissory Note, at a 6.67% annual interest rate for the first year and 8.67% for the second year, with a lender controlled by and in part owned by Mr. Kai-Shing Tao, the Company’s Chairman and Chief Executive Officer.  The Promissory Note is secured pursuant to the Term Loan Agreement detailed below, as amended by Amendment Number One to that Term Loan Agreement, dated April 2, 2013.  The principal and accrued interest under the Promissory Note is convertible into Common Stock of the Company at the rate of $2.00 per share, which represents an approximately 32% premium to the average of the volume weighted average prices of the Company’s common stock for the thirty trading days prior to the entrance into the agreement.  The balance is due April 2015. 

On November 23, 2012, the Company entered into a $1.8 million Term Loan Agreement, with net proceeds of  $1.7 million, at a 6.67% annual interest rate with a lender controlled by and in part owned by Mr. Kai-Shing Tao, the Company’s Chairman and Co-Chief Executive Officer.  Mr. Tao has been a director of the Company since 2007.  The Term Loan is secured by substantially all the tangible and intangible assets of the Company, excluding its shares of common stock of Sharecare. The principal and accrued interest under the Term Loan Agreement is convertible into Common Stock of the Company at the rate of $1.30 per share, which represents an approximately 33% premium to the average closing prices of the Company’s common stock for the ten days prior to entrance into

the agreement and an approximately 53% premium to the closing price of the Company’s common stock on the day of entrance into the agreement.  The balance is due November 2014. 

On November 13, 2012, the Company entered into a Services Agreement with TheStreet Inc. (Nasdaq: TST) (“TheStreet”) in which Remark Media granted TheStreet an exclusive right to sell and serve advertisement and e-commerce on certain of Remark Media’s personal finance websites. TheStreet will also support the websites by providing personal finance content, various promotion and advertisements on TheStreet’s websites, and marketing support. The Company expects the agreement to provide at least $0.9 million over the initial term of the agreement. 

The Company intends to fund its future operations through revenue growth, particularly its personal finance properties.  Additionally, the Company is actively engaged in evaluating future acquisitions to provide revenue growth and the sale of certain non-core assets to provide capital.  The Company has also taken steps to reduce operating costs, primarily payroll through a reduction in headcount, and will continue to evaluate other opportunities to control costs. 

Absent any acquisitions of new businesses or the material increase in expectations from its existing customers, current revenue growth may not be sufficient to sustain the Company’s operations in the long term. As such, the Company may need to obtain additional equity financing and/or divest of certain assets or businesses, neither of which can be assured on commercially reasonable terms, if at all. In addition, any equity financing that might be obtained would substantially dilute existing stockholders.  There is no certainty that the Company will be successful at raising capital, nor is there certainty around the amount of funds that may be raised. In addition, the success of the Company will be subject to performance of the markets and investor sentiment regarding the macro and micro economic conditions under which we operate including stock market volatility. There can be no assurance that the Company will be successful at generating more revenues or selling any of its assets. Any failure by the Company to successfully implement these plans would have a material adverse effect on the Company’s business, including the possible inability to continue operations. 

If the November 2012 $1.8 million and April 2013 $4 million convertible note financings are not converted into common stock of the Company, or if the Company’s shareholders do not approve the ability of the April 2013 $4 million convertible note to convert into common stock of the Company, the Company may be unable to repay such notes when either they or their interest payments become due in November 2014 and April 2015, respectively.

Based on the Company’s current financial projections, which incorporates the Services Agreement with TheStreet, the new Term Loan Agreements, the acquisition and integration of Pop Factory, and the reduction in expenses, all discussed above, the Company believes it has sufficient existing cash resources to fund operations through December 2013.  However, projecting operating results is inherently uncertain.  Anticipated expenses can exceed those that are projected, and revenue under TheStreet Agreement could be delayed or not meet expectations.  Accordingly, the Company’s cash resources could be fully utilized prior to December 2013.

2.  BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Preparation

The accompanying interim condensed consolidated financial statements for the three months ended March 31, 20132012 and 20122011 are unaudited. Certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for financial information have been omitted pursuant to the rules and regulations of Article 10 of SEC Regulation S-X. In the opinion of management, these condensed consolidated financial statements contain all adjustments, consisting of normal recurring adjustments, necessary to state fairly the financial position, results of operations and cash flows for the periods indicated. The December 31, 2012year-end condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required U.S. GAAP (“GAAP”).by accounting principles generally accepted in the United States of America. Operating results for the three months ended March 31, 20132012 are not necessarily indicative of results that may be expected for any other future interim period or for the year ending December 31, 2013.2012. You should read the unaudited condensed consolidated financial statements in conjunction with Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, as well as with Remark Media’s consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012.2011.

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, (5) Banks.com, (6) My Stock Fund, (7) My Dotted Ventures, and (8) Bikini.com.  

Banks.com, MyStockFund and MyDottedVentures are wholly-owned subsidiaries acquired through the Banks.com’s acquisition completed on June 28, 2012. Bikini.com is a wholly-owned subsidiary acquired through the Pop Factory acquisition completed on March 29, 2013.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 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 Sharecare’s Board of Directors. Accordingly, the equity method of accounting is used to account for the investment in Sharecare.

Significant Accounting Policies

Use of Estimates

The preparation of consolidated financial statements in conformity with U.S. 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.

Revenue Recognition

The Company generally recognizes revenue when services are provided and if the revenue arrangements meet the criteria set forth in Staff Accounting Bulletin (“SAB”) 104, “Revenue Recognition”, namely when a persuasive evidence of an arrangement exists; services have been provided; fees are fixed or determinable; and collectability is reasonably assured. 

Brands Revenue.The Company generally recognizes Brands revenue from its network of digital media businesses, which includes DimeSpring.com, Banks.com, IRS.com, FileLater, MyStockFund, and Bikini.com.  Revenue is recognized 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.

The Company generally recognizesContent and Platform Services.Revenue from Content and Platform services revenueis 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 basiswhenRemark 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 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.

Operating Expenses Cost of Services

In lightBrands.The Brands cost of revenue represents the change in RemarkMedia’s business strategy, the Company revised the presentation of operating expenses in its consolidated statements of operations and completed the reclassification of the consolidated statements of operations for the prior year periods presented. Beginning with the second quarter 2012, the Company’s operating expenses reflect sales and marketing; content, technology and development; general and administrative; and depreciation and amortization. Sales and marketing expenses include all selling and marketing expenses such as promotions, public relations and compensation of our sales and marketing departments. Content, technology and development expenses include costscost of translating and localizing content and acquiring

original content written by third-parties as well as costs associated with the design, development, hosting, of websites in addition to user acquisition and user retentionsretentions.

Content and compensationPlatform Services. The Content and Platform Services cost of our technology,revenue represents the costs incurred to support the services agreements with the Company’s customers in this segment which include labor, content product and web design departments which does not qualify to be capitalized. General and administrative expenses include all legal, finance, accounting and administrative expenses such as professional fees and facilities costs. Depreciation and amortization include the depreciation of our acquired fixed assets and amortization of software and definite-lived intangible assets.All periods presented have been reclassified to conform to the new presentation.  According to the terms of the Service Agreement with TheStreet, the Company is entitled to certain expense reimbursements.  The Company records the expense reimbursement as a reduction in that expense.third-party support services.

Purchase Price Allocations

Occasionally, the Company enters into material business combinations.  TheIn 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. 

Software Development Costs

TheIn 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 $0.5$0.3 million and $0.5$0.1 million, at March 31, 20132012 and December 31, 2012,2011, respectively and are included in “Property, equipment and software” in the condensed 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 approximately $67 thousand ofno amortization recorded for these costs during the first quarter2012 as these projects were not complete at March 31, 2012.

Stock-Based Compensation

TheIn according with ASC 718, “Compensation, Stock 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 recipient’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.

Derivative Liability for Warrants to Purchase Common Stock

The Company's derivative liability for warrants represents the fair value of warrants issued in connection with equity financing related to the Banks.com acquisition on February 27, 2012 ("Equity Financing"). These warrants are presented as liabilities based on certain exercise price reductions provisions. The liability, which is recorded at the fair value on the balance sheet, is calculated using the Monte Carlo simulation valuation method. The change in the fair value of these warrants is recognized as other income or expense in the condensed consolidated statement of operations.

Recent Accounting Pronouncements 

In January 2013,September 2011, the Financial Accounting Standards Board (“board ("FASB”) amendedissued 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 guidancecarrying 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 is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011 with early adoption permitted. The Company adopted this ASU in the first quarter 2012 and the adoption had no 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 comprehensive income.  Under the amended guidance, an entity mustreclassification adjustments. The FASB has deferred those changes in order to reconsider whether to present information regarding reclassification adjustments from accumulated other comprehensive income in a single note or 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. ThisFor public entities, ASU 2011-05 is requiredeffective for both annualfiscal years, and interim reporting.periods within those years, beginning after December 15, 2011 and is to be applied retrospectively, with early adoption permitted. The amendment becomesCompany adopted these updates in the first quarter 2012 and the adoption had no 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 reportinginterim and annual periods beginning after December 15, 2011, with no early adoption permitted. The Company adopted the update in the first quarter of 2012 and the adoption had no 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 applied prospectively.  Early adoptionnot available, a best estimate of the selling price is permitted.required to separate deliverables and allocate arrangement consideration based on the relative selling prices of the separate deliverables (the “relative selling price method”). The Company’srelative 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 the standardASU 2009-13 did not have ana material impact on the Company’s consolidatedits financial position, results of operations or cash flows, as it was disclosure-only in nature. the guidance applied to revenue arrangements with multiple deliverables, which were not significant.

3.  INVESTMENT IN SHARECARE

As of March  31, 2013,2012,  Remark Media owns approximately 10.8%11.3% of the outstanding common stock of Sharecare.  Until November 30, 2012, theThe Company accountedaccounts for its equity interest in Sharecare under the equity method of accounting.accounting, as Remark Media has the ability to exercise significant influence over Sharecare due to its seat on the Sharecare board of directors. Under this method, the Company recordedrecords its proportionate share of Sharecare’s net income or loss based on Sharecare’sthe financial results.results of Sharecare. The Company continues to evaluate the facts and circumstances related to its investment to assess the need for change in its accounting method in future periods.

During the first quarter of 2012, Sharecare issued additional equity in exchange for assets. As a result, Remark Media recorded a gain of December 1,$2.2 million in the first quarter of 2012 the Company changeddue to the cost methodchange in interest ownership.

The difference between the carrying amount of accounting dueRemark Media’s investment balance in Sharecare and its proportionate share of Sharecare's underlying net assets was approximately $1.4 million as of March  31, 2012.  The difference is characterized as goodwill and is subject to a lower percentage of ownership, nonparticipationreview in policy-making processes,accordance with ASC 323 – “Investments – Equity Method and limited existence of technology dependency byJoint Ventures” for other than temporary decline in value. The investment balance in Sharecare onreflects the Company. intercompany profit elimination.

The following table shows selected unaudited financial data of Sharecare including Remark  Media’s proportional share of net loss in Sharecare as reported underprior to the equity methodelimination of our portion of intercompany profit included in Sharecare’s earnings for the three months ended March  31, 2012.  In2011 of approximately $40 thousand. There was no intercompany profit for the first quarterthree months ended March 31, 2012: 

4. FAIR MARKET VALUE OF FINANCIAL INSTRUMENTS

The Company measures certain financial assets and liabilities at fair value on a recurring basis. The common stock warrants which are classified as liabilities are recorded at their fair market value as of 2013,each reporting period.

The measurement of fair market value requires the Company recorded a $0.2 million change in its estimateuse of its proportional share in loss of equity-method investment related to the period from January 1, 2012 through November 30, 2012,techniques based on information that was finalizedobservable and providedunobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect our market assumptions. The inputs create the following fair market value hierarchy:

The Company uses model-derived valuations where inputs are both observable and unobservable in active markets to determine the fair value of certain common stock warrants on a recurring basis. The lowest level of significant inputs are classified as Level 3; thus, the common stock warrants are classified as Level 3. The Company subsequentutilized a Monte Carlo simulation valuation model to fair value the issuancewarrants.

Assumptions used in calculating the fair value of its December 31,these warrants were noted as follows (including assumptions used in calculating the transaction date fair value for the warrants issued in the February 2012 financial statements. Equity Financing transaction):

In addition to the assumptions above, the Company takes into consideration whether or not it would participate in another round of equity financing and, if so, what the stock price would be for such a financing at that time.

At March 31, 2012 and December 31, 2011, the fair value of liability classified warrants were as follows:

The total considerationchange in the fair value of the transaction was $2.4 million in cash.  The acquisition waswarrants accounted for under the purchase method and, accordingly, the purchase price was allocated to the assets andas derivative liabilities based on their estimated fair values on the date of the acquisition.  The aggregate purchase price allocation below is preliminary and subject to change in future periods as the Company has not yet completed its review of the current assets and liabilities.        reflected below:

The Company will continue to adjust the warrant liability for changes in fair value until the earlier of the warrants, exercise or expiration, at which time the liability will be reclassified to stockholders' equity.

5.  SEGMENTS

Operating segments are components of an enterprise about which separate financial information is available that 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 Remark Media’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; share-based compensation expense related to stock and stock option grants; depreciation and amortization expense; impairment loss, if any, and interest expense and income.

The acquisition transaction costs incurred for the period ended March 31, 2013 totaled $0.1 million and were all expensed under the general and administrative expenses in the consolidated statement of operationsCompany has reported two segments for the three months ended March 31, 2013.2012 and 2011: Brands (formerly digital online publishing) and Content and Platform Services (formerly web platform services). The Pop Factory’s revenue sinceBrands segment consists of the acquisition effective datewebsites 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 of March 29, 2013the services provided to Remark Media’s 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 endCompany’s direct activities and management of first quarter of 2013,third party vendors. There were immaterial and not includedno services provided related to this segment in the consolidated statements of operations.2012.  

The table below reflects a summary of the unaudited pro formaOperating results of operationsregarding reportable segments for the three months ended March 31, 20132012 and 2012, as if Remark Media, Banks.com and Pop Factory were combined as of January 1, 2013 and 2012, respectively.  The pro forma results include estimates and assumptions which management believes2011 are reasonable.  However, pro forma results do not include any anticipated cost savings or other effects of the planned integration of these entities, and are not necessarily indicative of the results that would have occurred if the business combinations had been in effect on the dates indicated, or which may resultpresented in the future.following tables:

On August 2, 2012, Remark Media sold Intersearch Corporate Services, Inc. a subsidiary of Banks.com for minimal consideration. 

On June 28, 2012, Remark Media completed the merger (the “Merger”) contemplated by the Agreement and Plan of Merger dated as of February 26, 2012, among the Company, Banks.com and Remark Florida, Inc., a wholly-owned subsidiary of the Company (“Merger Sub”), pursuant to which Merger Sub merged with and into Banks.com and Banks.com survived the Merger as a wholly-owned subsidiary of Remark Media.  At the effective time of the Merger, each share of the outstanding common stock of Banks.com was converted into the right to receive 0.0258 shares of Remark Media common stock, for an aggregate of 670,815 shares of Remark Media common stock.  The outstanding shares of Banks.com preferred stock, including all accrued and unpaid dividends as of the date of closing of the Merger on such preferred stock, a Note and a Warrant, all of which are held by Daniel M. O’Donnell, President and Chief Executive Officer of Banks.com, and his affiliates, were converted into cash in the aggregate amount of $300,000 and the right to receive 31,452 shares of Remark Media common stock.  In connection with the Merger, Banks.com issued an Amended and Restated Promissory Note in the principal amount of $125,000 to Mr. O’Donnell and his wife, which matured on June 28, 2012.  The Company settled the cash consideration of $300,000 on the date of closing and $131,250 in settlement of the promissory note in the principal amount of $125,000 and related interest. 

5. CAPITAL LEASES 

On December 7, 2010, Banks.com entered into a sale-leaseback arrangement with Domain Capital, LLC, (“Domain Capital”) consisting of an agreement to assign the domain name, banks.com, to Domain Capital in exchange for $0.6 million in cash and a Lease Agreement to lease back the domain name from Domain Capital for a five year term. Effective June 28, 2012, Banks.com became a wholly-owned subsidiary of Remark Media and according to the Agreement and Plan of Merger, Remark Media assumed all outstanding liabilities on the effective date of close. As of March 31, 2013, total obligations under this agreement were $0.4 million, $0.1 million of which is included under the current portion of capital lease obligations and the remainder is included under capital lease obligations, net of current portion of the Company’s consolidated balance sheets at March 31, 2013. The following table represents the approximate future minimum capital lease payments due under this agreement as of March 31, 2013: 

Total assets regarding reportable segments at March 31, 2012 and December 31, 2011 are presented in the following table:

6.  COMMITMENTS AND CONTINGENCIES DEBT

The Company has entered into operating leases for office space.  The lease agreements required security deposits and included allowances, which were used against leasehold improvements. The security deposits and the allowances were recorded as an asset and a liability, respectively in the Company’s consolidated financial statements.  Rental expense for operating leases, which is recognized on a straight-line basis over the lease term, was $0.07 million for the three months ended March 31, 2013.  Credit Facility

On March 4, 2011, the Company entered into a senior revolving credit agreement with Theorem Capital, LLC (the "Lender") pursuant to which the Lender extended Remark  Media a line of credit of up to $1.0 million expiring on March 3, 2012, subject to renewal by the Lender, at its sole discretion, for an additional one-year period. The following table representsLender received a warrant to purchase 65,359 shares of Remark  Media common stock with an exercise price of $3.06 per share in connection with entering into the approximate future minimum lease paymentscredit agreement.  The Company recorded the fair value of the warrants using the Black-Scholes valuation technique in the amount of $0.13 million as debt issuance costs in the first quarter of 2011 and was amortized during the term of the agreement. As such, the debt issuance costs were fully amortized at March 31, 2013 due under non-cancellable operating lease agreements2012. The Company did not have any outstanding balance at March 31, 2012 and no interest expense was incurred during the term of the agreement. On March 3, 2012, the agreement expired and the Company chose not to request an additional one-year extension.  The warrants were exercised on April 2, 2012. As a result, the Company issued 32,405 common shares in connection with terms in excessthe Lender’s cashless exercise of a year:the warrants and subsequently no warrants remain outstanding related to this agreement.

On July 23, 2012, a complaint was filed by FOLIOfn, Inc. (“FOLIOfn”), against the Company’s subsidiary MyStockFund Securities, Inc. (“MyStockFund”), alleging that MyStockFund has infringed six U.S. Patents held by FOLIOfn relating to investment methods. The complaint seeks injunctive relief, damages, pre-judgment interest, and attorneys' fees.  The case was settled between the parties, and on April 23, 2013 the litigation was terminated by the court, resulting in no liability to the Company. 

In addition, the Company is engaged from time to time in certain legal disputes arising in the ordinary course of business. Furthermore, the Company accrues liabilities for legal contingencies when it believes that it is both probable that a liability has been incurred and that it can reasonably estimate the amount of the loss. The Company will review these accruals and adjust them to reflect ongoing negotiations, settlements, rulings, advice of legal counsel, and other relevant information. To the extent new information is obtained, and the Company's views on the probable outcomes of claims, suits, assessments, investigations, or legal proceedings change, changes in the Company's accrued liabilities would be recorded in the period in which such determination is made.

7.  STOCKHOLDERS’ EQUITY AND NET LOSS PER SHARE

 Net Loss per Share

The following is a reconciliation of the numerators and denominators of our basic and diluted loss per share computations: computations