Statement Regarding Forward-Looking Statements

When reading this section of this Annual Report on Form 10-K, it is important that you also read the financial statements and related notes thereto. This Annual Report on Form 10-K, including the sections entitled "Business," "Properties," "Legal Proceedings," "Market For Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities" and "Management's Discussion and Analysis of Financial Condition and Results of Operations," and certain information incorporated herein by reference contain forward-looking statements within the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. All statements contained in this Annual Report on Form 10-K, other than statements that are purely historical, are forward-looking statements and are based upon management's present expectations, objectives, anticipations, plans, hopes, beliefs, intentions or strategies regarding the future. We use words such as "anticipate," "estimate," "plan," "project," "continuing," "ongoing," "expect," "believe," "intend," "may," "will," "should," "could," and similar expressions to identify forward-looking statements. Forward-looking statements in this Annual Report on Form 10-K include, without limitation: (1) projections of revenue, earnings, capital structure and other financial items, (2) statements of our plans, objectives, and intentions, (3) statements regarding the capabilities, capacities, and expected development of our business operations, (4) statements of expected future economic performance, and (5) assumptions underlying statements regarding us or our business; (6) expectations regarding our change in strategic direction; and (7) our ability to regain compliance with the financial covenants relating to our 13.50% Senior Subordinated Notes. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs.

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

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

Overview

We operate an Internet media property that provides targeted online advertising and services in the financial services sector. In November 2007, we changed our name to Banks.com, Inc. in connection with our decision to focus on becoming a leading provider of targeted traffic in the financial services vertical of online advertising. We intend to continue building a cohesive business around our flagship domain property banks.com. Through this web property, we provide access to current financial content, including financial news, business articles, interest-rate tables, stock quotes, stock tracking and financial calculators. We also provide users access to online financial services including: tax preparation and stock brokerage. We believe that focusing our content and services in the high-traffic financial services vertical will allow us to provide our advertisers operating in that vertical access to highly relevant traffic. In addition to banks.com, we operate other proprietary websites including look.com and searchexplorer.com. We generate revenue on these sites primarily via traffic generation and search engine marketing efforts. We also provide Internet technology professional services to Fortune 500 and other companies operating in the financial services sector.

We review our operations based on both our financial results and non-financial measures. Our primary source of revenue is our Internet advertising services, although we are expanding into other sources of revenue such as tax online preparation and stock brokerage services. For our Internet advertising Services we review revenue-per-click and cost-per-click. When an Internet user clicks-through on a sponsored listing through our distribution network, our arrangements with our advertising network partners and direct advertisers provide that

we receive a fixed percentage of the revenue generated from that click. A significant reduction in click-throughs or an advertising network partner exerting significant pricing pressures on us would have a material adverse effect on our results of operations. Our largest expense is traffic acquisition costs, which consist primarily of Internet advertising costs, and the loss of one or more of our advertising and traffic sources would also have a material adverse effect on our results. We seek to decrease our cost-per-click through continuing search engine optimization efforts and increasing page yield through the use of proprietary and third party analytics.

We currently depend, and expect to continue to depend for the foreseeable future, upon a relatively small number of advertising network partners and direct advertisers for a significant percentage of our revenues. Our advertising network partners, InfoSpace, Inc., Yahoo! Search Marketing and Ask.com together represented a substantial majority of our revenues for the year ended December 31, 2008. We had two contracts with Yahoo! Search Marketing, one of which terminated on March 1, 2008 and the other of which terminated on June 1, 2008. Our contract with Ask.com was modified in February 2008 to terminate their obligation to provide third party paid search results from Google and the contract expired on December 31, 2008. The termination of these contracts resulted in the loss of paid search results from Google and/or Yahoo from June 1, 2008 through October 21, 2008, which had a severe adverse impact on our results of operations. In October 2008, we entered into a distribution agreement with InfoSpace to provide paid metasearch results from Google, Yahoo, Microsoft and Ask.com on banks.com.

In 2008, in an effort to diversify our revenue streams and increase our recurring revenue, we began providing finance-related services, such as online tax preparation and online stock brokerage services, in addition to professional services. While we will continue to evaluate our business by measuring our total number of paid clicks, with our change in strategic direction we will also focus on other metrics related to customer acquisitions such as number of new customers and length of time we retain existing customers.

The transition of our business model, the redirection of irs.com traffic to banks.com, macro industry and economic trends, the expiration and non-renewal of our contracts with Yahoo! Search Marketing in March and June of 2008, and our contract with Ask.com being modified to terminate their license to distribute third party results to us in February 2008, all had an adverse effect on our financial condition and results of operations.

Recent Developments-Liquidity

Although current with respect to principal and interest payments on our 13.50% Senior Subordinated Notes (the "Notes"), we were not in compliance with certain financial covenants contained in the Investment Agreement relating to the Notes, which are measured on the last day of each fiscal quarter, as of September 30, 2008. On November 21, 2008, we and the Note holders (the "Lenders") entered into a waiver (the "Waiver") with respect to our noncompliance for the period ended September 30, 2008 with the financial covenants. Pursuant to the Waiver, the Lenders consented to and waived any event of default, including any default interest, by reason of noncompliance with the financial covenants set forth in the Investment Agreement (the "Events of Default") for the fiscal quarters ended September 30, 2008, December 31, 2008, and March 31, 2009 (the "Waiver Period"). The Waiver is only effective for this specific purpose during the Waiver Period and does not allow for any other or further departure from the terms and conditions of the Investment Agreement. Upon the expiration of the Waiver Period, the Waiver shall be immediately and automatically terminated in its entirety and be of no further force or effect. The Lenders' continued waiver of the Events of Default for the Waiver Period was subject to the Company's satisfaction of certain conditions subsequent.

One of the conditions subsequent of the Waiver required us and the Lenders to enter into an amendment to the Investment Agreement on or before December 31, 2008, providing that, among other things, (1) we use the proceeds of any federal tax refund and any state tax refund (in excess of $5,000) to repay our obligations under the Notes, and (2) the maturity date of the Notes be changed to June 30, 2010. This amendment was executed on January 6, 2009, to be effective as of December 31, 2008, satisfying the foregoing condition. On March 20, 2009, we received a federal tax refund of approximately $1,330,000, all of which was used to pay down the principal obligation under the Notes pursuant to the Waiver. Our Chief Executive Officer, Daniel O'Donnell also agreed to

make a personal investment in the amount of $300,000 in the Company. On January 6, 2009, our Chief Executive Officer purchased 3,000,000 shares of a new series of preferred stock of the Company designated as the Company's "Series C Preferred Stock", par value $.001 per share, for an aggregate purchase price of $300,000 or $0.10 per share, in satisfaction of the foregoing condition. As of March 31, 2009, the Company anticipates regaining compliance with the financial covenants on June 30, 2009 through normal business operations, without the sale of any additional company assets or equity. The Company expects to remain in covenant compliance through the remainder of the term of the Notes. On March 31, 2009, the Lenders agreed to extend the Waiver until April 30, 2009. The Company will continue to work with the Lenders to secure a continuance of the waiver through June 30, 2009. We cannot assure you, however, that the Lenders will grant such a continuance. If the Company is not successful in securing a waiver beyond March 31, 2009, and/or in regaining compliance with the financial covenants, the holders of the Notes may declare the Notes immediately due and payable or seek to foreclose on the Company's assets. The foregoing are forward looking statements and are subject to the risks and uncertainties outlined in the Statement Regarding Forward-Looking Statements at the beginning of Item 7 and in the section entitled Risk Factors in this current report on Form 10-K.

During October and November 2008, we completed the sale of some non-core assets in an effort to pay down additional principal on the Notes and reduce monthly interest costs. The domain names camps.com, summercamp.com and greatcruises.com, as well as a trademark that we owned for the term "InterSearch", were all sold for a total proceeds of approximately $303,000, all of which was used to pay down principal on the Notes. We expect to continue to sell non-core assets as proper opportunities arise and use any proceeds from such sales to continue to pay down the principal balance on the Notes. As of December 31, 2008, the outstanding principal balance on the Notes was approximately $5.76 million, we were current in our payment of principal and interest on the Notes, and had pre-paid approximately $653,000 on the principal balance of the Notes. Further information may be found later in this section under the heading "Liquidity and Capital Resources".

Seasonality

Our quarterly results have fluctuated in the past and will continue to do so in the future due to seasonal fluctuations in the level of Internet usage and our online tax related businesses. As is typical in our industry, the second and third quarters of the calendar year generally experience relatively lower overall Internet usage than the first and fourth quarters. The extent to which usage may decrease during these off-peak periods is difficult to predict. In addition, our reliance on revenues generated through our ownership of the Internet domain irs.com will further cause our revenues to be largely seasonal in nature, with peak revenues occurring during the U.S. tax filing season of January through April. Therefore, our first and second quarter results are not indicative of results for the entire fiscal year.

Critical Accounting Policies and Estimates

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

While our significant accounting policies are described in Note 2 to our audited consolidated financial statements appearing at the end of this report for the year ended December 31, 2008, we believe that the following accounting policies are the most critical to aid you in fully understanding and evaluating our reported financial results.

Revenue

We currently generate revenue through our operating businesses by providing Internet advertising and online finance related services. We typically recognize revenue when an Internet user clicks-through on an advertiser's listing displayed on our network or at the time we are paid for services.

We have entered into agreements with various distribution partners in order to expand our distribution network, which includes search engines and our websites on which we include our advertisers' listings and those of our advertising network partners. We generally pay distribution partners based on a specified percentage of revenue or a fixed amount per click-through on these listings. We act as the primary obligor in these transactions, and we are responsible for providing customer and administrative services to the advertiser. In accordance with EITF Issue No. 99-19, Reporting Revenue Gross as a Principal Versus Net as an Agent, the revenue derived from advertisers who receive paid introductions through us as supplied by distribution partners is reported gross based upon the amounts received from the advertiser.

Goodwill and Intangible Assets

Goodwill represents the excess of the purchase price over the fair value of identifiable assets acquired and liabilities assumed in business combinations accounted for under the purchase method.

We apply the provisions of the Financial Accounting Standards Board's (FASB) Statements of Financial Accounting Standards (SFAS) No. 142, Goodwill and Other Intangible Assets (SFAS 142). Goodwill and intangible assets acquired in a purchase business combination and determined to have an indefinite useful life are not amortized, but instead tested for impairment at least annually in accordance with the provisions of SFAS 142. SFAS 142 also requires that intangible assets with definite useful lives be amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment in accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Asset (SFAS 144).

Goodwill is tested annually for impairment, and is tested for impairment more frequently if events and circumstances indicate that the asset might be impaired. An impairment loss is recognized to the extent that the carrying amount exceeds the asset's fair value. We recognized $572,867 of goodwill related to our acquisition of InterSearch Corporate Services, Inc. Our annual impairment test led us to reasonably estimate that our fair market value was less than our net assets excluding goodwill. Accordingly, we recorded a full write-down of goodwill in the fourth quarter of 2008.

We review our long-lived assets for impairment in accordance with SFAS 144 whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment is to be fair value. Assets to be disposed of are separately presented on the balance sheet and reported at the lower of their carrying amount or fair value less costs to sell, and are no longer depreciated.

No impairment of our intangible assets has been indicated to date. To the extent such evaluation indicates that the useful lives of intangible assets are different than originally estimated, the amortization period is reduced or extended and, accordingly, the quarterly amortization expense is increased or decreased. As a result of the significance of the intangible asset carrying values, any impairment charges or changes to the estimated amortization periods could have a material adverse effect on our financial results.

Stock Compensation

Effective January 1, 2006, we adopted the fair value recognition provisions of FASB Statement No. 123(R), Share-Based Payment (SFAS 123R), using the modified-prospective-transition method. Under that transition method, compensation cost recognized in 2006 included: (a) compensation cost for all share-based payments

granted prior to, but not yet vested as of January 1, 2006 based on the grant date fair value calculated in accordance with the original provisions of SFAS 123, and (b) compensation cost for all share-based payments granted subsequent to December 31, 2005, based on the grant-date fair value estimated in accordance with the provisions of SFAS 123R.

As part of our adoption of SFAS 123R, we examined our historical pattern of option exercises in an effort to determine if there were any patterns based on certain employee populations. From this analysis, we could not identify any patterns in the exercise of options. As such, we used the guidance in Staff Accounting Bulletin No. 107 to determine the estimated life of options issued subsequent to the adoption of SFAS 123R. Based on this guidance, the estimated term was deemed to be the midpoint of the vesting term and the contractual term ((vesting term and original contractual term)/2). Expected volatility is based on historical volatility of our stock. The risk-free rate is based on the United States treasury notes in effect at the time of grant. The dividend yield is based on our history and expectation of dividend payments.

Income Taxes

Deferred income tax assets and liabilities are recorded to reflect the tax consequences on future years of temporary differences between revenues and expenses reported for financial statement and those reported for income tax purposes. Deferred tax assets and liabilities are measured using the enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be realized or settled. Valuation allowances are provided against assets which are not likely to be realized. We file a consolidated income tax return with our subsidiaries. Income taxes are allocated proportionately as if separate income tax returns were filed.

Consolidated Results of Operations

The following table sets forth information for the years ended December 31, 2008 and 2007 derived from our consolidated financial statements which were audited by Hacker, Johnson & Smith PA, and are included elsewhere in this annual report on Form 10-K.

                                                                  Year ended December 31,
                                                                2008                    2007
                                                              (in thousands, except share and
                                                                      per share data)
Statements of Operations Data:
Revenues                                                  $         11,054          $      27,763

Cost of revenues:
Traffic acquisition costs                                            4,980                 11,325
Sales and marketing                                                  1,145                  1,415
General and administrative                                           8,802                 10,773

Total operating expenses                                            14,927                 23,513

(Loss) earnings from operations                                     (3,873 )                4,250
Other income                                                            90                     -
Interest expense                                                     1,157                  1,186

(Loss) earnings before income taxes                                 (4,940 )                3,064
Income taxes (benefit)                                              (1,405 )                1,340

Net (loss) earnings                                                 (3,535 )                1,724

Basic (loss) earnings per share                           $           (.14 )        $         .07

Diluted (loss) earnings per share                         $           (.14 )        $         .06

Basic weighted average common shares outstanding                25,490,762             24,962,487

Diluted weighted average common shares outstanding              25,490,762             27,972,553

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

                                                       Year ended
                                                      December 31,
                                                     2008       2007
               Revenues                                100 %     100 %

               Cost of revenues:
               Traffic acquisition costs                45        41
               Sales and marketing                      10         5
               General and administrative               80        39

               Total operating expenses                135        85

               (Loss) earnings from operations         (35 )      15
               Other income (loss)                       1        -
               Interest expense                         11         4

               (Loss) earnings before income taxes     (45 )      11
               Income taxes (benefit)                  (13 )       5

               Net (loss) earnings                     (32 )       6

Year Ended December 31, 2008 Compared to Year Ended December 31, 2007

Revenue. Revenue decreased 60% from 27.8 million for the year ended December 31, 2007 to $11.1 million in 2008. This decrease was primarily attributable to a decrease in Internet search revenue and the loss of two large advertising network partners.

Traffic acquisition cost. Traffic acquisition costs decreased 56% from $11.3 million for the year ended December 31, 2007 to $5 million in 2008 in part due to a decline in revenue for the year. However, traffic acquisition costs increased as a percentage of revenue from 41% in 2007 to 45% in 2008 due to a reduction in tax related revenue which is primarily derived from organic traffic with no traffic acquisition costs. We continue to focus our resources on generating traffic to our proprietary web properties through SEM, SEO, and direct navigation.

Sales and marketing. Sales and marketing expense decreased from $1.4 million for the year ended December 31, 2007 to $1.1 million in 2008. This decrease in mainly attributable to a reduction in the number of employees.

General and administrative. General and administrative expenses decreased from $10.8 million for the year ended December 31, 2007 to $8.8 million in 2008. The decrease is due primarily to a decrease in employee salary and bonus expenses, consulting related fees and technology infrastructure costs.

Interest expense. Interest expense was $1,186,000 for the year ended December 31, 2007 compared to $1,157,000 in 2008. The decline is due to the scheduled payments of principal on the outstanding debt.

Income taxes. Our provision for income taxes was $1.3 million for the year ended December 31, 2007 versus a tax benefit of $1.4 million in 2008. This decrease is a result of a pretax loss of $4.9 million for the year ended December 31, 2008, compared to pretax earnings of $3.1 million for the same period in 2007.

Net earnings. Net earnings available to common stockholders for the year ended December 31, 2007 was $1.7 million or $.07 per basic and $.06 per diluted share, compared to a net loss of $3.5 million or $.14 per basic and $.14 per diluted share in 2008.

Liquidity and Capital Resources

Since inception, we have primarily financed our operations through internally generated funds and the use of our line of credit. We have engaged in private sales of our common stock and debt financing in order to fund the purchase price of some of our acquisitions. As of December 31, 2008, we had $479,000 in cash as compared to $2,300,000 at December 31, 2007. Our working capital decreased from $3,949,000 on December 31, 2007 to $1,044,000 as of December 31, 2008 excluding amounts related to long term debt classified as a current liability due to events of covenant default. Our liquidity declined mainly due to our operating losses and the continued principal and interest payments on our debt.

Our $1.25 million revolving line of credit with Silicon Valley Bank expired on October 30, 2008. There was no outstanding balance under this credit facility at December 31, 2007 or 2008.

As of December 31, 2008, we had no capital commitments, but do have an operating lease commitment which will result in payments of $217,000 in 2009, $223,000 in 2010 and $59,000 in 2011. In addition, we had commitments of principal payments on our Notes of approximately $1,575,000 in 2009 and $4,188,000 in 2010. On March 20, 2009, we prepaid approximately $1,330,000 of the principal on our Notes which reduced our 2010 commitment of principal payments on our Notes to $2,858,000. Regular monthly principal payments through June 30, 2010 total . . .