Document
false--12-31Q32019truefalse0001368365P5DP5D0.0010.0011000000001000000003905331248430159390533124843015910.0010.0011000000100000000P3YP3YP3YP10Y 0001368365 2019-01-01 2019-09-30 0001368365 2019-11-08 0001368365 2018-12-31 0001368365 2019-09-30 0001368365 2018-07-01 2018-09-30 0001368365 2019-07-01 2019-09-30 0001368365 2018-01-01 2018-09-30 0001368365 us-gaap:AdditionalPaidInCapitalMember 2019-07-01 2019-09-30 0001368365 us-gaap:CommonStockMember 2018-01-01 2018-09-30 0001368365 us-gaap:RetainedEarningsMember 2017-12-31 0001368365 us-gaap:CommonStockMember 2019-07-01 2019-09-30 0001368365 us-gaap:CommonStockMember 2018-06-30 0001368365 2018-09-30 0001368365 us-gaap:RetainedEarningsMember 2019-09-30 0001368365 us-gaap:CommonStockMember 2018-12-31 0001368365 us-gaap:CommonStockMember 2017-12-31 0001368365 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2018-07-01 2018-09-30 0001368365 us-gaap:RetainedEarningsMember 2019-01-01 2019-09-30 0001368365 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2018-01-01 2018-09-30 0001368365 us-gaap:AdditionalPaidInCapitalMember 2017-12-31 0001368365 us-gaap:CommonStockMember 2019-09-30 0001368365 us-gaap:AdditionalPaidInCapitalMember 2018-07-01 2018-09-30 0001368365 2017-12-31 0001368365 us-gaap:CommonStockMember 2019-06-30 0001368365 us-gaap:CommonStockMember 2018-07-01 2018-09-30 0001368365 2018-01-01 0001368365 us-gaap:RetainedEarningsMember 2018-01-01 2018-09-30 0001368365 us-gaap:AdditionalPaidInCapitalMember 2018-12-31 0001368365 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2018-09-30 0001368365 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2017-12-31 0001368365 us-gaap:CommonStockMember 2018-09-30 0001368365 us-gaap:AdditionalPaidInCapitalMember 2019-09-30 0001368365 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-06-30 0001368365 us-gaap:AdditionalPaidInCapitalMember 2018-01-01 2018-09-30 0001368365 us-gaap:AdditionalPaidInCapitalMember 2018-09-30 0001368365 us-gaap:AdditionalPaidInCapitalMember 2018-06-30 0001368365 us-gaap:RetainedEarningsMember 2018-09-30 0001368365 us-gaap:RetainedEarningsMember 2019-06-30 0001368365 us-gaap:AdditionalPaidInCapitalMember 2019-01-01 2019-09-30 0001368365 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-01-01 2019-09-30 0001368365 us-gaap:CommonStockMember 2019-01-01 2019-09-30 0001368365 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2018-12-31 0001368365 us-gaap:RetainedEarningsMember 2018-12-31 0001368365 us-gaap:RetainedEarningsMember 2018-01-01 0001368365 us-gaap:RetainedEarningsMember 2018-06-30 0001368365 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-09-30 0001368365 us-gaap:AdditionalPaidInCapitalMember 2019-06-30 0001368365 us-gaap:RetainedEarningsMember 2018-07-01 2018-09-30 0001368365 2019-06-30 0001368365 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-07-01 2019-09-30 0001368365 2018-06-30 0001368365 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2018-06-30 0001368365 us-gaap:RetainedEarningsMember 2019-07-01 2019-09-30 0001368365 mark:AspireCapitalFundLLCMember us-gaap:PrivatePlacementMember 2019-01-01 2019-09-30 0001368365 mark:CommonStockPurchaseAgreementWithAspireCapitalFundLLCMember us-gaap:CommonStockMember 2019-03-29 2019-03-29 0001368365 us-gaap:DiscontinuedOperationsDisposedOfBySaleMember mark:Vegas.comLLCMember 2019-05-15 0001368365 us-gaap:LoansPayableMember 2016-09-20 0001368365 mark:AspireCapitalFundLLCMember us-gaap:PrivatePlacementMember 2019-03-29 0001368365 mark:FinancingAgreementAmendmentMember us-gaap:LoansPayableMember 2019-05-15 0001368365 mark:AspireCapitalFundLLCMember 2019-01-01 2019-09-30 0001368365 us-gaap:AccountingStandardsUpdate201602Member 2019-01-01 0001368365 mark:AIbasedProductsAndServicesMember 2018-01-01 2018-09-30 0001368365 mark:AdvertisingAndOtherMember 2018-07-01 2018-09-30 0001368365 mark:AIbasedProductsAndServicesMember 2019-01-01 2019-09-30 0001368365 mark:AIbasedProductsAndServicesMember 2019-07-01 2019-09-30 0001368365 mark:FinTechServicesMember 2019-07-01 2019-09-30 0001368365 mark:FinTechServicesMember 2019-01-01 2019-09-30 0001368365 mark:AIbasedProductsAndServicesMember 2018-07-01 2018-09-30 0001368365 mark:AdvertisingAndOtherMember 2019-07-01 2019-09-30 0001368365 mark:AdvertisingAndOtherMember 2019-01-01 2019-09-30 0001368365 mark:FinTechServicesMember 2018-07-01 2018-09-30 0001368365 mark:FinTechServicesMember 2018-01-01 2018-09-30 0001368365 mark:AdvertisingAndOtherMember 2018-01-01 2018-09-30 0001368365 mark:WarrantLiabilityMember 2017-12-31 0001368365 mark:WarrantLiabilityMember 2018-01-01 2018-12-31 0001368365 mark:WarrantLiabilityMember 2019-01-01 2019-09-30 0001368365 mark:WarrantLiabilityMember 2018-12-31 0001368365 mark:WarrantLiabilityMember 2019-09-30 0001368365 mark:Vegas.comLLCMember mark:BusinessCombinationContingentConsiderationLiabilityMember 2019-01-01 2019-09-30 0001368365 mark:Vegas.comLLCMember mark:BusinessCombinationContingentConsiderationLiabilityMember 2018-12-31 0001368365 mark:Vegas.comLLCMember mark:BusinessCombinationContingentConsiderationLiabilityMember 2019-09-30 0001368365 mark:ChinaBrandingGroupLimitedMember mark:FinancingWarrantMember 2019-01-01 2019-09-30 0001368365 mark:ChinaBrandingGroupLimitedMember mark:AcquisitionWarrantMember 2019-01-01 2019-09-30 0001368365 mark:LenderMember 2018-01-10 2018-01-10 0001368365 mark:FormerOwnerofSubsidiaryMember 2018-01-10 0001368365 mark:FormerOwnerofSubsidiaryMember 2018-01-10 2018-01-10 0001368365 mark:FormerOwnerofSubsidiaryMember 2018-01-08 2018-01-08 0001368365 mark:LenderMember 2018-01-10 0001368365 2018-01-10 0001368365 mark:FormerOwnerofSubsidiaryMember 2018-01-08 0001368365 mark:ChinaBrandingGroupLimitedMember mark:FinancingWarrantMember us-gaap:FairValueInputsLevel3Member us-gaap:MeasurementInputRiskFreeInterestRateMember 2018-12-31 0001368365 mark:ChinaBrandingGroupLimitedMember mark:AcquisitionWarrantMember us-gaap:FairValueInputsLevel3Member us-gaap:MeasurementInputRiskFreeInterestRateMember 2019-09-30 0001368365 mark:ChinaBrandingGroupLimitedMember mark:FinancingWarrantMember us-gaap:FairValueInputsLevel3Member us-gaap:MeasurementInputExpectedTermMember 2019-09-30 0001368365 mark:ChinaBrandingGroupLimitedMember mark:FinancingWarrantMember us-gaap:FairValueInputsLevel3Member us-gaap:MeasurementInputPriceVolatilityMember 2019-09-30 0001368365 mark:ChinaBrandingGroupLimitedMember mark:FinancingWarrantMember us-gaap:FairValueInputsLevel3Member us-gaap:MeasurementInputPriceVolatilityMember 2018-12-31 0001368365 mark:ChinaBrandingGroupLimitedMember mark:FinancingWarrantMember us-gaap:FairValueInputsLevel3Member us-gaap:MeasurementInputExpectedTermMember 2018-12-31 0001368365 mark:ChinaBrandingGroupLimitedMember mark:AcquisitionWarrantMember us-gaap:FairValueInputsLevel3Member us-gaap:MeasurementInputPriceVolatilityMember 2018-12-31 0001368365 mark:ChinaBrandingGroupLimitedMember mark:FinancingWarrantMember us-gaap:FairValueInputsLevel3Member us-gaap:MeasurementInputRiskFreeInterestRateMember 2019-09-30 0001368365 mark:ChinaBrandingGroupLimitedMember mark:AcquisitionWarrantMember us-gaap:FairValueInputsLevel3Member us-gaap:MeasurementInputRiskFreeInterestRateMember 2018-12-31 0001368365 mark:ChinaBrandingGroupLimitedMember mark:AcquisitionWarrantMember us-gaap:FairValueInputsLevel3Member us-gaap:MeasurementInputPriceVolatilityMember 2019-09-30 0001368365 mark:ChinaBrandingGroupLimitedMember mark:AcquisitionWarrantMember us-gaap:FairValueInputsLevel3Member us-gaap:MeasurementInputExpectedTermMember 2018-12-31 0001368365 mark:ChinaBrandingGroupLimitedMember mark:AcquisitionWarrantMember us-gaap:FairValueInputsLevel3Member us-gaap:MeasurementInputExpectedTermMember 2019-09-30 0001368365 mark:AIbasedProductsAndServicesMember us-gaap:ProductConcentrationRiskMember 2019-01-01 2019-09-30 0001368365 mark:AllinoneCloudNetTechnologyCoMember 2018-06-30 0001368365 mark:AllinoneCloudNetTechnologyCoMember 2018-06-01 2018-06-30 0001368365 mark:SharecareMember 2019-09-30 0001368365 us-gaap:ComputerSoftwareIntangibleAssetMember 2018-12-31 0001368365 us-gaap:FurnitureAndFixturesMember 2019-09-30 0001368365 us-gaap:SoftwareDevelopmentMember 2019-09-30 0001368365 us-gaap:SoftwareDevelopmentMember 2018-12-31 0001368365 us-gaap:LeaseholdImprovementsMember 2018-12-31 0001368365 us-gaap:ComputerSoftwareIntangibleAssetMember 2019-09-30 0001368365 us-gaap:LeaseholdImprovementsMember 2019-09-30 0001368365 us-gaap:FurnitureAndFixturesMember 2018-12-31 0001368365 mark:ComputersandEquipmentMember 2018-12-31 0001368365 mark:ComputersandEquipmentMember 2019-09-30 0001368365 us-gaap:LeaseholdImprovementsMember 2019-01-01 2019-09-30 0001368365 us-gaap:ComputerSoftwareIntangibleAssetMember 2019-01-01 2019-09-30 0001368365 mark:ComputersandEquipmentMember 2019-01-01 2019-09-30 0001368365 us-gaap:FurnitureAndFixturesMember 2019-01-01 2019-09-30 0001368365 us-gaap:LicensingAgreementsMember 2018-12-31 0001368365 us-gaap:LicensingAgreementsMember 2019-09-30 0001368365 mark:DomainNamesMember 2019-09-30 0001368365 mark:DomainNamesMember 2018-12-31 0001368365 us-gaap:OtherIntangibleAssetsMember 2018-12-31 0001368365 us-gaap:OperatingAndBroadcastRightsMember 2019-09-30 0001368365 us-gaap:OperatingAndBroadcastRightsMember 2018-12-31 0001368365 us-gaap:OtherIntangibleAssetsMember 2019-09-30 0001368365 us-gaap:LoansPayableMember 2018-12-31 0001368365 us-gaap:LoansPayableMember 2019-09-30 0001368365 mark:SixthFinancingAmendmentMember us-gaap:LoansPayableMember 2019-05-15 2019-05-15 0001368365 mark:FinancingAgreementAmendmentMember us-gaap:LoansPayableMember 2018-09-28 2018-09-28 0001368365 mark:FinancingAgreementAmendmentMember us-gaap:LoansPayableMember 2018-04-30 0001368365 mark:SixthFinancingAmendmentMember us-gaap:LoansPayableMember us-gaap:LondonInterbankOfferedRateLIBORMember 2019-01-01 2019-09-30 0001368365 mark:FinancingAgreementAmendmentMember us-gaap:LoansPayableMember 2018-09-28 0001368365 mark:FinancingAgreementAmendmentMember us-gaap:LoansPayableMember 2018-04-30 2018-04-30 0001368365 us-gaap:NotesPayableOtherPayablesMember 2017-04-12 0001368365 us-gaap:LoansPayableMember us-gaap:LondonInterbankOfferedRateLIBORMember 2018-04-30 2018-04-30 0001368365 mark:ThirdMonthMember mark:FinancingAgreementAmendmentMember us-gaap:LoansPayableMember 2018-06-29 2018-06-29 0001368365 mark:FirstTwoMonthsMember mark:FinancingAgreementAmendmentMember us-gaap:LoansPayableMember 2018-06-29 2018-06-29 0001368365 mark:SixthFinancingAmendmentMember us-gaap:LoansPayableMember 2019-06-30 0001368365 mark:SixthFinancingAmendmentMember us-gaap:LoansPayableMember 2019-01-01 2019-09-30 0001368365 mark:FinancingAgreementAmendmentMember us-gaap:LoansPayableMember 2018-06-29 2018-06-29 0001368365 us-gaap:LoansPayableMember 2016-09-20 2016-09-20 0001368365 us-gaap:LoansPayableMember us-gaap:LondonInterbankOfferedRateLIBORMember 2019-01-01 2019-09-30 0001368365 us-gaap:LoansPayableMember 2015-09-24 0001368365 us-gaap:LoansPayableMember 2019-01-01 2019-09-30 0001368365 us-gaap:EmployeeStockOptionMember 2019-09-30 0001368365 us-gaap:EmployeeStockOptionMember 2018-12-31 0001368365 us-gaap:EmployeeStockOptionMember 2019-01-01 2019-09-30 0001368365 mark:ChinaCashBonusAwardsMember 2019-09-30 0001368365 mark:ChinaCashBonusAwardsMember 2019-01-01 2019-09-30 0001368365 mark:ChinaCashBonusAwardsMember 2018-12-31 0001368365 mark:AspireCapitalFundLLCMember us-gaap:PrivatePlacementMember 2019-03-29 2019-03-29 0001368365 mark:ChinaBrandingGroupLimitedMember mark:FinancingWarrantMember 2019-09-30 0001368365 mark:AspireCapitalFundLLCMember us-gaap:PrivatePlacementMember 2019-04-05 0001368365 mark:AspireCapitalFundLLCMember us-gaap:PrivatePlacementMember 2019-04-05 2019-04-05 0001368365 mark:AspireCapitalFundLLCMember 2019-04-05 2019-04-05 0001368365 mark:ChinaBrandingGroupLimitedMember mark:AcquisitionWarrantMember 2019-09-30 0001368365 us-gaap:OperatingSegmentsMember mark:TechnologyandDataIntelligenceMember us-gaap:SegmentContinuingOperationsMember 2019-09-30 0001368365 us-gaap:SegmentContinuingOperationsMember 2019-09-30 0001368365 us-gaap:OperatingSegmentsMember mark:TechnologyandDataIntelligenceMember us-gaap:SegmentContinuingOperationsMember 2018-12-31 0001368365 mark:CorporateAndReconcilingItemsMember us-gaap:SegmentContinuingOperationsMember 2019-09-30 0001368365 mark:CorporateAndReconcilingItemsMember us-gaap:SegmentContinuingOperationsMember 2018-12-31 0001368365 us-gaap:SegmentContinuingOperationsMember 2018-12-31 0001368365 us-gaap:OperatingSegmentsMember mark:TechnologyandDataIntelligenceMember 2019-07-01 2019-09-30 0001368365 mark:CorporateAndReconcilingItemsMember 2018-01-01 2018-09-30 0001368365 mark:CorporateAndReconcilingItemsMember 2019-07-01 2019-09-30 0001368365 us-gaap:OperatingSegmentsMember mark:TechnologyandDataIntelligenceMember 2018-01-01 2018-09-30 0001368365 mark:CorporateAndReconcilingItemsMember 2019-01-01 2019-09-30 0001368365 us-gaap:OperatingSegmentsMember mark:TechnologyandDataIntelligenceMember 2018-07-01 2018-09-30 0001368365 mark:CorporateAndReconcilingItemsMember 2018-07-01 2018-09-30 0001368365 us-gaap:OperatingSegmentsMember mark:TechnologyandDataIntelligenceMember 2019-01-01 2019-09-30 0001368365 mark:TechnologyandDataIntelligenceMember 2019-01-01 2019-09-30 0001368365 mark:TechnologyandDataIntelligenceMember 2019-07-01 2019-09-30 0001368365 mark:TechnologyandDataIntelligenceMember 2018-01-01 2018-09-30 0001368365 us-gaap:DiscontinuedOperationsDisposedOfBySaleMember mark:Vegas.comLLCMember 2019-07-01 2019-09-30 0001368365 us-gaap:DiscontinuedOperationsHeldforsaleMember mark:Vegas.comLLCMember 2018-01-01 2018-09-30 0001368365 us-gaap:DiscontinuedOperationsDisposedOfBySaleMember mark:Vegas.comLLCMember 2019-01-01 2019-05-15 0001368365 us-gaap:DiscontinuedOperationsHeldforsaleMember mark:Vegas.comLLCMember 2018-07-01 2018-09-30 0001368365 us-gaap:DiscontinuedOperationsDisposedOfBySaleMember mark:Vegas.comLLCMember 2019-01-01 2019-09-30 0001368365 us-gaap:DiscontinuedOperationsHeldforsaleMember mark:Vegas.comLLCMember 2018-12-31 0001368365 mark:AspireCapitalFundLLCMember us-gaap:SubsequentEventMember mark:AspirePurchaseAgreementMember 2019-10-07 2019-10-07 iso4217:USD xbrli:shares mark:segment xbrli:shares mark:future_event iso4217:USD xbrli:pure


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

FORM 10-Q

Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended September 30, 2019

http://api.tenkwizard.com/cgi/image?quest=1&rid=23&ipage=13196450&doc=10
Commission File Number 001-33720
Remark Holdings, Inc.

 
Delaware
 
33-1135689
 
 
State of Incorporation
 
IRS Employer Identification Number
 

3960 Howard Hughes Parkway, Suite 900
Las Vegas, NV 89169

Address, including zip code, of principal executive offices

702-701-9514

Registrant’s telephone number, including area code


Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Trading Symbol
 
Name of each exchange on which registered
Common Stock, $0.001 par value per share
 
MARK
 
The NASDAQ Stock Market LLC

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    

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

As of November 8, 2019, a total of 49,055,159 shares of our common stock were outstanding.



TABLE OF CONTENTS


PART I
 
 
Item 1.
 
 
 
 
Item 2.
Item 3.
Item 4.
 
 
 
PART II
 
 
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
 




SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

The matters discussed in this Quarterly Report on Form 10-Q include “forward-looking statements” about the plans, strategies, objectives, goals or expectations of Remark Holdings, Inc. and subsidiaries (“Remark”, “we”, “us”, “our”). You will find forward-looking statements principally in the sections entitled Risk Factors and Management’s Discussion and Analysis of Financial Condition and Results of Operations. Such forward-looking statements are identifiable by words or phrases indicating that Remark or management “expects,” “anticipates,” “plans,” “believes,” or “estimates,” or that a particular occurrence or event “will,” “may,” “could,” “should,” or “will likely” result, occur or be pursued or “continue” in the future, that the “outlook” or “trend” is toward a particular result or occurrence, that a development is an “opportunity,” “priority,” “strategy,” “focus,” that we are “positioned” for a particular result, or similarly-stated expectations. You should not place undue reliance on these forward-looking statements, which speak only as of the date of this report or such other report, release, presentation, or statement.

In addition to other risks and uncertainties described in connection with the forward-looking statements contained in this report and other periodic reports filed with the Securities and Exchange Commission (“SEC”), there are many important factors that could cause actual results to differ materially. Such risks and uncertainties include general business conditions, changes in overall economic conditions, our ability to integrate acquired assets, the impact of competition and other factors which are often beyond our control.

This should not be construed as a complete list of all of the economic, competitive, governmental, technological and other factors that could adversely affect our expected consolidated financial position, results of operations or liquidity. Additional risks and uncertainties not currently known to us or that we currently believe are immaterial also may impair our business, operations, liquidity, financial condition and prospects. We undertake no obligation to update or revise our forward-looking statements to reflect developments that occur or information that we obtain after the date of this report.







PART I FINANCIAL INFORMATION


ITEM 1.
FINANCIAL STATEMENTS

REMARK HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(dollars in thousands, except share and per share amounts)

 
September 30, 2019
 
December 31, 2018
 
(Unaudited)
 
 
Assets
 
 
 
Cash and cash equivalents
$
656

 
$
1,410

Trade accounts receivable, net
3,792

 
5,762

Prepaid expense and other current assets
6,233

 
7,907

Notes receivable, current

 
100

Assets of disposal group, current

 
28,966

Total current assets
10,681

 
44,145

Property and equipment, net
1,591

 
2,075

Operating lease assets
5,294

 

Investment in unconsolidated affiliates
1,920

 
2,005

Intangibles, net
752

 
1,010

Other long-term assets
1,245

 
450

Assets of disposal group, long-term

 
44,123

Total assets
$
21,483

 
$
93,808

Liabilities and Stockholders’ Deficit
 
 
 
Accounts payable
$
7,585

 
$
5,675

Accrued expense and other current liabilities
12,861

 
16,812

Contract liability
312

 
132

Note payable
3,000

 
3,000

Loans payable, current, net of unamortized discount and debt issuance cost
11,632

 
35,314

Liabilities of disposal group, current

 
41,648

Total current liabilities
35,390

 
102,581

Operating lease liabilities, long-term
5,436

 

Warrant liability
881

 
1,383

Other liabilities

 
2,934

Liabilities of disposal group, long-term

 
34

Total liabilities
41,707

 
106,932

 
 
 
 
Commitments and contingencies (Note 14)


 


 
 
 
 
Preferred stock, $0.001 par value; 1,000,000 shares authorized; none issued

 

Common stock, $0.001 par value; 100,000,000 shares authorized; 48,430,159 and 39,053,312 shares issued and outstanding at September 30, 2019 and December 31, 2018, respectively
48

 
39

Additional paid-in-capital
317,732

 
308,018

Accumulated other comprehensive income
(224
)
 
32

Accumulated deficit
(337,780
)
 
(321,213
)
Total stockholders’ deficit
(20,224
)
 
(13,124
)
Total liabilities and stockholders’ deficit
$
21,483

 
$
93,808

See Notes to Unaudited Condensed Consolidated Financial Statements


REMARK HOLDINGS, INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss
(dollars in thousands, except per share amounts)

 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
2019
 
2018
Revenue
$
686

 
$
1,755

 
$
4,760

 
$
7,468

Cost and expense
 
 
 
 
 
 
 
Cost of revenue (excluding depreciation and amortization)
189

 
1,231

 
3,323

 
5,778

Sales and marketing
736

 
1,108

 
2,282

 
3,165

Technology and development
752

 
1,459

 
2,910

 
3,550

General and administrative
3,052

 
3,760

 
8,483

 
25,410

Depreciation and amortization
229

 
520

 
814

 
1,657

Other operating expense

 
47

 
6

 
93

Total cost and expense
4,958

 
8,125

 
17,818

 
39,653

Operating loss
(4,272
)
 
(6,370
)
 
(13,058
)
 
(32,185
)
Other income (expense)
 
 
 
 
 
 
 
Interest expense
(457
)
 
(345
)
 
(1,397
)
 
(1,017
)
Other income (expense), net
(24
)
 

 
23

 
44

Change in fair value of warrant liability
(160
)
 
3,525

 
502

 
22,190

Other gain (loss), net
(28
)
 
(16
)
 
(27
)
 
507

Total other income (expense), net
(669
)
 
3,164

 
(899
)
 
21,724

Loss from continuing operations before income taxes
(4,941
)
 
(3,206
)
 
(13,957
)
 
(10,461
)
Benefit from income taxes

 
442

 

 
1,437

Loss from continuing operations
$
(4,941
)
 
$
(2,764
)
 
$
(13,957
)
 
$
(9,024
)
Loss from discontinued operations, net of tax (Note 17)

 
(1,001
)
 
(2,610
)
 
(5,415
)
Net loss
$
(4,941
)
 
$
(3,765
)
 
$
(16,567
)
 
$
(14,439
)
Other comprehensive income (loss)
 
 
 
 
 
 
 
Foreign currency translation adjustments
(289
)
 
(82
)
 
(256
)
 
(67
)
Comprehensive loss
$
(5,230
)
 
$
(3,847
)
 
$
(16,823
)
 
$
(14,506
)
 
 
 
 
 
 
 
 
Weighted-average shares outstanding, basic and diluted
46,282

 
35,463

 
43,085

 
33,608

 
 
 
 
 
 
 
 
Net loss per share, basic and diluted
 
 
 
 
 
 
 
Continuing operations
$
(0.11
)
 
$
(0.08
)
 
$
(0.32
)
 
$
(0.27
)
Discontinued operations

 
(0.03
)
 
(0.06
)
 
(0.16
)
Consolidated
$
(0.11
)
 
$
(0.11
)
 
$
(0.38
)
 
$
(0.43
)
 
 
 
 
 
 
 
 
See Notes to Unaudited Condensed Consolidated Financial Statements


REMARK HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Stockholders’ Deficit
(in thousands, except number of shares)

 
Three Months Ended September 30, 2019
 
Common Stock Shares
 
Common Stock Par Value
 
Additional Paid-In Capital
 
Accumulated Other Comprehensive Income (Loss)
 
Accumulated Deficit
 
Total
Balance at June 30, 2019
46,130,159

 
$
46

 
$
315,829

 
$
65

 
$
(332,839
)
 
$
(16,899
)
Net loss

 

 

 

 
(4,941
)
 
(4,941
)
Share-based compensation

 

 
65

 

 

 
65

Common stock sales
2,300,000

 
2

 
1,838

 

 

 
1,840

Other

 

 

 
(289
)
 

 
(289
)
Balance at September 30, 2019
48,430,159

 
$
48

 
$
317,732

 
$
(224
)
 
$
(337,780
)
 
$
(20,224
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended September 30, 2018
 
Common Stock Shares
 
Common Stock Par Value
 
Additional Paid-In Capital
 
Accumulated Other Comprehensive Income (Loss)
 
Accumulated Deficit
 
Total
Balance at June 30, 2018
33,145,199

 
$
33

 
$
293,164

 
$
130

 
$
(310,329
)
 
$
(17,002
)
Net loss

 

 

 

 
(3,765
)
 
(3,765
)
Share-based compensation

 

 
844

 

 

 
844

Common stock sales
3,308,812

 
3

 
9,965

 

 

 
9,968

Equity instrument exercises
14,685

 

 
33

 

 

 
33

Other

 

 

 
(82
)
 

 
(82
)
Balance at September 30, 2018
36,468,696

 
$
36

 
$
304,006

 
$
48

 
$
(314,094
)
 
$
(10,004
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended September 30, 2019
 
Common Stock Shares
 
Common Stock Par Value
 
Additional Paid-In Capital
 
Accumulated Other Comprehensive Income (Loss)
 
Accumulated Deficit
 
Total
Balance at December 31, 2018
39,053,312

 
$
39

 
$
308,018

 
$
32

 
$
(321,213
)
 
$
(13,124
)
Net loss

 

 

 

 
(16,567
)
 
(16,567
)
Share-based compensation

 

 
379

 

 

 
379

Common stock sales
9,374,597

 
9

 
9,331

 

 

 
9,340

Equity instrument exercises
2,250

 

 
4

 

 

 
4

Other

 

 

 
(256
)
 

 
(256
)
Balance at September 30, 2019
48,430,159

 
$
48

 
$
317,732

 
$
(224
)
 
$
(337,780
)
 
$
(20,224
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended September 30, 2018
 
Common Stock Shares
 
Common Stock Par Value
 
Additional Paid-In Capital
 
Accumulated Other Comprehensive Income (Loss)
 
Accumulated Deficit
 
Total
Balance at December 31, 2017
28,406,026

 
$
28

 
$
220,117

 
$
115

 
$
(299,848
)
 
$
(79,588
)
Net loss

 

 

 

 
(14,439
)
 
(14,439
)
Effect of adopting new revenue recognition policy

 

 

 

 
193

 
193

Share-based compensation

 

 
13,079

 

 

 
13,079

Common stock sales
3,308,812

 
3

 
9,965

 

 

 
9,968

Equity instrument exercises
4,753,858

 
5

 
60,887

 

 

 
60,892

Reclassification of liability-classified stock-based compensation

 

 
(12
)
 

 

 
(12
)
Other

 

 
(30
)
 
(67
)
 

 
(97
)
Balance at September 30, 2018
36,468,696

 
$
36

 
$
304,006

 
$
48

 
$
(314,094
)
 
$
(10,004
)





REMARK HOLDINGS, INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Cash Flows
(dollars in thousands)


 
Nine Months Ended September 30,
 
2019
 
2018
Net cash used in continuing operating activities
$
(10,748
)

$
(16,963
)
Net cash used in discontinued operating activities
(7,159
)
 
(1,728
)
Net cash used in operating activities
(17,907
)
 
(18,691
)
Cash flows from investing activities:
 
 
 
Proceeds from sale of business
30,000

 

Proceeds from disposition of assets

 
629

Purchases of property, equipment and software
(5
)
 
(396
)
Payment of payroll costs capitalized to software in progress
(127
)
 
(346
)
Acquisition of unconsolidated affiliate

 
(480
)
Net cash provided by (used in) continuing investing activities
29,868


(593
)
Net cash used in discontinued investing activities
(18,396
)
 
(1,986
)
Net cash provided by (used in) investing activities
11,472

 
(2,579
)
Cash flows from financing activities:

 

Proceeds from issuance of common stock, net
9,344

 
10,951

Payment of loan fees and debt issuance cost
(2,275
)
 
(1,526
)
Repayments of debt
(25,526
)
 

Payment of contingent consideration in business acquisitions

 
(900
)
Net cash provided by (used in) financing activities
(18,457
)

8,525

Net change in cash, cash equivalents and restricted cash
(24,892
)

(12,745
)
Cash, cash equivalents and restricted cash:


 
 
Beginning of period, including cash in disposal group
25,548

 
34,302

End of period
$
656

 
$
21,557

 
 
 
 
Supplemental cash flow information:
 
 
 
Cash paid for interest
$
2,211

 
$
3,426

 
 
 
 
Supplemental schedule of non-cash investing and financing activities:
 
 
 
Issuance of common stock upon warrant exercise
$

 
$
59,907

Capitalization of interest to debt principal
$
555

 
$

Common stock subscription payable
$

 
$
520

Increase in loan payable
$
1,103

 
$

See Notes to Unaudited Condensed Consolidated Financial Statements


REMARK HOLDINGS, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements



NOTE 1. ORGANIZATION AND BUSINESS

Organization and Business

Remark Holdings, Inc. and subsidiaries (“Remark”, “we”, “us”, or “our”), which include its consolidated variable-interest entities (“VIEs”), are primarily technology-focused. Our KanKan data intelligence platform serves as the basis for our development and deployment of artificial-intelligence-based solutions for businesses in many industries and geographies. We also own and operate digital media properties that deliver relevant, dynamic content and e-commerce solutions. Our common stock is listed on the Nasdaq Capital Market under the ticker symbol MARK.

 
Going Concern
 
During the nine months ended September 30, 2019, and in each fiscal year since our inception, we have incurred net losses which have resulted in an accumulated deficit of $337.8 million as of September 30, 2019. Additionally, our operations have historically used more cash than they have provided. Net cash used in continuing operating activities was $10.7 million during the nine months ended September 30, 2019. As of September 30, 2019, our cash and cash equivalents balance was $0.7 million, and we had a negative working capital balance of $24.7 million.

On March 29, 2019, we entered into a common stock purchase agreement (the “2019 Aspire Purchase Agreement”) with Aspire Capital Fund, LLC (“Aspire Capital”), which provides that, upon the terms and subject to the conditions and limitations set forth therein, we have the right to direct Aspire Capital to purchase up to an aggregate of $30.0 million of shares of our common stock over the 30-month term of the 2019 Aspire Purchase Agreement. The 2019 Aspire Purchase Agreement, which we describe in more detail in Note 15, terminated and replaced the common stock purchase agreement we had entered into with Aspire Capital on July 2, 2018 (the “2018 Aspire Purchase Agreement”).

Concurrently with entering into the 2019 Aspire Purchase Agreement, we also entered into a registration rights agreement with Aspire Capital, in which we agreed to file with the Securities and Exchange Commission (the “SEC”) one or more registration statements, as necessary, and to the extent permissible and subject to certain exceptions, to register under the Securities Act of 1933, as amended, the sale of the shares of our common stock that may be issued to Aspire Capital under the 2019 Aspire Purchase Agreement. We have filed with the SEC a prospectus supplement to our effective shelf Registration Statement on Form S-3 (File No. 333-225448) registering all of the shares of common stock that may be offered to Aspire Capital from time to time under the 2019 Aspire Purchase Agreement.

As of September 30, 2019, we have issued to Aspire Capital a total of 2,504,370 shares of our common stock under the 2019 Aspire Purchase Agreement. During the nine months ended September 30, 2019, we issued a total of 9,374,597 shares of our common stock to private investors and to Aspire Capital under the 2018 Aspire Purchase Agreement and the 2019 Aspire Purchase Agreement in exchange for approximately $9.3 million plus Aspire Capital’s commitment to participate in the 2019 Aspire Purchase Agreement.

We are a party to a financing agreement dated as of September 24, 2015 (as amended, the “Financing Agreement”) with certain of our subsidiaries as borrowers (together with Remark, the “Borrowers”), certain of our subsidiaries as guarantors (the “Guarantors”), the lenders from time to time party thereto (the “Lenders”) and MGG Investment Group LP (“MGG”), in its capacity as collateral agent and administrative agent for the Lenders, pursuant to which the Lenders extended credit to the Borrowers consisting of a term loan in the aggregate principal amount of $35.5 million (the “Loan”). The terms of the Financing Agreement, the amendments thereto, and related documents effective as of September 30, 2019 are described in Note 12, which also describes our ongoing events of default relating to our failure to make certain required payments under the Financing Agreement as well as certain other ongoing events of default.

On May 15, 2019, we completed the sale of all of the issued and outstanding membership interests of Vegas.com, LLC (“Vegas.com”), pursuant to a Membership Interest Purchase Agreement, dated as of March 15, 2019, with VDC-MGG Holdings LLC, an affiliate of MGG, for an aggregate purchase price of $30 million (the “VDC Transaction”). The cash proceeds of the VDC Transaction were used to pay amounts due under the Financing Agreement, of which approximately $10 million remained outstanding after giving effect to the application of such cash proceeds.




Our history of recurring operating losses, working capital deficiencies and negative cash flows from operating activities, in conjunction with the ongoing events of default under the Financing Agreement, give rise to substantial doubt regarding our ability to continue as a going concern.

We intend to fund our future operations and meet our financial obligations through revenue growth in our Technology and Data Intelligence segment; however, we cannot provide assurance that revenue, income and cash flows generated from our businesses will be sufficient to sustain our operations in the twelve months following the filing of this Form 10-Q (including but not limited to payment of the amounts required under the Financing Agreement). As a result, we are actively evaluating strategic alternatives including debt refinancing and potential sales of investment assets or operating businesses. However, we may need to obtain additional capital through equity financing.

Conditions in the debt and equity markets, as well as the volatility of investor sentiment regarding macroeconomic and microeconomic conditions, will play primary roles in determining whether we can successfully obtain additional capital. Additionally, pursuant to the Financing Agreement, we are subject to certain limitations on our ability and the ability of our subsidiaries to, among other things, incur additional debt and transfer, sell or otherwise dispose of assets, without the consent of the Lenders. We cannot be certain that we will be successful at raising additional capital.

A variety of factors, many of which are outside of our control, affect our cash flow; those factors include regulatory issues, competition, financial markets and other general business conditions. Based on financial projections, we believe that we will be able to meet our ongoing requirements for at least the next 12 months (including the amounts required under the Financing Agreement, based on the current status of discussions with the Lenders regarding ongoing events of default) with existing cash, cash equivalents and cash resources, and based on the probable success of one or more of the following plans:

monetize existing assets

refinance our debt

obtain additional capital through equity issuances, including but not limited to equity issuances to Aspire Capital under its existing purchase commitment (which equity issuances may dilute existing stockholders)


However, projections are inherently uncertain and the success of our plans is largely outside of our control. As a result, there is substantial doubt regarding our ability to continue as a going concern, and we may fully utilize our cash resources prior to November 12, 2020.


Comparability

We have reclassified certain amounts in our September 30, 2018 unaudited condensed consolidated financial statements to conform to the current presentation as of September 30, 2019. Specifically, we have changed how we present operating expense to better reflect the activities that generate such expense. Neither total stockholders’ deficit as of September 30, 2018 nor net loss or cash flows for the three and nine months ended September 30, 2018 changed because of the reclassifications.


NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

We prepared the accompanying unaudited Condensed Consolidated Balance Sheet as of September 30, 2019, with the audited Consolidated Balance Sheet amounts as of December 31, 2018 presented for comparative purposes, and the related unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss, the Condensed Consolidated Statements of Cash Flows and the Condensed Consolidated Statements of Stockholders’ Deficit in accordance with the instructions for Form 10-Q. In compliance with those instructions, we have omitted certain information and footnote disclosures normally included in annual consolidated financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”), though management believes the disclosures made herein are sufficient to ensure that the information presented is not misleading.

Our results of operations and our cash flows as of the end of the interim periods reported herein do not necessarily indicate the results we may experience for the remainder of the year or for any other future period.




Management believes that we have included all adjustments (including those of a normal, recurring nature) considered necessary to fairly present our unaudited Condensed Consolidated Balance Sheet and our unaudited Condensed Consolidated Statement of Stockholders’ Deficit, each as of September 30, 2019, as well as our unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss and Condensed Consolidated Statements of Cash Flows for all periods presented. You should read our unaudited condensed consolidated interim financial statements and footnotes in conjunction with our consolidated financial statements and footnotes included within the Annual Report on Form 10-K (the “2018 Form 10-K”).


Consolidation

We include all of our subsidiaries, which include the variable-interest entities (“VIEs”) for which we are the primary beneficiary, in our condensed consolidated financial statements, eliminating all significant intercompany balances and transactions during consolidation.

To comply with China’s laws which restrict foreign ownership of entities that operate within industries deemed sensitive by the Chinese government, we employ what we believe is a commonly-used organizational structure consisting of a wholly-foreign owned enterprise (“WFOE”) and the VIEs to operate our KanKan business. We own 100% of the equity of the WFOE, while the VIEs are companies formed in China under local laws which are owned by members of our management team. We funded the registered capital and operating expenses of the VIEs by extending loans to the VIEs’ owners. We are the primary beneficiary of the VIEs because the relationships between the VIEs and our WFOE are governed by contractual agreements, including in each case an Exclusive Call Option Agreement, an Exclusive Business Cooperation Agreement, a Proxy Agreement and an Equity Pledge Agreement, which give us control over the operations of the VIEs.
 

Use of Estimates
 
We prepare our consolidated financial statements in conformity with GAAP. While preparing our unaudited condensed consolidated financial statements, we make estimates and assumptions that affect amounts reported and disclosed in the unaudited condensed consolidated financial statements and accompanying notes. Accordingly, actual results could differ from those estimates. On an ongoing basis, we evaluate our estimates, including those related to accounts receivable, intangible assets, the useful lives of property and equipment, stock-based compensation, the fair value of the warrant liability, income taxes, and inventory reserve, among other items.


Changes to Significant Accounting Policies - Leases

We adopted Accounting Standards Codification Topic 842, Leases (“ASC 842”), as of January 1, 2019. When adopting ASC 842 we elected several practical expedients permitted under the transition guidance within ASC 842, which, among other things, allowed us to carry forward the historical lease classification and to avoid recording leases that had expired prior to the date of adoption. We also elected to combine the lease and non-lease components of our leases for office space (which represent the largest portion of our operating lease assets and liabilities) and not to record leases with initial terms of 12 months or less (short-term leases) on the balance sheet. We amortize the cost of short-term leases on a straight-line basis over the lease term.

As of January 1, 2019, our adoption of ASC 842 added $4.9 million of operating lease assets, $1.1 million of current operating lease liabilities (reported in Accrued expense and other current liabilities) and $5.7 million of long-term operating lease liabilities to our balance sheet, and it removed $3.3 million of previously-recorded deferred rent and early lease termination liabilities; it had no effect on consolidated net loss or consolidated cash flows.





Recently Issued Accounting Pronouncements

We have reviewed all recently issued accounting pronouncements. The pronouncements that we have already adopted, except as noted above for leases, did not have a material effect on our financial condition, results of operations, cash flows or reporting thereof, and except as otherwise noted above, we do not believe that any of the pronouncements that we have not yet adopted will have a material effect upon our financial condition, results of operations, cash flows or reporting thereof.


NOTE 3. REVENUE

We are not required to include disclosures related to remaining performance obligations because substantially all of our contracts with customers have an original expected duration of one year or less.


Disaggregation of Revenue

The following table presents a disaggregation of our revenue by major category (in thousands):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
2019
 
2018
Data platform services:
 
 
 
 
 
 
 
FinTech services
$

 
$
363

 
$

 
$
3,739

AI-based products and services
549

 
676

 
3,439

 
1,852

Advertising and other
137

 
716

 
1,321

 
1,877

Revenue
$
686

 
$
1,755

 
$
4,760

 
$
7,468




Significant Judgments

We make certain judgments when accounting for revenue, such as whether we act as a principal or as an agent in transactions or whether our contracts with customers fall within the scope of ASC 606, that affect the determination of the amount and timing of our revenue from contracts with customers. Based on the current facts and circumstances related to our contracts with customers, none of the judgments we make involve an elevated degree of qualitative significance or complexity such that further disclosure is warranted in terms of their potential impact on the amount and timing of our revenue.


Contract Assets and Contract Liabilities

We do not currently generate material contract assets. During the nine months ended September 30, 2019, our contract liability related to continuing operations changed only as a result of routine business activity.

During the nine months ended September 30, 2019, we did not recognize material amounts of revenue which were included in the beginning balance of Contract liability at January 1, 2019, while we recognized $0.3 million of revenue during the nine months ended September 30, 2018 which was included in the beginning balance of Contract liability at January 1, 2018.

During the nine months ended September 30, 2019 and 2018, we did not recognize revenue from performance obligations within the scope of ASC 606 that were satisfied in previous periods.





NOTE 4. FAIR VALUE MEASUREMENTS

Liabilities Related to Warrants to Purchase Common Stock

At the end of each reporting period, we use the Monte Carlo Simulation model to estimate and report the fair value of liabilities related to certain outstanding warrants to purchase common stock. As of September 30, 2019, our outstanding liability-classified warrants include the warrants we issued or that we are obligated to issue as part of the consideration for our acquisition (the “CBG Acquisition”) of assets of China Branding Group Limited (“CBG”) in September 2016 (the “CBG Acquisition Warrants”) and warrants we issued as a result of an amendment to the Financing Agreement related to the acquisition (the “CBG Financing Warrants”).

The following table presents the quantitative inputs, which we classify in Level 3 of the fair value hierarchy, used in estimating the fair value of the warrants:
 
September 30,
 
December 31,
 
2019
 
2018
CBG Financing Warrants
 
 
 
Expected volatility
85.00
%
 
70.00
%
Risk-free interest rate
1.75
%
 
2.52
%
Expected remaining term (years)
0.98

 
1.73

CBG Acquisition Warrants
 
 
 
Expected volatility
75.00
%
 
70.00
%
Risk-free interest rate
1.56
%
 
2.46
%
Expected remaining term (years)
3.97

 
4.72




In addition to the quantitative assumptions above, we also consider whether we would issue additional equity and, if so, the price per share of such equity. At September 30, 2019, we estimated that two future equity financing events would potentially occur within the subsequent twelve months.

Our estimate of expected volatility and our stock price tend to have the most significant impact on the estimated fair value of the CBG Financing Warrants and the CBG Acquisition Warrants. If we added or subtracted five percentage points with regard to our estimate of expected volatility, or if our stock price increased or decreased by five percent, our estimates of fair value would change approximately as follows (in thousands):
Change in volatility
Increase
 
Decrease
CBG Financing Warrants
$
40

 
$
40

CBG Acquisition Warrants
230

 
175

 
 
 
 
Change in stock price
 
 
 
CBG Financing Warrants
$
40

 
$
40

CBG Acquisition Warrants
60

 
60







The following table presents the change in the liability balance associated with our liability-classified warrants (in thousands):
 
Nine Months Ended September 30,
 
Year Ended December 31,
 
2019
 
2018
Balance at beginning of period
$
1,383

 
$
89,169

Warrant exercises

 
(59,907
)
Decrease in fair value
(502
)
 
(27,879
)
Balance at end of period
$
881

 
$
1,383




At January 1, 2018, our outstanding liability-classified warrants included warrants we issued in connection with our acquisition of all of the outstanding equity interests in Vegas.com in September 2015 (the “VDC Acquisition”) and the financing related thereto (the “VDC Acquisition Warrants” and the “VDC Financing Warrants”, respectively). On January 8, 2018, holders of VDC Acquisition Warrants with respect to 2,416,996 shares of our common stock exercised such warrants. Because the VDC Acquisition Warrants provided that such warrants were exercisable on a cashless basis only, we issued a total of 750,102 shares of common stock in settlement of such warrants without receiving any proceeds from the exercise thereof.

On January 10, 2018, we exercised our right to exercise all remaining VDC Acquisition Warrants and VDC Financing Warrants (which right became effective when the closing price of our common stock reached $14.00), exercising VDC Acquisition Warrants with respect to 6,184,414 shares of our common stock and VDC Financing Warrants with respect to 3,117,148 shares of our common stock. Because the VDC Acquisition Warrants and VDC Financing Warrants provided that such warrants were exercisable on a cashless basis only, we issued a total of 2,236,915 and 1,385,396 shares of common stock to the holders of the VDC Acquisition Warrants and the VDC Financing Warrants, respectively, in settlement of such warrants without receiving any proceeds from the exercise thereof.


Contingent Consideration Issued in Business Acquisition

We used the discounted cash flow valuation technique to estimate the fair value of the liability related to certain cash payments stipulated in the VDC Acquisition that were contingent upon the performance of Vegas.com in the years ended December 31, 2016, 2017, and 2018 (the “Earnout Payments”). The significant unobservable inputs that we used, which we classify in Level 3 of the fair value hierarchy, were projected earnings before interest, taxes, depreciation and amortization (“EBITDA”), the probability of achieving certain amounts of EBITDA, and the rate used to discount the liability.

The following table presents the change during the nine months ended September 30, 2019 in the balance of the liability associated with the Earnout Payments (in thousands):
Balance at beginning of period
$
990

Payments
(8
)
Change in fair value of contingent consideration (included in Other loss)
10

Interest accrued on unpaid balance
75

Balance at end of period
$
1,067




On the Condensed Consolidated Balance Sheets, we included the liability for contingent consideration as a component of Accrued expense and other current liabilities.





NOTE 5. TRADE ACCOUNTS RECEIVABLE

 
September 30,
2019
 
December 31, 2018
Gross accounts receivable balance
$
4,666

 
$
5,891

Allowance for bad debt
(874
)
 
(129
)
Accounts receivable, net
$
3,792

 
$
5,762




Generally, it is not unusual for Chinese entities to pay their vendors on longer timelines than the timelines typically observed in U.S. commerce. Trade receivables related to our AI projects (exclusive of FinTech) represent 71% of our gross trade receivables. Substantially all of our remaining gross trade receivables balance resulted from the FinTech service we have discontinued. The delay in collection of the FinTech-related balance is related to the processes our customer must follow to properly shut down the short-term loan business in which they previously participated before they can finally pay all their vendors, but we have no evidence that full collection of such balance is at risk.


NOTE 6. INVESTMENT IN UNCONSOLIDATED AFFILIATES

In 2009, we co-founded a U.S.-based venture, Sharecare, Inc. (“Sharecare”), to build a web-based platform that simplifies the search for health and wellness information. The other co-founders of Sharecare were Dr. Mehmet Oz, HARPO Productions, Discovery Communications, Jeff Arnold and Sony Pictures Television. As of September 30, 2019, we owned approximately 4.6% of Sharecare’s issued stock and maintained representation on its Board of Directors.

During June 2018, one of our consolidated VIEs acquired a 20% interest in Beijing All-in-one Cloud Net Technology, Co. Ltd. (“AIO”), a Chinese technology company which provides consulting and data services to the Chinese film industry, in exchange for $1.0 million, a portion of which was paid by September 30, 2019, and a license to use our proprietary KanKan data intelligence platform in China. Based on our evaluation of the facts and circumstances related to the transaction, we determined that we will account for such transaction using the equity method of accounting. We recognize our equity in the net earnings or losses relating to AIO on a one-quarter reporting lag in our Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss. For the three months ended September 30, 2019, the amount of our equity in AIO’s net earnings for their quarter ended June 30, 2019 was not material.


NOTE 7. PREPAID EXPENSE AND OTHER CURRENT ASSETS

The following table presents the components of prepaid expense and other current assets (in thousands):
 
September 30,
2019
 
December 31, 2018
Other receivables
$
3,625

 
$
4,607

Prepaid expense
840

 
1,076

Deposits
1,282

 
1,395

Inventory, net
225

 
587

Other current assets
261

 
242

Total
$
6,233

 
$
7,907

 
 
 
 






NOTE 8. PROPERTY AND EQUIPMENT
Property and equipment consist of the following (in thousands, except estimated lives):
 
Estimated Life
(Years)
 
September 30,
2019
 
December 31, 2018
Computers and equipment
3
 
999

 
1,004

Furniture and fixtures
3
 
23

 
20

Software
3
 
4,856

 
4,918

Software development in progress
 
 
1,010

 
924

Leasehold improvements
10
 
303

 
310

Total property, equipment and software
 
 
$
7,191

 
$
7,176

Less accumulated depreciation
 
 
(5,600
)
 
(5,101
)
Total property, equipment and software, net
 
 
$
1,591

 
$
2,075




For the nine months ended September 30, 2019 and 2018, depreciation (and amortization of software) expense was $0.6 million and $1.1 million, respectively.


NOTE 9. LEASES

We lease office space and equipment under contracts we classify as operating leases. None of our leases are financing leases. Several of our leases include one or more options to renew; however, as of September 30, 2019, we are not reasonably certain that we will exercise the renewal options and we have not included such renewal options in the lease liabilities or disclosures herein.

As of September 30, 2019, the current portion of our operating lease liability was $1.5 million and was reported in Accrued expense and other current liabilities on our Unaudited Condensed Consolidated Balance Sheet.

The following table presents the detail of our lease expense, net of sublease income, which is reported in General and administrative expense (in thousands):
 
Three Months Ended September 30, 2019
 
Nine Months Ended September 30, 2019
Operating lease expense
$
492

 
$
1,195

Short-term lease expense
67

 
231

Less: Sublease income
(94
)
 
(172
)
Lease expense
$
465

 
$
1,254




We reported within continuing operating cash flows for the nine months ended September 30, 2019 $1.5 million of cash paid for amounts included in the measurement of operating lease liabilities.

As of September 30, 2019, our operating leases had a weighted-average remaining lease term of approximately 48 months, and we used a weighted-average discount rate of 13% to measure our operating lease liabilities.





Maturity of Lease Liabilities

The following table presents information regarding the maturities of our undiscounted remaining operating lease payments, with a reconciliation to the amount of the liabilities representing such payments as presented in our September 30, 2019 Unaudited Condensed Consolidated Balance Sheet (in thousands).
Operating lease liabilities maturing during the next:
 
One year
$
2,319

Two years
2,183

Three years
1,976

Four years
1,780

Five years
752

Thereafter

Total undiscounted cash flows
$
9,010

Present value of cash flows
$
6,941

 
 
Lease liabilities on balance sheet:
 
Short-term
$
1,505

Long-term
5,436

Total lease liabilities
$
6,941




Significant Judgments

When accounting for our leases, we make certain judgments, such as whether a contract contains a lease or what discount rate to use, that affect the determination of the amount of our lease assets and liabilities. Based on the current facts and circumstances related to our contracts, none of the judgments we make involve an elevated degree of qualitative significance or complexity such that further disclosure is warranted.





NOTE 10. INTANGIBLE ASSETS

The following table summarizes intangible assets by category (in thousands):
 
September 30, 2019
 
December 31, 2018
 
Gross Amount
 
Accumulated
Amortization
 
Net Amount
 
Gross Amount
 
Accumulated
Amortization
 
Net Amount
Finite-lived intangible assets
 
 
 
 
 
 
 
 
 
 
 
Domain names
$
1,256

 
$
(856
)
 
$
400

 
$
1,256

 
$
(801
)
 
$
455

Media content and broadcast rights
1,350

 
(1,125
)
 
225

 
1,350

 
(923
)
 
427

Other intangible assets
68

 
(68
)
 

 
68

 
(68
)
 

 
$
2,674

 
$
(2,049
)
 
$
625

 
$
2,674

 
$
(1,792
)
 
$
882

Indefinite-lived intangible assets
 
 
 
 
 
 
 
 
 
 
 
License to operate in China
127

 

 
127

 
128

 

 
128

Total intangible assets
$
2,801

 

 
$
752

 
$
2,802

 

 
$
1,010




Total amortization expense was $0.3 million and $0.5 million for the nine months ended September 30, 2019 and 2018, respectively.


NOTE 11. INCOME TAX

Our effective tax rate (“ETR”) from continuing operations was 0.0% for the nine months ended September 30, 2019. The quarterly ETR has not significantly differed from our historical annual ETR because we continue to maintain a full valuation allowance against our existing deferred tax assets.


NOTE 12. DEBT

Short-Term Debt

On April 12, 2017, we issued a short-term note payable in the principal amount of $3.0 million to a private lender in exchange for cash in the same amount. The agreement, which does not have a stated interest rate, required us to repay the note plus a fee of $115 thousand on the maturity date of June 30, 2017. The note is accruing interest at $500 per day on the unpaid principal until we repay the note in full.





Other Debt

The following table presents debt (in thousands) as of:
 
September 30,
2019
 
December 31, 2018
Loan payable to MGG
$
11,632

 
$
35,500

Unamortized original issue discount

 
(1,418
)
Unamortized debt issuance cost

 
(18
)
Carrying value of Loan
11,632

 
34,064

Exit fee payable in relation to Loan

 
1,250

Total long-term debt
$

 
$
35,314

Less: current portion

 
(35,314
)
Long-term debt, less current portion and net of debt issuance cost
$

 
$




On September 24, 2015, we entered into the Financing Agreement, pursuant to which the Lenders provided us with the $27.5 million Loan. We entered into Amendment No. 1 to Financing Agreement on September 20, 2016 which, among other changes, increased the Loan by $8.0 million to a total aggregate principal amount of $35.5 million. As of September 30, 2019, after amendments and other events described below, the Loan bore interest at three-month LIBOR (with a floor of 2%) plus 11% per annum, payable monthly, and had a maturity date of May 15, 2020. As of September 30, 2019, the applicable interest rate on the Loan was approximately 13% per annum.

In connection with the Financing Agreement, we also entered into a security agreement dated as of September 24, 2015 (the “Security Agreement”) with the other Borrowers and the Guarantors for the benefit of MGG, as collateral agent for the Secured Parties referred to therein, to secure the obligations of the Borrowers and the Guarantors under the Financing Agreement. The Security Agreement provides for a first-priority lien on, and security interest in, all assets of Remark and our subsidiaries, subject to certain exceptions.

On April 30, 2018, we entered into Amendment No. 4 and Waiver to Financing Agreement (the “Fourth Financing Amendment”), which provided for, among other things, (i) a reduction in the interest rate on the remaining amount outstanding under the Financing Agreement to three-month LIBOR plus 8.5% per annum, (ii) an extension of the maturity date under the Financing Agreement to September 30, 2020, (iii) a modification of certain of our covenants under the Financing Agreement, including covenants regarding capital expenditures, minimum value of certain of our assets, consolidated EBITDA of Vegas.com and its subsidiaries, and revenue generated by KanKan, (iv) an increase in the amount we are permitted to invest in our non-U.S. subsidiaries operating our KanKan business, (v) a waiver by the Lenders of certain events of default under the Financing Agreement, and (vi) prepayment by the Borrowers of $8.0 million principal amount outstanding and $3.5 million of exit fees under the Financing Agreement within 60 days following the date of the Fourth Financing Amendment. In consideration for the Lenders’ entry into the Fourth Financing Amendment, we also paid a closing fee of approximately $413 thousand.

Effective as of June 29, 2018, we entered into Amendment No. 5 and Waiver to Financing Agreement (the “Fifth Financing Amendment”) pursuant to which the Lenders agreed, among other things, to extend the due date of the prepayments required by the Fourth Financing Amendment for up to three months, provided that we made extension payments on the first business day of each such month. The extension payments were $250,000 for each of the first two months and $500,000 for the third month, with the final extension period ending on September 28, 2018. We made the extension payments required by the Fifth Financing Amendment to extend the due date of the prepayments required by the Fourth Financing Amendment to September 28, 2018; however, we failed to prepay the $8.0 million principal amount and $3.5 million of exit fees due on such date. Such failure to make the required payments constituted an event of default under the Financing Agreement and as a result, from September 28, 2018, the Loan bore interest at three-month LIBOR plus 11.0%, the default interest rate.

On May 15, 2019, we completed the VDC Transaction and used the cash proceeds of $30 million to pay amounts due under the Financing Agreement, of which approximately $10 million remained outstanding after giving effect to the application



of such cash proceeds. On the same date, in connection with the closing of the VDC Transaction, we entered into Amendment No. 6 and Waiver to Financing Agreement (the “Sixth Financing Amendment”), pursuant to which, among other things, (i) the Lenders waived all events of default under the Financing Agreement existing as of the date of the Sixth Financing Amendment, (ii) MGG released any and all liens in the equity interests of Vegas.com and its subsidiaries and their assets and properties, (iii) the Borrowers may add the amount of any accrued and unpaid interest to the outstanding principal amount of the Loan, (iv) the remaining principal amount outstanding under the Financing Agreement accrues interest at a rate equal to the three-month LIBOR (with a floor of 2%) plus 8.5% per annum, (v) the continuing Loan has a maturity date of May 15, 2020, (vi) covenants with respect to capital expenditures and revenue generated by our KanKan business were eliminated and covenants regarding the minimum value of certain of our assets, our minimum liquidity and the amount we are permitted to invest in our non-U.S. subsidiaries were modified, and (vii) we were required to commence a sale process with respect to our equity in Sharecare within five business days of the effective date of the Sixth Financing Amendment, and to use the net cash proceeds of such sale to pay in full our outstanding obligations under the Financing Agreement the (“Sharecare Covenant”).

The Financing Agreement contains certain affirmative and negative covenants, including but not limited to a covenant requiring us to maintain a minimum of $1.0 million in unrestricted cash in designated bank accounts. As of September 30, 2019, we were not in compliance with such minimum cash covenant. We were also not in compliance with certain other covenants under the Financing Agreement, including a covenant requiring us to obtain and pay for a tail directors’ and officers’ liability insurance policy (the “Tail Policy”) by June 4, 2019 in connection with the VDC Transaction, and a covenant requiring us to make the final Earnout Payment by June 14, 2019. Additionally, although we have actively taken steps to monetize our ownership interest in Sharecare, we did not comply with certain procedural requirements stipulated by the Sharecare Covenant. Our non-compliance with such covenants constitutes events of default under the Financing Agreement. In addition, in June 2019, the Lenders paid the $1.1 million of premium under the Tail Policy on our behalf and such amount was added to the amount of principal due under the Financing Agreement.


NOTE 13. OTHER LIABILITIES

The following table presents the components of other liabilities (in thousands):
 
December 31, 2018
Deferred rent
$
1,583

Accrued early lease termination liability
1,137

Deferred tax liability, net
214

Total
$
2,934

 
 




NOTE 14. COMMITMENTS AND CONTINGENCIES

At September 30, 2019, we had no material commitments outside the normal course of business.


Contingencies

We are neither a defendant in any material pending legal proceeding nor are we aware of any material threatened claims against us; therefore, we have not accrued any contingent liabilities, exclusive of the liability for the Earnout Payment related to the VDC Acquisition.





NOTE 15. STOCKHOLDERS' EQUITY, STOCK-BASED COMPENSATION AND NET LOSS PER SHARE

Equity Issuances

On March 29, 2019, we entered into the 2019 Aspire Purchase Agreement with Aspire Capital, which provides that, upon the terms and subject to the conditions and limitations set forth therein, we have the right to direct Aspire Capital to purchase up to an aggregate of $30.0 million of shares of our common stock over the 30-month term of the 2019 Aspire Purchase Agreement. On April 5, 2019, the conditions necessary for purchases under the 2019 Aspire Purchase Agreement to commence were satisfied and the 2018 Aspire Purchase Agreement was terminated under the terms of the 2019 Aspire Purchase Agreement. We issued 629,370 shares of our common stock to Aspire Capital upon commencement of the 2019 Aspire Purchase Agreement.

Under the 2019 Aspire Purchase Agreement, on any trading day over the 30-month term of such agreement, we have the right, in our sole discretion, to present Aspire Capital with a purchase notice (each, a “Purchase Notice”) directing Aspire Capital to purchase up to 50,000 shares of our common stock per trading day, up to an aggregate of $30.0 million under the 2019 Aspire Purchase Agreement, at a per share price (the “Purchase Price”) equal to the lesser of (i) the lowest sale price of our common stock on the purchase date or (ii) the arithmetic average of the three lowest closing sale prices for our common stock during the 10 consecutive trading days ending on the trading day immediately preceding the purchase date.

The aggregate purchase price payable by Aspire Capital on any one purchase date may not exceed $250,000, unless otherwise mutually agreed. The parties may mutually agree to increase the number of shares of our common stock that may be purchased per trading day pursuant to the terms of the 2019 Aspire Purchase Agreement to 3,000,000 shares.

In addition, on any trading day on which we submit a Purchase Notice to Aspire Capital to purchase at least 50,000 shares, we also have the right, in our sole discretion, to present Aspire Capital with a volume-weighted average price purchase notice (each, a “VWAP Purchase Notice”) directing Aspire Capital to purchase an amount of our common stock equal to up to 30% of the aggregate shares of our common stock traded on the next trading day (the “VWAP Purchase Date”), subject to a maximum number of shares we may determine, and a minimum purchase price threshold equal to the greater of (i) 80% of the closing price of our common stock on the trading day immediately preceding the VWAP Purchase Date or (ii) a higher price that may be determined by us. The purchase price per share pursuant to such VWAP Purchase Notice will be equal to the lesser of (i) the closing sale price of our common stock on the VWAP Purchase Date, or (ii) 97% of the volume-weighted average price for our common stock traded on its principal market on the VWAP Purchase Date, subject to certain exceptions.

We may deliver multiple Purchase Notices and VWAP Purchase Notices to Aspire Capital from time to time during the term of the 2019 Aspire Purchase Agreement, so long as the most recent purchase has been completed.

In addition, Aspire Capital will not be required to buy any shares of our common stock pursuant to a Purchase Notice that is received by Aspire Capital on any trading day on which the last closing trade price of our common stock is below $0.25. There are no trading volume requirements or restrictions under the 2019 Aspire Purchase Agreement, and we will control the timing and amount of sales of our common stock to Aspire Capital. Aspire Capital has no right to require any sales by us, but is obligated to make purchases from us as directed by us in accordance with the 2019 Aspire Purchase Agreement. There are no limitations on use of proceeds, financial or business covenants, restrictions on future fundings, rights of first refusal, participation rights, penalties or liquidated damages in the 2019 Aspire Purchase Agreement. The 2019 Aspire Purchase Agreement may be terminated by us at any time, at our discretion, without any cost to us. Aspire Capital has agreed that neither it nor any of its agents, representatives and affiliates will engage in any direct or indirect short-selling or hedging our common stock during any time prior to the termination of the 2019 Aspire Purchase Agreement.

The 2019 Aspire Purchase Agreement provides that the total number of shares that may be issued pursuant to such agreement is limited to 8,140,373 shares (the “Exchange Cap”), or 19.99% of our shares of common stock outstanding as of the date of the 2019 Aspire Purchase Agreement, unless stockholder approval is obtained in accordance with the rules of the Nasdaq Stock Market. If stockholder approval is not obtained, such limitation will not apply after the Exchange Cap is reached if at all times thereafter the average purchase price paid for all shares issued under the 2019 Aspire Purchase Agreement is equal to or greater than $1.85 per share. The 2019 Aspire Purchase Agreement also provides that at no time will Aspire Capital (together with its affiliates) beneficially own more than 19.99% of our outstanding shares of common stock.

As of September 30, 2019, we have issued to Aspire Capital a total of 2,504,370 shares of our common stock under the 2019 Aspire Purchase Agreement. During the nine months ended September 30, 2019, we issued a total of 9,374,597 shares of



our common stock to private investors and to Aspire Capital under the 2018 Aspire Purchase Agreement and the 2019 Aspire Purchase Agreement in exchange for $9.3 million plus Aspire Capital’s commitment to participate in the 2019 Aspire Purchase Agreement.


Stock-Based Compensation 

We are authorized to issue equity-based awards under our 2010 Equity Incentive Plan, our 2014 Incentive Plan, and our 2017 Incentive Plan, each of which our stockholders have approved. We also award cash bonuses (“China Cash Bonuses”) to our employees in China, which grants are not subject to a formal incentive plan and which can only be settled in cash. We grant such awards to attract, retain and motivate eligible officers, directors, employees and consultants. Under each of the plans, we have granted shares of restricted stock and options to purchase common stock to our officers and employees with exercise prices equal to or greater than the fair value of the underlying shares on the grant date.

Stock options and China Cash Bonuses generally expire 10 years from the grant date. All forms of equity awards and China Cash Bonuses vest upon the passage of time, the attainment of performance criteria, or both. When participants exercise stock options, we issue any shares of our common stock resulting from such exercise from new authorized and unallocated shares available at the time of exercise.

The following table summarizes activity under our equity incentive plans related to equity-classified stock option grants as of September 30, 2019, and changes during the nine months then ended:
 
Shares
 
Weighted-Average Exercise Price
 
Weighted-Average Remaining Contractual Term
(in years)
 
Aggregate Intrinsic Value (in thousands)
Outstanding at January 1, 2019
10,874,849

 
$
4.36

 
 
 
 
Granted
755,250

 
0.69

 
 
 
 
Exercised
(2,250
)
 
1.99

 
 
 
 
Forfeited, cancelled or expired
(158,117
)
 
3.70

 
 
 
 
Outstanding at September 30, 2019
11,469,732

 
$
4.12

 
6.3
 
$
285

Options exercisable at September 30, 2019
10,853,295

 
$
4.32

 
6.1
 
$
44




The following table summarizes activity under our equity incentive plans related to the China Cash Bonuses as of September 30, 2019, and changes during the nine months then ended:
 
Shares
 
Weighted-Average Exercise Price
 
Weighted-Average Remaining Contractual Term
(in years)
 
Aggregate Intrinsic Value (in thousands)
Outstanding at January 1, 2019
1,464,750

 
$
5.60

 
 
 
 
Granted
152,000

 
1.56

 
 
 
 
Forfeited, cancelled or expired
(723,250
)
 
4.94

 
 
 
 
Outstanding at September 30, 2019
893,500

 
$
5.36

 
8.2
 
$

Bonuses exercisable at September 30, 2019
496,250

 
$
5.39

 
7.8
 
$




During the nine months ended September 30, 2019, we did not award restricted stock under our equity incentive plans.




During the three months ended September 30, 2019 and 2018, we incurred share-based compensation expense of $0.1 million