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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, 2020

https://cdn.kscope.io/1fad66c4c69a949cbafb31005802726a-mark-20200930_g1.jpg
Commission File Number 001-33720
Remark Holdings, Inc.
Delaware33-1135689
State of IncorporationIRS Employer Identification Number

800 S. Commerce St.
Las Vegas, NV 89106

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 classTrading SymbolName of each exchange on which registered
Common Stock, $0.001 par value per shareMARKThe 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 filerAccelerated filer
Non-accelerated filerSmaller 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 20, 2020, a total of 99,505,041 shares of our common stock were outstanding.



TABLE OF CONTENTS

PART I
Item 1.
Financial Statements
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, 2020December 31, 2019
(Unaudited)
Assets
Cash and cash equivalents$2,090 $272 
Trade accounts receivable, net2,850 1,964 
Inventory, net1,062  
Prepaid expense and other current assets5,831 4,623 
Total current assets11,833 6,859 
Property and equipment, net267 341 
Operating lease assets385 4,359 
Investment in unconsolidated affiliates1,065 1,935 
Intangibles, net355 509 
Other long-term assets2,177 824 
Total assets$16,082 $14,827 
Liabilities and Stockholders’ Deficit
Accounts payable$6,570 $8,126 
Accrued expense and other current liabilities8,987 14,326 
Contract liability541 313 
Note payable1,500 3,000 
Loans payable, current 12,025 
Total current liabilities17,598 37,790 
Loans payable, long-term425  
Operating lease liabilities, long-term158 4,650 
Warrant liability748 115 
Total liabilities18,929 42,555 
Commitments and contingencies
Preferred stock,$0.001 par value; 1,000,000 shares authorized; zero issued
  
Common stock, $0.001 par value; 100,000,000 shares authorized; 99,502,416 and 51,055,159 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively
100 51 
Additional paid-in-capital351,529 319,275 
Accumulated other comprehensive income176 (227)
Accumulated deficit(354,652)(346,827)
Total stockholders’ deficit(2,847)(27,728)
Total liabilities and stockholders’ deficit$16,082 $14,827 
See Notes to Unaudited Condensed Consolidated Financial Statements
1
Financial Statement Index

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,
2020201920202019
Revenue$2,646 $686 $5,376 $4,760 
Cost and expense
Cost of revenue (excluding depreciation and amortization)1,679 189 2,910 3,323 
Sales and marketing417 736 1,319 2,282 
Technology and development738 752 2,863 2,910 
General and administrative2,380 3,052 7,018 8,483 
Depreciation and amortization72 229 228 814 
Impairments463  463  
Other operating expense   6 
Total cost and expense5,749 4,958 14,801 17,818 
Operating loss(3,103)(4,272)(9,425)(13,058)
Other income (expense)
Interest expense(60)(457)(1,296)(1,397)
Other income, net(58)(24)(1)23 
Change in fair value of warrant liability5,570 (160)(633)502 
Gain on lease termination2,044  3,582  
Other loss, net21 (28)(52)(27)
Total other income (expense), net7,517 (669)1,600 (899)
Income (loss) from continuing operations4,414 (4,941)(7,825)(13,957)
Loss from discontinued operations, net of tax
   (2,610)
Net income (loss)$4,414 $(4,941)$(7,825)$(16,567)
Other comprehensive income (loss)
Foreign currency translation adjustments65 (289)403 (256)
Comprehensive income (loss)$4,479 $(5,230)$(7,422)$(16,823)
Weighted-average shares outstanding, basic and diluted99,450 46,282 80,903 43,085 
Net loss per share, basic and diluted
Continuing operations$0.04 $(0.11)$(0.10)$(0.32)
Discontinued operations   (0.06)
Consolidated$0.04 $(0.11)$(0.10)$(0.38)
See Notes to Unaudited Condensed Consolidated Financial Statements
2
Financial Statement Index

REMARK HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Stockholders’ Deficit
(in thousands, except number of shares)
Three Months Ended September 30, 2020
Common Stock SharesCommon Stock Par ValueAdditional Paid-In CapitalAccumulated Other Comprehensive Income (Loss)Accumulated DeficitTotal
Balance at June 30, 202099,408,916 $99 $351,417 $111 $(359,066)(7,439)
Net loss— — — — 4,414 4,414 
Share-based compensation— — 38 — — 38 
Common stock issued— — — — —  
Equity instrument exercises93,500 1 74 — — 75 
Other— — — 65 — 65 
Balance at September 30, 202099,502,416 $100 $351,529 $176 $(354,652)$(2,847)
Three Months Ended September 30, 2019
Common Stock SharesCommon Stock Par ValueAdditional Paid-In CapitalAccumulated Other Comprehensive Income (Loss)Accumulated DeficitTotal
Balance at June 30, 201946,130,159 $46 $315,829 $65 $(332,839)$(16,899)
Net loss— — — — (4,941)(4,941)
Share-based compensation— — 65 — — 65 
Common stock issued2,300,000 2 1,838 — — 1,840 
Other— — — (289)— (289)
Balance at September 30, 201948,430,159 $48 $317,732 $(224)$(337,780)$(20,224)
Nine Months Ended September 30, 2020
Common Stock SharesCommon Stock Par ValueAdditional Paid-In CapitalAccumulated Other Comprehensive Income (Loss)Accumulated DeficitTotal
Balance at December 31, 201951,055,159 $51 $319,275 $(227)$(346,827)$(27,728)
Net loss— — — — (7,825)(7,825)
Share-based compensation— — 131 — — 131 
Common stock issued48,298,893 48 31,982 — — 32,030 
Equity instrument exercises148,364 1 141 — — 142 
Other— — — 403 — 403 
Balance at September 30, 202099,502,416 $100 $351,529 $176 $(354,652)$(2,847)
Nine Months Ended September 30, 2019
Common Stock SharesCommon Stock Par ValueAdditional Paid-In CapitalAccumulated Other Comprehensive Income (Loss)Accumulated DeficitTotal
Balance at December 31, 201839,053,312 $39 $308,018 $32 $(321,213)$(13,124)
Net loss— — — — (16,567)(16,567)
Share-based compensation— — 379 — — 379 
Common stock issued9,374,597 9 9,331 — — 9,340 
Equity instrument exercises2,250 — 4 — — 4 
Other— — — (256)— (256)
Balance at September 30, 201948,430,159 $48 $317,732 $(224)$(337,780)$(20,224)

See Notes to Unaudited Condensed Consolidated Financial Statements
3
Financial Statement Index

REMARK HOLDINGS, INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Cash Flows
(dollars in thousands)
Nine Months Ended September 30,
20202019
Net cash used in continuing operating activities
$(14,532)$(10,748)
Net cash used in discontinued operating activities
 (7,159)
Net cash used in operating activities
(14,532)(17,907)
Cash flows from investing activities:
Proceeds from sale of business
 30,000 
Purchases of property, equipment and software
(171)(5)
Payment of payroll costs capitalized to software in progress
 (127)
Advance to unrelated entity(1,410) 
Net cash (used in) provided by continuing investing activities
(1,581)29,868 
Net cash used in discontinued investing activities
 (18,396)
Net cash (used in) provided by investing activities
(1,581)11,472 
Cash flows from financing activities:
Proceeds from issuance of common stock, net
32,147 9,344 
Proceeds from debt issuance
425  
Payment of loan fees and debt issuance cost
 (2,275)
Repayments of debt
(13,781)(25,526)
Payment of contingent consideration in business acquisitions
(860) 
Net cash provided by (used in) financing activities
17,931 (18,457)
Net change in cash, cash equivalents and restricted cash
1,818 (24,892)
Cash, cash equivalents and restricted cash:
Beginning of period, including cash in disposal group
272 25,548 
End of period
$2,090 $656 
Supplemental cash flow information:
Cash paid for interest
$965 $2,211 
Supplemental schedule of non-cash investing and financing activities:
Capitalization of interest to debt principal
$256 $555 
Increase in loan payable
$ $1,103 
Settlement of operating lease liability through offset with operating lease asset of terminated office lease
$3,805 $ 

See Notes to Unaudited Condensed Consolidated Financial Statements
4
Financial Statement Index

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 (“AI-based”) solutions for businesses in many industries and geographies. We also own and operate an e-commerce digital media property focused on a luxury beach lifestyle. Our common stock is listed on the Nasdaq Capital Market under the ticker symbol MARK.

We recognize revenue primarily from sales in the U.S. and China of AI-based products and services from our KanKan business.


Economic and political risks

Our operations in China are subject to special considerations and significant risks not typically associated with companies in North America, including risks associated with, among others, the political, economic and legal environment and foreign currency exchange. Our results may be adversely affected by changes in the political conditions in China, and by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion, remittances abroad, and rates and methods of taxation.


COVID-19

Our unaudited condensed consolidated interim financial statements for the three and nine months ended September 30, 2020 were impacted by the effects of the global outbreak of a novel strain of coronavirus, or COVID-19, as national and local governmental authorities in China and the U.S., where we operate, have placed significant restrictions on travel and other activities within their respective countries, leading to extended business closures. The restrictions and resulting business closures have limited our operational capabilities, which could have a material adverse impact on our business and which have created significant uncertainties, such as the potential adverse effect of the pandemic on the economy, our vendors, our employees and customers and customer sentiment in general.

The extent of the impact of the pandemic on our business and financial results will depend largely on future developments, including the duration and severity of the outbreak, the length of the travel restrictions and business closures imposed by domestic and foreign governments, the impact on capital and financial markets and the related impact on the financial circumstances of our customers, all of which are highly uncertain and cannot be predicted. The pandemic-related situation is changing rapidly, and additional impacts of which we are not currently aware may arise, as recently underscored by the surge in cases in the U.S. We are closely monitoring developments in the U.S. and in China and are continually assessing the potential impact on our business.

To mitigate the potential material negative effects that COVID-19 may have on our business and to do our part to provide customers with the means to limit the spread of COVID-19, we have repurposed and improved our existing urban life cycle solution that we were selling to make schools in China “smart” schools to build a new product line of high-quality, highly-effective thermal imaging solutions that leverage our innovative software to provide customers with the ability to scan crowds and areas of high foot traffic for indications that certain persons may require secondary screening. We have begun sales efforts primarily in the U.S., as well as in other countries.

 
Going Concern
 
During the nine months ended September 30, 2020, and in each fiscal year since our inception, we have incurred net losses which have resulted in an accumulated deficit of $354.7 million as of September 30, 2020. Additionally, our operations have historically used more cash than they have provided. Net cash used in continuing operating activities was $14.5 million during the nine months ended September 30, 2020. As of September 30, 2020, our cash and cash equivalents balance was $2.1 million, and we had a negative working capital balance of $5.8 million.
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On March 3, 2020, we entered into a common stock purchase agreement, later amended on April 9, 2020 (as amended, the “2020 Aspire Purchase Agreement”), with Aspire Capital Fund, LLC (“Aspire Capital”) under which Aspire Capital purchased $30.0 million of shares of our common stock. The 2020 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 March 29, 2019 (the “2019 Aspire Purchase Agreement”).

Concurrently with entering into the 2020 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 2020 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 2020 Aspire Purchase Agreement.

During the nine months ended September 30, 2020, we issued a total of 48,238,893 shares of our common stock to Aspire Capital under the 2019 Aspire Purchase Agreement and the 2020 Aspire Purchase Agreement in exchange for approximately $32.0 million plus Aspire Capital’s commitment to participate in the 2020 Aspire Purchase Agreement.

Our history of recurring operating losses, working capital deficiencies and negative cash flows from operating activities 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 from our AI offerings, as well as through sales of our thermal-imaging products. We cannot, however, 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. As a result, we are actively evaluating strategic alternatives including debt and equity financings and potential sales of investment assets or operating businesses.

Conditions in the debt and equity markets, as well as the volatility of investor sentiment regarding macroeconomic and microeconomic conditions (in particular, in response to the COVID-19 pandemic), will play primary roles in determining whether we can successfully obtain additional capital. 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 the effects of the COVID-19 pandemic, 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 with existing cash, cash equivalents and cash resources, and based on the probable success of one or more of the following plans:

develop and grow new product line(s)

monetize existing assets

obtain additional capital through debt and/or equity issuances.

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 23, 2021.


NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

We prepared the accompanying unaudited Condensed Consolidated Balance Sheet as of September 30, 2020, with the audited Consolidated Balance Sheet amounts as of December 31, 2019 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
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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, 2020, 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 “2019 Form 10-K”).


Consolidation

We include all of our subsidiaries, including the 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.

We use the fair value method to account for equity investments in which we cannot exercise significant influence over the investee, such as with our investment in Sharecare, Inc. (“Sharecare”). With regard to our investment in Sharecare, GAAP allows us to continue to carry our investment at cost less impairment until such time as an observable price change in the underlying security occurs. Any gains or losses resulting from a change in fair value are recorded to the statement of operations. We use the equity method for equity investments in which we can exercise significant influence over the investee (see Note 6 for information on our investments in unconsolidated affiliates).
 

Use of Estimates
 
We prepare our consolidated financial statements in conformity with GAAP. While preparing our financial statements, we make estimates and assumptions that affect amounts reported and disclosed in the 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, share-based compensation, the fair value of the warrant liability, deferred income taxes, inventory reserve and purchase price allocation, among other items.

As of September 30, 2020, the impact of the COVID-19 pandemic continues to unfold. As a result, many of our estimates and assumptions required increased judgment and carry a higher degree of variability and volatility. As events continue to evolve and additional information becomes available, our estimates may change materially in future periods.


Cash and cash equivalents

Our cash and cash equivalents consist of funds held in bank accounts. Cash equivalents are highly-liquid investments with original maturities of three months or less, including money market funds.
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We maintain cash balances in United States dollars (“USD”), Chinese Renminbi (“RMB”), and Hong Kong dollars (“HKD”). The following table, reported in USD, disaggregates our cash balances by currency denomination (in thousands):
September 30, 2020December 31, 2019
Cash denominated in:
USD$1,054 $216 
HKD712 2 
RMB324 54 
Total cash$2,090 $272 


We maintain substantially all of our USD-denominated cash at a U.S financial institution where the balances are insured by the Federal Deposit Insurance Corporation up to $250,000. At times, however, our cash balances may exceed the FDIC-insured limit. As of September 30, 2020, we do not believe we have any significant concentrations of credit risk, although approximately $0.8 million of our USD-denominated cash balance exceeded the FDIC-insured limit. Cash held by our non-U.S. subsidiaries is subject to foreign currency fluctuations against the USD, although such risk is somewhat mitigated because we transfer U.S. funds to China to fund local operations. If, however, the USD is devalued significantly against the RMB, our cost to further develop our business in China could exceed original estimates.


Fair Value of Financial Instruments

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants (an exit price). When reporting the fair values of our financial instruments, we prioritize those fair value measurements into one of three levels based on the nature of the inputs, as follows:

Level 1:    Valuations based on quoted prices in active markets for identical assets and liabilities;

Level 2:    Valuations based on observable inputs that do not meet the criteria for Level 1, including quoted prices in inactive markets and observable market data for similar, but not identical instruments; and

Level 3:    Valuations based on unobservable inputs, which are based upon the best available information when external market data is limited or unavailable.

The fair value hierarchy requires us to use observable market data, when available, and to minimize the use of unobservable inputs when determining fair value. For some products or in certain market conditions, observable inputs may not be available.

We believe the reported carrying amounts for cash and cash equivalents, receivables, prepaids and other current assets, accounts payable, accrued expenses and other current liabilities, approximate their fair values because of the short-term nature of these financial instruments.


Foreign Currency Translation

We report all currency amounts in USD. Our China VIEs, however, maintain their books and records in their functional currency, which is RMB.

In general, when consolidating our subsidiaries or VIEs with non-USD functional currencies, we translate the amounts of assets and liabilities into USD using the exchange rate on the balance sheet date, and the amounts of revenue and expense are translated at the average exchange rate prevailing during the period. The gains and losses resulting from translation of financial statement amounts into USD are recorded as a separate component of accumulated other comprehensive loss within stockholders’ deficit.
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We used the exchange rates in the following table to translate amounts denominated in non-USD currencies as of and for the periods noted:
20202019
Exchange rates at September 30th:
RMB:USD0.147 0.140 
HKD:USD0.129 0.128 
Average exchange rate during the nine months ended September 30th:
RMB:USD0.143 0.146 


Revenue Recognition

AI-Based Products

We generate revenue by developing AI-based products, including fully-integrated AI solutions which combine our proprietary technology with third-party hardware and software products to meet end-user specifications. Under one type of contract for our AI-based products, we provide a single, continuous service to clients who control the assets as we create them. Accordingly, we recognize the revenue over the period of time during which we provide the service. Under another type of contract, we have performance obligations to provide fully-integrated AI solutions to our customer and we recognize revenue at the point in time when each performance obligation is completed and delivered to, tested by and accepted by our customer.

We recognize revenue when we transfer control of the promised goods or services to our customers, and we recognize an amount that reflects the consideration to which we expect to be entitled in exchange for those goods or services. If there is uncertainty related to the timing of collections from our customer, which may be the case if our customer is not the ultimate end user of our goods, we consider this to be uncertainty of the customer’s ability and intention to pay us when consideration is due. Accordingly, we recognize revenue only when we have transferred control of the goods or services and consideration received from the customer is nonrefundable.

When customers pay us prior to when we satisfy our obligation to transfer control of promised goods or services, we record the amount that reflects the consideration to which we expect to be entitled as a contract liability until such time as we satisfy our performance obligation.

For our contracts with customers, we generally extend short-term credit policies to our customers, typically up to one year for large-scale projects.

We record the incremental costs of obtaining contracts as an expense when incurred, because such costs would otherwise be amortized over a period of less than one year if capitalized.


Other

We generate revenue from other sources, such as from e-commerce activity in which we sell goods to our customers, or media production which involves the production of video or Internet-based content for our customers. We recognize the revenue from these contracts at the point in time when we transfer control of the good sold to the customer or when we deliver the promised media content. Substantially all of our contracts with customers that generate Other revenue are completed within one year or less.


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Inventory

We use the first-in first-out method to determine the cost of our inventory, then we report inventory at the lower of cost or net realizable value. We regularly review our inventory quantities on hand and record a provision for excess and obsolete inventory based primarily on our estimated sales forecasts.


Net Loss per Share

We calculate basic net loss per share using the weighted-average number of common stock shares outstanding during the period. For the calculation of diluted net loss per share, we give effect to all the shares of common stock that were outstanding during the period plus the number of additional common shares that would have been outstanding if all dilutive potential common shares had been issued, using the treasury stock method. Potential common shares are excluded from the computation when their effect is anti-dilutive. Dilutive potential shares of common stock consist of incremental shares of common stock issuable upon exercise of stock options and warrants.

For the three and nine months ended September 30, 2020 and 2019, there were no reconciling items related to either the numerator or denominator of the loss per share calculation, as their effect would have been anti-dilutive.

Securities which would have been anti-dilutive to a calculation of diluted earnings per share for the three and nine months ended September 30, 2020 and 2019 include 10,123,215 and 11,469,732 outstanding stock options, respectively, and 40,000 and 3,848,423 outstanding stock warrants, respectively.


Segments

As a result of our disposal of the previously-reported Travel and Entertainment segment, we currently report one segment: our Technology & Data Intelligence segment, which provides services to our customers based upon the data collected and processed by our proprietary data intelligence software. We have identified our Chief Executive Officer as our chief operating decision maker, who reviews operating results to make decisions about allocating resources and assessing performance for the entire company. Existing guidance, which is based on a management approach to segment reporting, establishes requirements to report selected segment information about our products and services, our major customers, and the countries in which we hold material assets and in which we report revenue. All our material operating units qualify for aggregation due to their similar customer bases and similarities in economic characteristics; nature of products and services; and procurement, manufacturing and distribution processes. Since we operate in one segment, all required financial information can be found in the accompanying financial statements.


Liabilities Related to Warrants Issued
 
We record certain common stock warrants we issued (see Note 4 for more detailed information) at fair value and recognize the change in the fair value of such warrants as a gain or loss which we report in the Other income (expense) section in our consolidated statement of operations. We report the warrants that we record at fair value as liabilities because they contain a conditional promise to issue a variable number of our common stock shares upon the warrants’ expiration, and the monetary amount of such obligation was fixed at the inception of the contract. We estimate the fair value of the warrants using an option pricing model.


Recently Issued Accounting Pronouncements

In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2020-06 (“ASU 2020-06”), Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. The ASU will simplify the accounting for convertible instruments by reducing the number of accounting models for convertible debt instruments and convertible preferred stock. Limiting the accounting models will result in fewer embedded conversion features being separately recognized from the host contract as compared with current GAAP. Convertible instruments that continue to be subject to separation models are (1) those with embedded conversion features that are not clearly
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and closely related to the host contract, that meet the definition of a derivative, and that do not qualify for a scope exception from derivative accounting and (2) convertible debt instruments issued with substantial premiums for which the premiums are recorded as paid-in capital. The ASU also amends the guidance for the derivatives scope exception for contracts in an entity’s own equity to reduce form-over-substance-based accounting conclusions. With regard to our financial reporting, ASU 2020-06 will be effective January 1, 2024, and early adoption is permitted, but no earlier than January 1, 2021, including interim periods within that year. We are currently evaluating what effect(s) the adoption of ASU 2020-06 may have on our consolidated financial statements, but we do not believe the impact of the ASU will be material to our financial position, results of operations and cash flows. The effect will largely depend on the composition and terms of the financial instruments at the time of adoption.

In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments (Topic 326). The ASU requires entities to use a forward-looking approach based on current expected credit losses to estimate credit losses on certain types of financial instruments, including trade receivables, which may result in the earlier recognition of allowances for losses. With regard to our financial reporting, ASU 2016-13 will be effective beginning January 1, 2023, and early adoption is permitted. We do not believe the impact of the ASU will be material to our financial position, results of operations and cash flows.

We have reviewed all accounting pronouncements recently issued by the FASB and the Securities and Exchange Commission. The authoritative pronouncements that we have already adopted 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 authoritative 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 sell AI-based products that include our Remark AI Thermal Kits, rPads and Thermal Helmets in the U.S., as well as the various customized products we sell in China based upon facial recognition, gesture recognition and other technologies.

We do not include disclosures related to remaining performance obligations because substantially all our contracts with customers have an original expected duration of one year or less or, with regard to our stand-ready obligations, the amounts involved are not material.


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,
2020201920202019
AI-based products$2,496 $549 $4,873 $3,439 
Other150 137 503 1,321 
Revenue$2,646 $686 $5,376 $4,760 


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The following table presents a disaggregation of our revenue by country (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
China$2,051 $552 $3,383 $4,319 
United States590 134 1,852 441 
Other countries5  141  
Revenue$2,646 $686 $5,376 $4,760 


Significant Judgments

When accounting for revenue we make certain judgments, 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 current GAAP regarding revenue, 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, 2020, our contract liability changed only as a result of routine business activity.

During the nine months ended September 30, 2020, we recognized approximately $0.2 million of revenue which was included in the beginning balance of Contract liability at January 1, 2020, while during the comparable period of 2019, we did not recognize a material amount of revenue which was included in the beginning balance of Contract liability at January 1, 2019.

During the nine months ended September 30, 2020 and 2019, we did not recognize revenue from performance obligations within the scope of ASC 606 that were satisfied in previous periods.


Certain Agreements Related to AI-Based Product Sales

In December 2018, we completed two fully-integrated AI solutions for which we fully performed under the agreement and title to the product passed to our customer, so we recognized cost of revenue of $4.0 million; however, we did not recognize the $4.6 million of revenue from such projects due to uncertainty regarding the timing of collection of amounts payable to us under the agreement. The uncertainty regarding the timing of collection prevented us from determining that collectibility of all amounts payable to us under the agreements was probable, resulting in a timing difference between recognition of cost and recognition of revenue. Though we cannot recognize the revenue until collectibility is deemed probable, we expect to fully collect the amounts payable to us under our legally-enforceable agreements and, therefore, we recorded a receivable of $4.6 million in Prepaid expense and other current assets, and a liability in Accrued expense and other current liabilities on our 2018 Consolidated Balance Sheet.

During the year ended December 31, 2019, we recorded approximately $1.1 million of revenue on the projects described above or which we did not recognize revenue in 2018 due to uncertainty regarding the timing of collection of the amounts due, and as of December 31, 2019, the total balances of Prepaid expense and other current assets and of Accrued expense and other current liabilities contained $3.4 million related to such projects. During the nine months ended September 30, 2020, we recognized approximately $0.2 million of revenue on the projects described above. As a result, the total balances of Prepaid expense and other current assets and of Accrued expense and other current liabilities contained $3.2 million as of September 30, 2020.

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NOTE 4. FAIR VALUE MEASUREMENTS OF CERTAIN LIABILITIES

Liabilities Related to Warrants to Purchase Common Stock

At the end of each reporting period, until expiry, we use an option pricing model to estimate and report the fair value of liabilities related to certain outstanding warrants to purchase common stock. As of September 30, 2020, 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”). The warrants we issued in connection with the financing we obtained for the CBG Acquisition (referred to in our prior reports as the CBG Financing Warrants) expired on September 24, 2020 without being exercised; therefore, the balance of $0.7 million as of September 30, 2020 represents the liability associated with the CBG Acquisition 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 CBG Acquisition Warrants:
September 30, 2020December 31, 2019
Expected volatility85.00 %75.00 %
Risk-free interest rate0.16 %1.65 %
Expected remaining term (years)2.983.72


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,
20202019
Balance at beginning of period
$115 $1,383 
Increase (decrease) in fair value
633 (1,268)
Balance at end of period
$748 $115 


As of September 30, 2020 and 2019, warrants outstanding included CBG Acquisition Warrants which may be exercised to purchase 40,000 shares of our common stock at a per-share exercise price of $10.00 (we are also committed to the future issuance of additional CBG Acquisition Warrants to purchase up to 5,710,000 of the Company’s common shares at the same per-share exercise price as the CBG Acquisition Warrant that has already been issued) and, as of September 30, 2019, the CBG Financing Warrants, which could have been exercised to purchase 3,808,423 shares of our common stock at an exercise price of $3.86 per share.


Contingent Consideration Issued in Business Acquisition

Through December 31, 2019, we used the discounted cash flow valuation technique to estimate the fair value of the liability related to certain cash payments that we were obligated make related to our acquisition of Vegas.com, LLC (“Vegas.com”) in September 2015 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. On August 19, 2020, we paid all amounts that had remained outstanding related to the Earnout Payments and extinguished this liability.


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The following table presents the change during the nine months ended September 30, 2020 and the year ended December 31, 2019 in the balance of the liability associated with the Earnout Payments (in thousands):
Nine Months Ended September 30,
Year Ended December 31,
20202019
Balance at beginning of period
$1,086 $990 
Payments
(1,132)(8)
Change in fair value of contingent consideration 10 
Interest accrued on unpaid balance
46 94 
Balance at end of period
$ $1,086 


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


NOTE 5. TRADE ACCOUNTS RECEIVABLE
September 30, 2020December 31, 2019
Gross accounts receivable balance$5,114 $4,171 
Allowance for bad debt(2,264)(2,207)
Accounts receivable, net$2,850 $1,964 


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 China-based AI projects (exclusive of certain financial technology (“FinTech”) services we provided) represent 63% of our gross trade receivables.


NOTE 6. INVESTMENT IN UNCONSOLIDATED AFFILIATES

In 2009, we co-founded a U.S.-based venture, 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, 2020 and December 31, 2019, we owned approximately 4.4% of Sharecare’s issued stock, the value of which was $1.0 million, 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 provided consulting and data services to the Chinese film industry, in exchange for $1.0 million, a portion of which was paid as of September 30, 2020, and a license to use our proprietary KanKan data intelligence platform in China. Based on additional information we obtained during the third quarter of 2020, we determined that the COVID-19 outbreak in China had permanently ended AIO’s ability to conduct its business and we wrote off our remaining investment of $0.9 million in that entity, which, when netted against the remaining $0.5 million we owed to AIO for the equity interest, resulted in a loss on impairment of $0.4 million.


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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, 2020December 31, 2019
Other receivables
$3,387 $3,712 
Prepaid expense
2,207 633 
Deposits
53 7 
Other current assets
184 271 
Total
$5,831 $4,623 


NOTE 8. PROPERTY AND EQUIPMENT
Property and equipment consist of the following (in thousands, except estimated lives):
Estimated Life
(Years)
September 30, 2020December 31, 2019
Computers and equipment31,020 989 
Furniture and fixtures346 23 
Software34,940 4,896 
Leasehold improvements3139 114 
Total property, equipment and software$6,145 $6,022 
Less accumulated depreciation(5,878)(5,681)
Total property, equipment and software, net$267 $341 


For the nine months ended September 30, 2020 and 2019, depreciation (and amortization of software) expense was $0.2 million and $0.6 million, respectively.



NOTE 9. LEASES

We lease office space and a vehicle under contracts we classify as operating leases. None of our leases are financing leases.

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,Nine Months Ended September 30,
2020201920202019
Operating lease expense
$72 $492 $544 $1,195 
Short-term lease expense
54 67 159 231 
Less: Sublease income
 (94) (172)
Lease expense
$126 $465 $703 $1,254 


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We reported within continuing operating cash flows for the nine months ended September 30, 2020 and 2019, $0.2 million and $1.5 million, respectively, of cash paid for amounts included in the measurement of operating lease liabilities.

As of September 30, 2020, our operating leases had a weighted-average remaining lease term of approximately 22 months, and we used a weighted-average discount rate of approximately 13% to measure our operating lease liabilities.

As of December 31, 2019 we reported right of use assets of $4.4 million and lease liabilities of $7.5 million. During August 2020, we entered into a settlement agreement relating to the lease for our former office space in Las Vegas which we vacated during March 2020. During the nine months ended September 30, 2020, we reduced right of use assets and operating lease liabilities relating to this lease by $3.8 million and $5.3 million, respectively, which resulted in a gain on lease termination of $1.5 million. In addition, we recognized a further gain of $2.0 million during August 2020, when we entered into a settlement with our former landlord, which is described in more detail in Note 9. As of September 30, 2020, our right of use assets were $0.4 million and our remaining lease obligations were $0.5 million.


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, 2020 unaudited Condensed Consolidated Balance Sheet (in thousands):
Operating lease liabilities maturing during the next:
One year$343 
Two years122 
Three years50 
Total undiscounted cash flows$515 
Present value of cash flows$466 
Lease liabilities on balance sheet:
Short-term$308 
Long-term158 
Total lease liabilities$466 


Termination of Lease and Related Landlord Actions

Beginning approximately July 2019, we were not able to pay our obligations under the office lease for our former office located at 3960 Howard Hughes Parkway in Las Vegas, Nevada. On March 5, 2020, our former landlord, BRE/HC Las Vegas Property Holdings, L.L.C (the “Hughes Center Landlord”), exercised its right to terminate the lease as of such date as a result of the ongoing payment default.

On April 9, 2020, the Hughes Center Landlord filed suit against us in Nevada to recover the approximately $1.1 million of rent owed through March 5, 2020, plus damages resulting from the early termination of the lease.

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On August 3, 2020, we entered into a settlement agreement with the Hughes Center Landlord (the “Hughes Center Lease Settlement”), pursuant to which we immediately paid $0.45 million to the Hughes Center Landlord and agreed to pay another $0.15 million in three equal installments on each of September 1, 2020, October 1, 2020 and November 1, 2020 (an aggregate payment of $0.6 million), in full settlement of our obligations with respect to such office lease.

As of December 31, 2019, we had accrued approximately $2.3 million for settlement of this matter. During the period ended September 30, 2020, we accrued an additional $0.3 million related to this matter. See Note 18 for additional information regarding the Hughes Center Lease Settlement and the Hughes Center Landlord’s legal actions against us.


Other

In September 2020, we prepaid the lease expense for a short-term lease on a property in the Los Angeles, California area. The $0.3 million we paid remained in the balance of Prepaid expense and other current assets as of September 30, 2020.


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, 2020December 31, 2019
Gross AmountAccumulated
Amortization
Net AmountGross AmountAccumulated
Amortization
Net Amount
Finite-lived intangible assets
Domain names$1,256 $(929)$327 $1,256 $(874)$382 
Other intangible assets   68 (68) 
$1,256 $(929)$327 $1,324 $(942)$382 
Indefinite-lived intangible assets
License to operate in China28 28 127 127 
Total intangible assets$1,284 $355 $1,451 $509 


Total amortization expense was de minimis and $0.3 million for the nine months ended September 30, 2020 and 2019, respectively.


NOTE 11. OTHER LONG-TERM ASSETS

Included in Other long-term assets as of September 30, 2020 is an advance of $1.5 million we made to an unrelated entity (our “China Business Partner”) pursuant to an agreement we entered into with the China Business Partner. We are in the process of negotiating a separate contract with the China Business Partner setting out the terms pursuant to which the China
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Business Partner will assist us in obtaining contracts from some of the largest companies in China. Under the executed agreement with the China Business Partner, upon receipt of a borrowing request from the China Business Partner, we have an obligation to advance up to an aggregate amount of $5.1 million over the loan term of five years, though we do have the option to terminate the loan agreement at any time prior to converting the outstanding principal and accrued interest into equity interests of our China Business Partner. The initial $1.5 million that we have advanced allowed our China Business Partner to purchase and modify hardware to integrate with our AI software and meet the needs of potential customers such that the resulting integrated solutions could be demonstrated to the potential customers while bidding on large contracts. Any advances we make under the agreement will bear a simple interest rate of 10% per annum, payable before each December 31st during the term of the agreement, and will be convertible at our election into equity of the China Business Partner upon any equity financing our China Business Partner undertakes during the term of the agreement.


NOTE 12. ACCRUED EXPENSE AND OTHER CURRENT LIABILITIES

The following table presents the components of Accrued expense and other current liabilities (in thousands):
September 30, 2020December 31, 2019
Accrued compensation and benefit-related expense$1,195 $1,210 
Accrued interest439 302 
Other accrued expense369 1,037 
Other payables3,339 3,780 
Operating lease liability - current308 2,877 
Other current liabilities3,337 5,120 
Total
$8,987 $14,326 


NOTE 13. 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. As of December 31, 2019, we owed $3.0 million in principal and $0.3 million in accrued interest. During the nine months ended September 30, 2020, we repaid $1.5 million of the principal, meaning that as of September 30, 2020, we owed $1.5 million in principal and $0.4 million in accrued interest.


Other Debt

The following table presents debt (in thousands) as of:
September 30, 2020December 31, 2019
MGG loan due May 2020$ $12,025 
Loans payable, current 12,025 
PPP loan due April 2022425  
Loans payable, long-term$425 $ 

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Loan due May 2020

We were 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 lenders from time to time party thereto (the “Lenders”) and MGG Investment Group LP, in its capacity as collateral agent and administrative agent for the Lenders (“MGG”), 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 “MGG Loan”).

On May 15, 2019, we completed the sale of all of the issued and outstanding membership interests of Vegas.com (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 May 28, 2020, we repaid in full all outstanding obligations under, and terminated, the Financing Agreement.


Loan due April 2022

On April 15, 2020, we entered into a loan agreement (the “PPP Loan”) with our bank under the U.S. Small Business Administration’s Paycheck Protection Program. Under the PPP Loan, we borrowed $0.4 million with a stated interest rate of one percent for a term of two years from the initial disbursement date of April 15, 2020. The PPP Loan is eligible for forgiveness as part of the CARES Act if certain requirements are met. We continue to evaluate and monitor the requirements of the CARES Act that allow for forgiveness. The accrued interest expense relating these loans for three and nine months ended September 30, 2020 was not material. As of September 30, 2020, the SBA loan had an outstanding principal balance of $0.4 million included in loans payable.


NOTE 14. COMMITMENTS AND CONTINGENCIES

At September 30, 2020, we had no material commitments outside the normal course of business.


Contingencies

As of September 30, 2020, we were neither a defendant in any material pending legal proceeding nor are we aware of any material threatened claims against us and, therefore, we have not accrued any contingent liabilities.

On February 21, 2018, we initiated a legal proceeding (the “CBG Litigation”) against CBG, Adam Roseman, and CBG’s Joint Official Liquidators (the “JOLs”) arising from the CBG Acquisition. The CBG Litigation was filed in the United States District Court for the District of Nevada and is captioned as Remark Holdings, Inc., et al. v. China Branding Group, Limited (In Official Liquidation), et al., Case No. 2:18-cv-00322. In the CBG Litigation, we sought a declaration from the court that we are entitled to rescission of the purchase agreement relating to the CBG Acquisition and all transactions related to the CBG Acquisition, a declaration that such purchase agreement and the transactions consummated pursuant thereto be rescinded and void ab initio, a declaration that we are not required to deliver the remaining CBG Acquisition Warrants allowing for the purchase of 5,710,000 shares of common stock at a per-share exercise price of $10.00, an order directing release to us of any consideration held in escrow in connection with the CBG Acquisition, and disgorgement of all consideration paid by us in connection with the CBG Acquisition. We alleged that the defendants fraudulently mispresented and concealed material information regarding the companies we acquired in the CBG Acquisition.

We entered into a settlement agreement with Mr. Roseman to settle all claims against him, and we dismissed those claims on May 13, 2019. We entered into a Stipulation for Settlement dated January 15, 2019 with CBG and the JOLs, which sets forth the binding terms of their settlement agreement (the “Stipulation for Settlement”). Pursuant to the Stipulation for Settlement, we will issue fully-transferable warrants on a non-diluted basis allowing for the purchase of 5,710,000 shares of our common stock at a per-share exercise price of $6.00, which warrants are exercisable for a period of 5 years from the date of the Stipulation for Settlement, and which we have the right to cause the warrant holders to exercise if the closing price of our common stock is $8.00 or greater on any 5 non-consecutive days in any consecutive 30-day trading window. The parties to the Stipulation for Settlement also agreed to negotiate anti-dilution provisions for the warrants. In exchange for the foregoing
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consideration, the parties to the Stipulation for Settlement agreed to release their claims against each other and enter into a written definitive settlement agreement. After entering into the Stipulation for Settlement, the JOLs demanded the warrants also include an exchange right. We rejected this request and filed a motion to enforce the Stipulation for Settlement on March 12, 2019. The Nevada court issued a report and recommendation on August 2, 2019, which was affirmed on September 24, 2019, requiring the JOLs to submit the written definitive settlement agreement (without an exchange right) to the Grand Court of the Cayman Islands overseeing CBG’s liquidation for approval. An application for sanction to enter the settlement agreement was filed with the Grand Court on December 3, 2019. One month later, on or about January 2, 2020, the Grand Court approved the application, authorizing CBG and the JOLs to enter into the settlement. Counsel for the parties are currently finalizing the settlement agreement.


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

Common Shares Authorized
Our Amended and Restated Certificate of Incorporation authorizes us to issue up to 100,000,000 shares of our common stock, of which 99,505,041 shares were outstanding as of November 20, 2020. In addition, as of November 20, 2020, we had outstanding stock options allowing for the purchase of as many as approximately 15.7 million shares of common stock and we had outstanding warrants to purchase 40,000 shares of common stock. If all of our outstanding stock options and warrants were exercised, the total number of shares of our common stock that we would be required to issue would greatly exceed the number of our remaining authorized but unissued shares of common stock.

As a result of such potential shortfall in the number of our authorized shares of common stock, we will have insufficient shares of common stock available to issue in connection with the exercise of our outstanding stock options and warrants or any future equity financing transaction we may seek to undertake. Accordingly, we intend to seek approval of an increase in the number of our authorized shares of common stock at a 2020 special meeting of stockholders.

Equity Issuances

On March 3, 2020, we entered into the 2020 Aspire Purchase Agreement with Aspire Capital which provided that, upon the terms and subject to the conditions and limitations set forth therein, we had 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 2020 Aspire Purchase Agreement. The 2020 Aspire Purchase Agreement replaced the 2019 Aspire Purchase Agreement, which terminated under the terms of the 2020 Aspire Purchase Agreement. In consideration for entering into the 2020 Aspire Purchase Agreement, we issued to Aspire Capital 2,374,545 shares of our common stock.

As of September 30, 2020, we have issued to Aspire Capital a total of 44,227,890 shares of our common stock under the 2020 Aspire Purchase Agreement. During the nine months ended September 30, 2020, we issued a total of 48,238,893 shares of our common stock to Aspire Capital under the 2019 Aspire Purchase Agreement and the 2020 Aspire Purchase Agreement in exchange for $32.0 million plus Aspire Capital’s commitment to participate in the 2020 Aspire Purchase Agreement.


Share-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.

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The following table summarizes activity under our equity incentive plans related to equity-classified stock option grants as of September 30, 2020, and changes during the nine months then ended:
SharesWeighted-Average Exercise PriceWeighted-Average Remaining Contractual Term
(in years)
Aggregate Intrinsic Value (in thousands)
Outstanding at January 1, 202010,359,079 $4.20 
Exercised(148,364)0.87 
Forfeited, cancelled or expired(87,500)2.63 
Outstanding at September 30, 202010,123,215 $4.26 5.9$ 
Options exercisable at September 30, 20209,959,528 $4.32 5.9$ 


The following table summarizes activity under our equity incentive plans related to the China Cash Bonuses as of September 30, 2020, and changes during the nine months then ended:
SharesWeighted-Average Exercise PriceWeighted-Average Remaining Contractual Term
(in years)
Aggregate Intrinsic Value (in thousands)
Outstanding at January 1, 20201,087,500 $5.20 
Granted300,000 1.37 
Forfeited, cancelled or expired(313,500)5.44 
Outstanding at September 30, 20201,074,000 $4.07 6.6$ 
Options exercisable at September 30, 2020