mark-20210930
truefalse000136836512/312021Q3FALSEhttp://fasb.org/us-gaap/2021-01-31#AccruedLiabilitiesCurrent00013683652021-01-012021-09-30xbrli:shares00013683652021-11-12iso4217:USD0001368365us-gaap:VariableInterestEntityPrimaryBeneficiaryMember2021-09-300001368365us-gaap:VariableInterestEntityPrimaryBeneficiaryMember2020-12-3100013683652021-09-3000013683652020-12-31iso4217:USDxbrli:shares00013683652021-07-012021-09-3000013683652020-07-012020-09-3000013683652020-01-012020-09-300001368365us-gaap:CommonStockMember2021-06-300001368365us-gaap:AdditionalPaidInCapitalMember2021-06-300001368365us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-06-300001368365us-gaap:RetainedEarningsMember2021-06-3000013683652021-06-300001368365us-gaap:RetainedEarningsMember2021-07-012021-09-300001368365us-gaap:AdditionalPaidInCapitalMember2021-07-012021-09-300001368365us-gaap:CommonStockMember2021-07-012021-09-300001368365us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-07-012021-09-300001368365us-gaap:CommonStockMember2021-09-300001368365us-gaap:AdditionalPaidInCapitalMember2021-09-300001368365us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-09-300001368365us-gaap:RetainedEarningsMember2021-09-300001368365us-gaap:CommonStockMember2020-06-300001368365us-gaap:AdditionalPaidInCapitalMember2020-06-300001368365us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-06-300001368365us-gaap:RetainedEarningsMember2020-06-3000013683652020-06-300001368365us-gaap:RetainedEarningsMember2020-07-012020-09-300001368365us-gaap:AdditionalPaidInCapitalMember2020-07-012020-09-300001368365us-gaap:CommonStockMember2020-07-012020-09-300001368365us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-07-012020-09-300001368365us-gaap:CommonStockMember2020-09-300001368365us-gaap:AdditionalPaidInCapitalMember2020-09-300001368365us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-09-300001368365us-gaap:RetainedEarningsMember2020-09-3000013683652020-09-300001368365us-gaap:CommonStockMember2020-12-310001368365us-gaap:AdditionalPaidInCapitalMember2020-12-310001368365us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-12-310001368365us-gaap:RetainedEarningsMember2020-12-310001368365us-gaap:RetainedEarningsMember2021-01-012021-09-300001368365us-gaap:AdditionalPaidInCapitalMember2021-01-012021-09-300001368365us-gaap:CommonStockMember2021-01-012021-09-300001368365us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-01-012021-09-300001368365us-gaap:CommonStockMember2019-12-310001368365us-gaap:AdditionalPaidInCapitalMember2019-12-310001368365us-gaap:AccumulatedOtherComprehensiveIncomeMember2019-12-310001368365us-gaap:RetainedEarningsMember2019-12-3100013683652019-12-310001368365us-gaap:RetainedEarningsMember2020-01-012020-09-300001368365us-gaap:AdditionalPaidInCapitalMember2020-01-012020-09-300001368365us-gaap:CommonStockMember2020-01-012020-09-300001368365us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-01-012020-09-300001368365currency:USD2021-09-300001368365currency:USD2020-12-310001368365currency:CNY2021-09-300001368365currency:CNY2020-12-310001368365currency:GBP2021-09-300001368365currency:GBP2020-12-310001368365currency:HKD2021-09-300001368365currency:HKD2020-12-31xbrli:pure0001368365currency:GBP2020-09-300001368365currency:CNY2020-09-300001368365currency:HKD2020-09-300001368365srt:WeightedAverageMember2021-09-300001368365srt:WeightedAverageMember2020-09-300001368365us-gaap:ProductAndServiceOtherMember2021-01-012021-09-300001368365us-gaap:EmployeeStockOptionMember2021-07-012021-09-300001368365us-gaap:EmployeeStockOptionMember2020-07-012020-09-300001368365us-gaap:WarrantMember2021-01-012021-09-300001368365us-gaap:WarrantMember2020-01-012020-09-30mark:segment0001368365mark:AIBasedProductsMember2021-07-012021-09-300001368365mark:AIBasedProductsMember2020-07-012020-09-300001368365mark:AIBasedProductsMember2021-01-012021-09-300001368365mark:AIBasedProductsMember2020-01-012020-09-300001368365us-gaap:ProductAndServiceOtherMember2021-07-012021-09-300001368365us-gaap:ProductAndServiceOtherMember2020-07-012020-09-300001368365us-gaap:ProductAndServiceOtherMember2020-01-012020-09-300001368365country:CN2021-07-012021-09-300001368365country:CN2020-07-012020-09-300001368365country:CN2021-01-012021-09-300001368365country:CN2020-01-012020-09-300001368365country:US2021-07-012021-09-300001368365country:US2020-07-012020-09-300001368365country:US2021-01-012021-09-300001368365country:US2020-01-012020-09-300001368365us-gaap:ValuationTechniqueOptionPricingModelMember2021-06-3000013683652021-01-012021-06-300001368365mark:CBGWarrantsMembermark:ChinaBrandingGroupLimitedMember2021-01-012021-06-300001368365mark:CBGWarrantsMembermark:ChinaBrandingGroupLimitedMember2021-08-312021-08-310001368365mark:CBGWarrantsMembermark:ChinaBrandingGroupLimitedMember2021-08-31mark:day0001368365mark:WarrantLiabilityMemberus-gaap:MeasurementInputPriceVolatilityMemberus-gaap:FairValueInputsLevel3Member2020-12-310001368365us-gaap:MeasurementInputRiskFreeInterestRateMembermark:WarrantLiabilityMemberus-gaap:FairValueInputsLevel3Member2020-12-310001368365us-gaap:MeasurementInputExpectedTermMembermark:WarrantLiabilityMemberus-gaap:FairValueInputsLevel3Member2020-12-310001368365mark:CBGWarrantsMemberus-gaap:MeasurementInputPriceVolatilityMemberus-gaap:FairValueInputsLevel3Member2021-08-310001368365mark:CBGWarrantsMemberus-gaap:MeasurementInputRiskFreeInterestRateMemberus-gaap:FairValueInputsLevel3Member2021-08-310001368365mark:CBGWarrantsMemberus-gaap:MeasurementInputExpectedTermMemberus-gaap:FairValueInputsLevel3Member2021-08-310001368365mark:WarrantLiabilityMember2020-12-310001368365mark:WarrantLiabilityMember2019-12-310001368365mark:WarrantLiabilityMember2021-01-012021-09-300001368365mark:WarrantLiabilityMember2020-01-012020-12-310001368365mark:WarrantLiabilityMember2021-09-300001368365mark:AccountReceivableBenchmarkMemberus-gaap:ProductConcentrationRiskMembermark:AIBasedProductsMember2021-01-012021-09-300001368365mark:SharecareMember2020-12-3100013683652021-07-012021-07-0100013683652021-07-010001368365mark:SharecareMember2021-09-300001368365mark:ComputersandEquipmentMember2021-01-012021-09-300001368365mark:ComputersandEquipmentMember2021-09-300001368365mark:ComputersandEquipmentMember2020-12-310001368365us-gaap:FurnitureAndFixturesMember2021-01-012021-09-300001368365us-gaap:FurnitureAndFixturesMember2021-09-300001368365us-gaap:FurnitureAndFixturesMember2020-12-310001368365us-gaap:ComputerSoftwareIntangibleAssetMember2021-01-012021-09-300001368365us-gaap:ComputerSoftwareIntangibleAssetMember2021-09-300001368365us-gaap:ComputerSoftwareIntangibleAssetMember2020-12-310001368365us-gaap:LeaseholdImprovementsMember2021-01-012021-09-300001368365us-gaap:LeaseholdImprovementsMember2021-09-300001368365us-gaap:LeaseholdImprovementsMember2020-12-310001368365mark:SoftwareDevelopmentInProgressMember2021-09-300001368365mark:SoftwareDevelopmentInProgressMember2020-12-310001368365us-gaap:NotesPayableOtherPayablesMembermark:PrivateLenderLoanMember2021-09-300001368365us-gaap:NotesPayableOtherPayablesMembermark:PrivateLenderLoanMember2020-12-310001368365mark:JeffersonRemarkFundingLLCLoanMemberus-gaap:NotesPayableOtherPayablesMember2021-09-300001368365mark:JeffersonRemarkFundingLLCLoanMemberus-gaap:NotesPayableOtherPayablesMember2020-12-310001368365us-gaap:NotesPayableOtherPayablesMember2021-09-300001368365us-gaap:NotesPayableOtherPayablesMember2020-12-310001368365us-gaap:NotesPayableOtherPayablesMember2017-04-120001368365mark:TermLoanMember2021-02-102021-02-100001368365mark:TermLoanMember2021-02-100001368365mark:TermLoanMember2021-07-012021-09-300001368365mark:TermLoanMember2021-01-012021-09-300001368365mark:TermLoanMember2021-09-300001368365us-gaap:LoansPayableMembermark:PaycheckProtectionProgramCARESActMember2020-04-150001368365us-gaap:LoansPayableMembermark:PaycheckProtectionProgramCARESActMember2020-04-152020-04-150001368365us-gaap:LoansPayableMembermark:PaycheckProtectionProgramCARESActMember2021-07-232021-07-230001368365us-gaap:LoansPayableMembermark:PrivateLenderLoanMember2020-12-300001368365us-gaap:LoansPayableMembermark:PrivateLenderLoanMember2021-08-052021-08-050001368365us-gaap:LoansPayableMembermark:PrivateLenderLoanMember2021-08-050001368365mark:ChinaBrandingGroupLimitedMember2020-12-310001368365mark:ChinaBrandingGroupLimitedMember2020-01-012020-12-310001368365mark:ChinaBrandingGroupLimitedMemberus-gaap:SellingAndMarketingExpenseMember2021-01-012021-09-300001368365mark:ChinaBrandingGroupLimitedMember2021-09-300001368365mark:ChinaBrandingGroupLimitedMember2021-01-012021-09-300001368365mark:CBGWarrantsMember2018-02-210001368365mark:CBGWarrantsMembermark:AdamRosemanMember2019-01-152019-01-150001368365mark:CBGWarrantsMembermark:AdamRosemanMember2019-01-150001368365us-gaap:CommonStockMembermark:AmericanCapitalMasterFundLtdMember2021-09-292021-09-290001368365us-gaap:CommonStockMembermark:AmericanCapitalMasterFundLtdMember2021-09-290001368365mark:InvestorWarrantMembermark:AmericanCapitalMasterFundLtdMember2021-09-292021-09-290001368365mark:InvestorWarrantMembermark:AmericanCapitalMasterFundLtdMember2021-09-290001368365mark:PrivatePlacementWarrantsMembermark:AGPAllianceGlobalPartnersMember2021-09-292021-09-290001368365mark:PrivatePlacementWarrantsMembermark:AGPAllianceGlobalPartnersMember2021-09-290001368365us-gaap:EmployeeStockOptionMember2021-01-012021-09-300001368365us-gaap:EmployeeStockOptionMember2020-12-310001368365us-gaap:EmployeeStockOptionMember2021-09-300001368365mark:ChinaCashBonusAwardsMember2020-12-310001368365mark:ChinaCashBonusAwardsMember2021-01-012021-09-300001368365mark:ChinaCashBonusAwardsMember2021-09-300001368365mark:ChinaCashBonusAwardsMember2019-12-310001368365mark:ChinaCashBonusAwardsMember2020-01-012020-12-310001368365mark:ChinaCashBonusAwardsMember2020-07-272020-07-2700013683652021-07-0800013683652020-07-272020-07-270001368365us-gaap:EmployeeStockOptionMember2021-07-082021-07-08

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, 2021

https://cdn.kscope.io/3550f79811a57e622b6ab2385c3ac569-mark-20210930_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 12, 2021, a total of 105,157,769 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, 2021December 31, 2020
(Unaudited)
Assets
Cash (includes VIE $1,100 and $278, respectively)
$3,168 $854 
Trade accounts receivable, net (includes VIE $7,281 and $4,850, respectively)
7,318 5,027 
Inventory, net (includes VIE $58 and $112, respectively)
1,936 874 
Investment in marketable securities77,625  
Prepaid expense and other current assets (includes VIE $735 and $248, respectively)
1,964 2,043 
Total current assets92,011 8,798 
Property and equipment, net (includes VIE $ and $43, respectively)
329 321 
Operating lease assets (includes VIE $124 and $281, respectively)
257 492 
Investment in unconsolidated affiliate 1,030 
Other long-term assets (includes VIE $24 and $68, respectively)
483 670 
Total assets$93,080 $11,311 
Liabilities
Accounts payable (includes VIE $5,843 and $3,655, respectively)
$11,230 $8,589 
Accrued expense and other current liabilities (includes VIE $2,977 and $3,782, respectively)
6,057 6,660 
Contract liability (includes VIE $215 and $147, respectively)
746 310 
Notes payable, net of unamortized discount and debt issuance cost6,297 1,500 
Total current liabilities24,330 17,059 
Loans payable 1,425 
Operating lease liabilities, long-term (includes VIE $ and $79, respectively)
49 194 
Warrant liability 1,725 
Total liabilities24,379 20,403 
Commitments and contingencies
Stockholders’ Equity (Deficit)
Preferred stock, $0.001 par value; 1,000,000 shares authorized; zero issued
  
Common stock, $0.001 par value; 175,000,000 shares authorized; 105,108,724 and 99,505,041 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively
105 100 
Additional paid-in-capital363,564 351,546 
Accumulated other comprehensive income(180)(226)
Accumulated deficit(294,788)(360,512)
Total stockholders’ equity (deficit)68,701 (9,092)
Total liabilities and stockholders’ equity (deficit)$93,080 $11,311 
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 Income (Loss)
(dollars in thousands, except per share amounts)
Three Months Ended September 30,Nine Months Ended September 30,
2021202020212020
Revenue$1,234 $2,646 $9,656 $5,376 
Cost and expense
Cost of revenue (excluding depreciation and amortization)854 1,679 5,858 2,910 
Sales and marketing882 417 2,281 1,319 
Technology and development635 738 3,490 2,863 
General and administrative5,493 2,380 10,672 7,018 
Depreciation and amortization35 72 150 228 
Impairments 463  463 
Total cost and expense7,899 5,749 22,451 14,801 
Operating loss(6,665)(3,103)(12,795)(9,425)
Other income (expense)
Interest expense(438)(60)(1,053)(1,296)
Other income (expense), net (58)7 (1)
Change in fair value of warrant liability411 5,570 123 (633)
Gain on investment revaluation78,917  78,917  
Gain on debt extinguishment425  425  
Gain on lease termination 2,044  3,582 
Other gain (loss), net96 21 109 (52)
Total other income, net79,411 7,517 78,528 1,600 
Income (loss) from operations$72,746 $4,414 $65,733 $(7,825)
Provision for income taxes  (9) 
Net income (loss)$72,746 $4,414 $65,724 $(7,825)
Other comprehensive loss
Foreign currency translation adjustments(9)65 46 403 
Comprehensive income (loss)$72,737 $4,479 $65,770 $(7,422)
Weighted-average shares outstanding, basic100,141 99,450 100,087 80,903 
Weighted-average shares outstanding, diluted100,380 99,450 100,410 80,903 
Net income (loss) per share, basic$0.73 $0.04 $0.66 $(0.10)
Net income (loss) per share, diluted$0.72 $0.04 $0.65 $(0.10)
See Notes to Unaudited Condensed Consolidated Financial Statements
2
Financial Statement Index

REMARK HOLDINGS, INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Stockholders’ Deficit
(in thousands, except number of shares)
Three Months Ended September 30, 2021
Common Stock SharesCommon Stock Par ValueAdditional Paid-In CapitalAccumulated Other Comprehensive Income (Loss)Accumulated DeficitTotal
Balance at June 30, 202199,918,941 $100 $352,394 $(171)$(367,534)(15,211)
Net income— — — — 72,746 72,746 
Share-based compensation— — 3,798 — — 3,798 
Common stock and stock warrants issued for cash4,237,290 4 4,610 — — 4,614 
Equity instrument exercises85,000 — 56 — — 56 
Common stock issuance upon note payable conversion876,493 1 1,104 — — 1,105 
Reclassification of warrant liability to equity— — 1,602 — — 1,602 
Foreign currency translation— — — (9)— (9)
Other(9,000)— — — — — 
Balance at September 30, 2021105,108,724 $105 $363,564 $(180)$(294,788)$68,701 
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 income— — — — 4,414 4,414 
Share-based compensation— — 38 — — 38 
Common stock issued— — — — — — 
Equity instrument exercises93,500 1 74 — — 75 
Foreign currency translation— — — 65 — 65 
Balance at September 30, 202099,502,416 $100 $351,529 $176 $(354,652)$(2,847)
Nine Months Ended September 30, 2021
Common Stock SharesCommon Stock Par ValueAdditional Paid-In CapitalAccumulated Other Comprehensive Income (Loss)Accumulated DeficitTotal
Balance at December 31, 202099,505,041 $100 $351,546 $(226)$(360,512)$(9,092)
Net income— — — — 65,724 65,724 
Share-based compensation— — 3,823 — — 3,823 
Common stock and stock warrants issued for cash4,237,290 4 4,610 — — 4,614 
Equity instrument exercises498,900 — 879 — — 879 
Common stock issuance upon note payable conversion876,493 1 1,104 — — 1,105 
Reclassification of warrant liability to equity— — 1,602 — — 1,602 
Foreign currency translation— — — 46 — 46 
Other(9,000)— — — — — 
Balance at September 30, 2021105,108,724 $105 $363,564 $(180)$(294,788)$68,701 
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)

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,
20212020
Cash flows from operating activities:
Net income (loss)
$65,724 $(7,825)
Adjustments to reconcile net loss to net cash used in operating activities:
Change in fair value of warrant liability
(123)633 
Depreciation, amortization and impairments
150 228 
Share-based compensation
3,497 267 
Amortization of debt issuance costs and discount
312  
Gain on debt extinguishment(425) 
Gain on investment revaluation(78,917) 
Loss on disposal of long-lived assets
30 72 
Loss on impairment of intangible assets
 463 
Financing cost of converting note payable to common stock44  
Other
20 655 
Changes in operating assets and liabilities:
Accounts receivable
(2,182)(813)
Inventory(1,062) 
Prepaid expenses and other assets
241 (3,451)
Operating lease assets
238 3,979 
Accounts payable, accrued expenses and other liabilities
2,047 (5,873)
Contract liability
435 216 
Operating lease liabilities
(146)(3,083)
Net cash used in operating activities
$(10,117)$(14,532)
Cash flows from investing activities:
Proceeds from investment2,322  
Purchases of property, equipment and software
(155)(171)
Advance to unrelated entity (1,410)
Net cash provided by (used in) investing activities
2,167 (1,581)
Cash flows from financing activities:
Proceeds from issuance of common stock, net
5,494 32,147 
Proceeds from debt issuance
4,770 425 
Repayments of debt
 (13,781)
Payment of contingent consideration in business acquisitions
 (860)
Net cash provided by financing activities
10,264 17,931 
Net change in cash
2,314 1,818 
Cash:
Beginning of period
854 272 
End of period
$3,168 $2,090 
Supplemental schedule of non-cash investing and financing activities:
Issuance of common stock upon note payable conversion
$1,105 $ 
Reclassification of warrant liability to equity$1,602 $ 
Reclassification of investment to marketable securities$1,030 $ 
Addition of interest to debt principal
$ $256 

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”), and its consolidated variable-interest entities (“VIEs”), are primarily technology-focused. The KanKan data intelligence platform that we and the VIEs have developed serves as the basis for 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. The common stock of Remark Holdings, Inc. is listed on the Nasdaq Capital Market under the ticker symbol MARK.

We and the VIEs primarily sell AI-based products and services. We recognize revenue from sales in the U.S., while the VIEs generate substantially all of their revenue from China.

We are a holding company incorporated in Delaware and not a Chinese operating company. As a holding company, we conduct a significant part of our operations through our subsidiaries and through contractual arrangements with the VIEs based in China. We use the VIE structure to address challenges resulting from laws, policies and practices that may disfavor foreign-owned entities that operate within industries deemed sensitive by the Chinese government. We own 100% of the equity of a wholly foreign owned enterprise (“WFOE”), which has entered into contractual arrangements with the VIEs, which are owned by members of our management team in China and/or by third parties. For a description of the VIE structure and our contractual arrangements with the VIEs, see “Corporate Structure” below. As a result of our use of the VIE structure, our stockholders may never directly hold equity interests in any of the VIEs.

Because we do not directly hold equity interests in the VIEs, we are subject to risks and uncertainties of the interpretations and applications of Chinese laws and regulations, including but not limited to, the validity and enforcement of the contractual arrangements among the WFOE, the VIEs and the shareholders of the VIEs. We are also subject to the risks and uncertainties about any future actions of the Chinese government in this regard that could disallow the VIE structure, which would likely result in a material change in our operations, and the value of our common stock may depreciate significantly or become worthless.


Risks of Doing Business in China

We are subject to certain legal and operational risks associated with having a significant portion of our operations in China. Chinese laws and regulations governing our current business operations are sometimes vague and uncertain, and as a result these risks could result in a material change in our operations, significant depreciation of the value of our common stock, or a complete hindrance of our ability to offer or continue to offer our securities to investors. Recently, the Chinese government adopted a series of regulatory actions and issued statements to regulate business operations in China, including those related to the use of variable interest entities, data security and anti-monopoly concerns. As of the date of this Quarterly Report on Form 10-Q (this “Form 10-Q”), our Company and subsidiaries and the VIEs have not been involved in any investigations on cybersecurity review initiated by any Chinese regulatory authority, nor has any of them received any inquiry, notice or sanction. As of the date of this Form 10-Q, no relevant laws or regulations in China explicitly require us to seek approval from the China Securities Regulatory Commission (the “CSRC”) for any securities listings. As of the date of this Form 10-Q, our Company and subsidiaries and the VIEs have not received any inquiry, notice, warning or sanctions from the CSRC or any other Chinese governmental authorities relating to securities listings. However, since these statements and regulatory actions are newly published, official guidance and related implementation rules have not been issued. It is highly uncertain what potential impact such modified or new laws and regulations will have on our ability to conduct our business, accept investments or list or maintain a listing on a U.S. or foreign exchange.


Corporate Structure

We fund the registered capital and operating expenses of the VIEs by extending loans to the shareholders of the VIEs. We believe that we are the primary beneficiary of the VIEs because the contractual arrangements governing the relationship between the VIEs and our WFOE, which include an exclusive call option agreement, exclusive business cooperation agreement, a proxy agreement and an equity pledge agreement, enable us to (i) exercise effective control over the VIEs, (ii) receive substantially all of the economic benefits of the VIEs, and (iii) have an exclusive call option to purchase, at any time, all or part
5
Financial Statement Index


of the equity interests in and/or assets of the VIEs to the extent permitted by Chinese laws. Because these contractual arrangements with the VIEs provide us with the power to direct the activities of the VIEs, for accounting purposes we are the primary beneficiary of the VIEs and we have consolidated the financial results of the VIEs in our consolidated financial statements in accordance with U.S. generally accepted accounting principles (“GAAP”).

The agreements governing the VIE contractual arrangements have not been tested in a court of law. However, an article published in China Business Law Journal indicated that a China International Economic and Trade Arbitration Commission (“CIETAC”) Shanghai tribunal ruled in 2010 and 2011 in two related cases involving the contractual arrangement of an online game operating company that the contractual arrangement was void on the grounds that such arrangement violated the mandatory administrative regulations prohibiting foreign investors from investing in the online game operation business and constituted “concealing illegal intentions with a lawful form.” According to publicly available information, while the agreements entered into by the parties in the aforementioned CIETAC cases are typical VIE agreements, the PRC domestic company involved in such cases was mainly engaged in online game operation. Although the PRC foreign investment regime restricts or prohibits foreign investment in certain industries, online game operation is one of few industries where there are rules specifically prohibiting foreign investors from controlling and participating in the business indirectly through contractual or technical support arrangements. Though the agreements in the CIETAC cases are similar to our contractual arrangements with the VIEs, we and the VIEs do not operate in the online game operation industry and, to our knowledge, the business conducted by the VIEs is not prohibited from investment from foreign investors in China. We also note that the rulings in the CIETAC cases are not binding on Chinese courts or other arbitration tribunals.

The following diagram illustrates our corporate structure, including our significant subsidiaries, and the relationship between our WFOE and the VIEs as of the date of this Form 10-Q. The diagram omits certain entities which are immaterial to our results of operations and financial condition. Equity interests depicted in this diagram are 100% owned. The relationships between each of Chengdu Remark Technology Co., Ltd., Hangzhou Shufeng Technology Co., Ltd., Remark Data Technology Co., Ltd. and Bonet (Beijing) Technology LLC, which constitute the VIEs, on the one hand, and KanKan Technology (Shanghai) Co., Ltd., our WFOE, on the other hand, as illustrated in the following diagram are governed by contractual arrangements and do not constitute equity ownership.


6
Financial Statement Index


https://cdn.kscope.io/3550f79811a57e622b6ab2385c3ac569-mark-20210930_g2.jpg


Because we do not directly hold equity interests in the VIEs, we are subject to risks and uncertainties of the interpretations and applications of Chinese laws and regulations, including but not limited to, the validity and enforcement of the contractual arrangements among the WFOE, the VIEs and the shareholders of the VIEs. We are also subject to the risks and uncertainties about any future actions of the Chinese government in this regard that could disallow the VIE structure, which would likely result in a material change in our operations and may cause the value of our common stock to depreciate significantly or become worthless.

7
Financial Statement Index


The contractual arrangements may not be as effective as direct ownership in providing operational control and we face contractual exposure in our investment in the VIEs. For instance, the VIEs and their shareholders could breach their contractual arrangements with us by, among other things, failing to conduct their operations in an acceptable manner or taking other actions that are detrimental to our interests. The shareholders of the VIEs may not act in the best interests of our Company or may not perform their obligations under these contracts. Such risks exist throughout the period in which we intend to operate certain portions of our business through the contractual arrangements with the VIEs. In the event that the VIEs or their shareholders fail to perform their respective obligations under the contractual arrangements, we may have to incur substantial costs and expend additional resources to enforce such arrangements. In addition, even if legal actions are taken to enforce such arrangements, there is uncertainty as to whether Chinese courts would recognize or enforce judgments of U.S. courts against us or such persons predicated upon the civil liability provisions of the securities laws of the United States or any state.

As of the date of this Form 10-Q, we and the VIEs are not required to seek permissions from the CSRC, the Cyberspace Administration of China (the “CAC”), or any other entity that is required to approve of the operations of the VIEs. Nevertheless, Chinese regulatory authorities may in the future promulgate laws, regulations or implement rules that require us, our subsidiaries or the VIEs to obtain permissions from such regulatory authorities to approve the operations of the VIEs or any securities listing.


Transfer of Cash or Assets

Dividend Distributions

As of the date of this Form 10-Q, none of our subsidiaries or any of the consolidated VIEs have made any dividends or distributions to our Company.

We have never declared or paid dividends or distributions on our common equity. We currently intend to retain all available funds and any future consolidated earnings to fund our operations and continue the development and growth of our business; therefore, we do not anticipate paying any cash dividends.

Under Delaware law, a Delaware corporation’s ability to pay cash dividends on its capital stock requires the corporation to have either net profits or positive net assets (total assets less total liabilities) over its capital. If we determine to pay dividends on any of our common stock in the future, as a holding company, we may rely on dividends and other distributions on equity from our WFOE for cash requirements, including the funds necessary to pay dividends and other cash contributions to our stockholders.

Our WFOE’s ability to distribute dividends is based upon its distributable earnings. Current Chinese regulations permit our WFOE to pay dividends to their shareholders only out of its registered capital amount, if any, as determined in accordance with Chinese accounting standards and regulations, and then only after meeting the statutory reserve equal to 50% of registered capital. If our WFOE incurs debt in the future, the instruments governing the debt may restrict its ability to pay dividends or make other payments to us. Any limitation on the ability of our WFOE to distribute dividends or other payments to us could materially and adversely limit our ability to grow, make investments or acquisitions that could be beneficial to our businesses, pay dividends or otherwise fund and conduct our business. In addition, any cash dividends or distributions of assets by our WFOE to its stockholder are subject to a Chinese withholding tax of as much as 10%.

The Chinese government also imposes controls on the conversion of RMB into foreign currencies and the remittance of currencies out of China. Therefore, we may experience difficulties in completing the administrative procedures necessary to obtain and remit foreign currency for the payment of dividends from our profits, if any. If we are unable to receive all of the revenues from our operations through the current VIE contractual arrangements, we may be unable to pay dividends on our common stock.

For us to pay dividends to our stockholders, we will rely on payments made from the VIEs to our WFOE in accordance with the VIE contractual arrangements, and the distribution of payments from the WFOE to the Delaware holding company as dividends. Certain payments from the VIEs to the WFOE pursuant to the VIE contractual arrangements are subject to Chinese taxes, including a 6% VAT and 25% enterprise income tax.


8
Financial Statement Index


Our Company’s Ability to Settle Amounts Owed under the VIE Contractual Arrangements

Under the VIE contractual arrangements, the VIEs are obligated to make payments to our WFOE, in cash or in kind, at the WFOE’s request. We will be able to settle amounts owed under the VIE contractual arrangements through dividends paid by our WFOE to our Company. Such ability may be restricted or limited as follows:

First, any payments from the VIEs to our WFOE are subject to Chinese taxes, including a 6% VAT and 25% enterprise income tax. Second, current Chinese regulations permit our WFOE to pay dividends to their shareholders only out of its registered capital amount, if any, as determined in accordance with Chinese accounting standards and regulations, and then only after meeting the statutory reserve equal to 50% of registered capital. In addition, if our WFOE incurs debt in the future, the instruments governing the debt may restrict its ability to pay dividends or make other payments to the Delaware holding company. Third, the Chinese government also imposes controls on the conversion of RMB into foreign currencies and the remittance of currencies out of China. Therefore, we may experience difficulties in completing the administrative procedures necessary to obtain and remit foreign currency for the payment of dividends from profits, if any.


COVID-19

Our unaudited condensed consolidated interim financial statements for the nine months ended September 30, 2021 were impacted by the effects of the COVID-19 pandemic, which has caused a broad shift towards remote working arrangements for many businesses worldwide and injected uncertainty and delay into decision-making processes for such businesses. Varying degrees of preventative measures are still in place around the world, including travel restrictions, closures of non-essential businesses and other quarantine measures. The preventative measures have limited the operational capabilities of our VIEs, 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 pandemic, the duration of preventative measures implemented 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., India and portions of South America. We are closely monitoring worldwide developments and are continually assessing the potential impact on our business.

 
Going Concern
 
During the nine months ended September 30, 2021, and in each fiscal year since our inception, we have incurred net losses which have resulted in an accumulated deficit of $(294.8) million within stockholders’ equity as of September 30, 2021. Additionally, our operations have historically used more cash than they have provided. Net cash used in operating activities was $10.1 million during the nine months ended September 30, 2021. As of September 30, 2021, our cash balance was $3.2 million.

Our history of recurring operating losses, working capital deficiencies and negative cash flows from operating activities give rise to, and management has concluded that there is, substantial doubt regarding our ability to continue as a going concern. Our independent registered public accounting firm, in its report on our consolidated financial statements for the year ended December 31, 2020, has also expressed substantial doubt about our ability to continue as a going concern. Our consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

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
9
Financial Statement Index


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 15, 2022.


NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

We prepared the accompanying unaudited Condensed Consolidated Balance Sheet as of September 30, 2021, with the audited Consolidated Balance Sheet amounts as of December 31, 2020 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. 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, 2021, 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 “2020 Form 10-K”).


Consolidation

We include all of our subsidiaries and the VIEs in our condensed consolidated financial statements, eliminating all significant intercompany balances and transactions during consolidation.
 

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, share-based compensation, deferred income taxes, and inventory reserve, among other items.

10
Financial Statement Index


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

Our cash consists of funds held in bank accounts.

We maintain cash balances in United States dollars (“USD”) and British pounds (“GBP”), while the VIEs maintain cash balances in 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, 2021December 31, 2020
Cash denominated in:
USD$1,934 $563 
RMB1,093 283 
GBP135  
HKD6 8 
Total cash$3,168 $854 


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, 2021, we do not believe we have any significant concentrations of credit risk, although approximately $1.7 million of our USD-denominated cash balance exceeded the FDIC-insured limit. Cash held by our non-U.S. subsidiaries and the VIEs 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.


Marketable Securities

Investment in marketable securities consists of marketable equity securities. We classify marketable securities as current or noncurrent based on the nature of the securities and their availability for use in current operations. Marketable securities are stated at fair value with all realized and unrealized gains and losses recognized in our Statement of Operations. The realized and unrealized gains and losses on marketable securities are determined using the specific identification method and quoted prices in an active market.


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.
11
Financial Statement Index



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, marketable securities, 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. The VIEs, however, maintain their books and records in their functional currency, which is RMB.

In general, when consolidating our subsidiaries or the 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.

We used the exchange rates in the following table to translate amounts denominated in non-USD currencies as of and for the periods noted:
20212020
Exchange rates at September 30th:
GBP:USD1.346  
RMB:USD0.155 0.147 
HKD:USD0.128 0.129 
Average exchange rate during the nine months ended September 30th:
RMB:USD0.154 0.143 


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.

12
Financial Statement Index


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 advertising and marketing services, 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 promotional materials or media content. Substantially all of our contracts with customers that generate Other revenue are completed within one year or less.


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 Income (Loss) per Share

We calculate basic net income (loss) per share using the weighted-average number of common stock shares outstanding during the period. For the calculation of diluted net income (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, 2021 and 2020, there were no reconciling items related to the numerators of the net income (loss) per share calculations. The following table presents a reconciliation of the denominator of the basic net income (loss) per share calculation to that of the diluted net income (loss) per share calculation (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
2021202020212020
Weighted-average shares outstanding, basic100,141 99,450 100,087 80,903 
Incremental shares resulting from assumed exercises of in-the-money stock options239  323  
Weighted-average shares outstanding, basic100,380 99,450 100,410 80,903 


Securities which may have affected the calculation of diluted earnings per share for the three and nine months ended September 30, 2021 and 2020 if their effect had been dilutive include 14,416,565 and 10,123,215 outstanding stock options, respectively, and 10,114,408 and 40,000 outstanding stock warrants, respectively.


13
Financial Statement Index


Segments

Existing GAAP, which establishes a management approach to segment reporting, defines operating segments as components of an entity about which separate, discrete financial information is available for evaluation by the chief operating decision maker. 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 based upon only one operating segment.


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 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 SEC. 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 and the VIEs primarily sell AI-based products and services. In the U.S., that includes our Remark AI Thermal Kits and rPads, while the VIEs sell various customized products in China based upon computer vision 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.


14
Financial Statement Index


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,
2021202020212020
AI-based products and services$834 $2,496 $8,706 $4,873 
Other400 150 950 503 
Revenue$1,234 $2,646 $9,656 $5,376 


The following table presents a disaggregation of our revenue by country (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
2021202020212020
China$840 $2,051 $6,053 $3,384 
United States394 595 3,603 1,992 
Revenue$1,234 $2,646 $9,656 $5,376 


The VIEs generated substantially all of the revenue from China noted in the table above, though one of our subsidiaries generated amounts of revenue from China that were not material in each period.


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, 2021, our contract liability changed only as a result of routine business activity.

During the nine months ended September 30, 2021 and 2020, we did not recognize a material amount of revenue which was included in the beginning balance of Contract liability.

During the nine months ended September 30, 2021 and 2020, we did not recognize revenue from performance obligations that were satisfied in previous periods.

15
Financial Statement Index


NOTE 4. FAIR VALUE MEASUREMENTS OF CERTAIN LIABILITIES

Liabilities Related to Warrants to Purchase Common Stock

At the end of each reporting period through June 30, 2021, we had been using an option pricing model to estimate and report the fair value of liabilities related to warrants to purchase 5,750,000 shares of our common stock, consisting of a warrant to purchase 40,000 of our common stock that we issued and warrants to purchase 5,710,000 shares of our common stock that we were 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.

On August 31, 2021 (the “CBG Settlement Effective Date”), we entered into a settlement agreement (the “CBG Settlement Agreement”) with CBG and its joint official liquidators to settle the parties’ claims against each other in the legal proceeding we filed arising from the CBG Acquisition (the “CBG Litigation”). We have described the parties’ claims in the CBG Litigation in periodic reports previously filed with the SEC.

Pursuant to the terms of the CBG Settlement Agreement, in consideration for a settlement of the parties’ claims and a mutual release, we released to CBG the $375,000 held in escrow in connection with the CBG Acquisition and issued to CBG, as of the CBG Settlement Effective Date, warrants to purchase up to 5,710,000 shares of our common stock at a per share exercise price of $6.00 (the “CBG Settlement Warrants”), which warrants are exercisable for a period of five years from the CBG Settlement Effective Date. Additionally, if the closing price of our common stock is $8.00 or greater for any five days (which may be non-consecutive) in any consecutive 30-day trading period, we have the right to cause the holder of the CBG Settlement Warrants to exercise, at our election, all or any portion of the CBG Settlement Warrants on a cashless basis at a deemed exercise price of $8.00 per share. We evaluated the terms of the CBG Settlement Warrants and determined that they should now be classified as equity. As a result, there is no longer a liability associated with any of our outstanding 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 liability associated with the warrants issued in connection with the CBG Acquisition as of the date noted:
December 31, 2020
Expected volatility85.00 %
Risk-free interest rate0.18 %
Expected remaining term (years)2.73


When reclassifying the previously liability-classified warrants as equity on August 31, 2021, we used Level 3 inputs to our model consisting of an expected volatility of 85%, a risk-free interest rate of 0.77%, and an expected remaining term of five years.

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,
20212020
Balance at beginning of period
$1,725 $115 
Expiration of warrants (115)
Increase (decrease) in fair value of liability
(123)1,725 
Fair value of warrants reclassified to equity(1,602) 
Balance at end of period
$ $1,725 


16
Financial Statement Index


NOTE 5. TRADE ACCOUNTS RECEIVABLE
September 30, 2021December 31, 2020
Gross accounts receivable balance$8,211 $5,988 
Allowance for bad debt(893)(961)
Accounts receivable, net$7,318 $5,027 


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 the VIEs’ AI projects represent 99% of our gross trade receivables.


NOTE 6. INVESTMENT

In 2009, we co-founded a U.S.-based venture, Sharecare, Inc., a Delaware corporation (“Legacy Sharecare”), to build a web-based platform that simplifies the search for health and wellness information. The other co-founders of Legacy Sharecare were Dr. Mehmet Oz, HARPO Productions, Discovery Communications, Jeff Arnold and Sony Pictures Television. At December 31, 2020, we reported our $1.0 million investment in Legacy Sharecare as an investment in unconsolidated affiliate.

On July 1, 2021, Legacy Sharecare completed a business combination with Falcon Capital Acquisition Corp., a special purpose acquisition company, as a result of which the common stock of the surviving entity of such business combination (“New Sharecare”) became listed on the Nasdaq Stock Market LLC. In connection with the completion of such business combination, the shares of common stock of Legacy Sharecare that we held immediately prior to the business combination converted into approximately $2.3 million in cash and approximately 9.4 million shares of common stock of New Sharecare. We do not maintain a seat on the board of directors of New Sharecare. The cash received was recorded as a realized gain on the investment as shown in the table below, and the investment is revalued at fair value at the end of each reporting period using the closing sales price of the shares on the principal securities exchange on which such shares are then traded.

As of September 30, 2021, the value of our investment in New Sharecare was $77.6 million. We recorded a gain on the investment during the three months ended September 30, 2021 as follows:
2021
Realized gain$2,322 
Unrealized gain76,595 
Total gain$78,917 


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, 2021December 31, 2020
Other receivables
$468 $8 
Prepaid expense
1,024 1,877 
Deposits
162 50 
Other current assets
310 108 
Total
$1,964 $2,043 


17
Financial Statement Index


NOTE 8. PROPERTY AND EQUIPMENT
Property and equipment consist of the following (in thousands, except estimated lives):
Estimated Life
(Years)
September 30, 2021December 31, 2020
Computers and equipment31,128 1,097 
Furniture and fixtures342 42 
Software35,027 5,006 
Leasehold improvements3197 174 
Software development in progress69  
Total property, equipment and software$6,463 $6,319 
Less accumulated depreciation(6,134)(5,998)
Total property, equipment and software, net$329 $321 


For the nine months ended September 30, 2021 and 2020, depreciation (and amortization of software) expense was $0.2 million and $0.2 million, respectively.



NOTE 9. LEASES

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

The following table presents the detail of our lease expense, which is reported in General and administrative expense (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
2021202020212020
Operating lease expense
$73 $72 $236 $544 
Short-term lease expense
182 54 812 159 
Lease expense
$255 $126 $1,048 $703 


We reported within operating cash flows for the nine months ended September 30, 2021 and 2020, $0.2 million and $0.1 million, respectively, of cash paid for amounts included in the measurement of operating lease liabilities.

As of September 30, 2021, our operating leases had a weighted-average remaining lease term of approximately 14 months, and we used a weighted-average discount rate of approximately 13% to measure our operating lease liabilities.
18
Financial Statement Index




Maturity of Lease Liabilities

The following table presents information regarding the maturities of undiscounted remaining operating lease payments, with a reconciliation to the amount of the liabilities representing such payments as presented in our September 30, 2021 unaudited Condensed Consolidated Balance Sheet (in thousands):
Operating lease liabilities maturing during the next:
One year$247 
Two years50 
Total undiscounted cash flows$297 
Present value of cash flows$276 
Lease liabilities on balance sheet:
Short-term (included in accrued expenses)
$227 
Long-term49 
Total lease liabilities$276 


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. ACCRUED EXPENSE AND OTHER CURRENT LIABILITIES

The following table presents the components of Accrued expense and other current liabilities (in thousands):
September 30, 2021December 31, 2020
Accrued compensation and benefit-related expense$1,476 $1,151 
Accrued interest622 485 
Other accrued expense632 721 
Other payables2,530 3,048 
Operating lease liability - current227 382 
Other current liabilities (including China Cash Bonuses – See Note 14)
570 873 
Total
$6,057 $6,660 


19
Financial Statement Index


NOTE 11. INCOME TAX

Though we have generated significant pretax gain on the revaluation of our investment in New Sharecare (see Note 6 for more information), such gain does not generate current taxable income until a portion, or all, of the investment is sold. We expect that any pretax income resulting from the realized gain noted in the table above would be offset by our existing net operating losses. The pretax income associated with our investment in New Sharecare generates a temporary difference during 2021 that results in a deferred tax liability which reduces our overall net deferred tax asset. Our net deferred tax asset remains covered by a full valuation allowance as of September 30, 2021 and is expected to remain fully covered at December 31, 2021.


NOTE 12. DEBT

Short-Term Debt

The following table presents our notes payable (in thousands) as of:
September 30, 2021December 31, 2020
Note payable to private lender$1,500 $1,500 
Note payable to Jefferson Remark Funding LLC5,000  
Principal balance of notes payable6,500 1,500 
Unamortized discount and debt issuance cost(203) 
Notes payable, net of unamortized discount and debt issuance cost$6,297 $1,500 


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 each of September 30, 2021 and December 31, 2020, the remaining principal balance of $1.5 million was past due and accrued interest was $0.6 million.

On February 10, 2021, we entered into a senior secured promissory note (the “Note”) with certain of our subsidiaries as guarantors (the “Guarantors”) and Jefferson Remark Funding LLC (the “Lender”), pursuant to which the Lender extended credit to us consisting of a one-year term loan in the principal amount of $5.0 million. The Note bears interest at 15% per annum, which shall be payable on the last business day of each calendar quarter commencing on March 31, 2021. The entire principal balance, as well as any unpaid accrued interest thereon, is due and payable in full on February 10, 2022. To secure the payment and performance of the obligations under the Note, we, together with the Guarantors, have granted to the Lender a first-priority lien on, and security interest in, all assets of Remark and the Guarantors, subject to certain customary exceptions. The Note contains representations, warranties, events of default, indemnifications and other provisions customary for financings of this type. The occurrence of any event of default under the Note may result in the principal amount outstanding and unpaid interest thereon becoming immediately due and payable. The net cash proceeds to us under the promissory note were $4.8 million, net of a $0.2 million discount, and we incurred debt issuance cost of $0.3 million. During the three and nine months ended September 30, 2021, we recognized amortization expense of $0.1 million and $0.3 million, respectively, resulting in an unamortized discount and debt issuance cost balance of $0.2 million at September 30, 2021.


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.

On July 23, 2021, the lender of our PPP Loan notified us that the U.S. Small Business Administration had forgiven our $0.4 million PPP Loan, plus a de minimis amount of accrued interest thereon, effective as of July 21, 2021.
20
Financial Statement Index




Loan due December 2023

On December 30, 2020, we executed a promissory note with a private lender (the “Private Lender Loan”) under which we borrowed $1.0 million. The Private Lender Loan bore interest at 10% per annum.

Effective August 5, 2021, we entered into an amendment (the “Loan Amendment”) to the Private Lender Loan. The Loan Amendment provided that effective as of August 5, 2021 (the “Conversion Date”), the outstanding principal amount of the Private Lender Loan plus all accrued but unpaid interest of approximately $0.1 million thereon through the Conversion Date was automatically converted into shares of our common stock at a conversion price of $1.21 per share, resulting in the issuance of 876,493 shares of our common stock with a fair value of $1.1 million and the recording of less than $0.1 million of additional interest expense.


NOTE 13. COMMITMENTS AND CONTINGENCIES

At September 30, 2021, we had no material commitments outside the normal course of business, other than as described below.

During 2020, one of the VIEs advanced $1.5 million to an unrelated entity (our “China Business Partner”) pursuant to an agreement the VIE entered into with the China Business Partner. The VIE is negotiating a separate contract with the China Business Partner setting out the terms pursuant to which the China Business Partner will assist the VIE 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, the VIE has an obligation to advance up to an aggregate amount of $5.1 million over the loan term of five years, though the VIE can terminate the loan agreement at any time prior to converting the outstanding principal and accrued interest into equity interests of the China Business Partner. The business purpose for the loan was to allow the China Business Partner to purchase and modify hardware to integrate with the KanKan software and market such integrated product to potential customers. We determined that advances under the loan agreement were effectively marketing costs because realizability of the loan was uncertain given the lack of a formalized business relationship with the China Business Partner and the nature of the use of funds.

During the nine months ended September 30, 2021, the VIE advanced an additional $1.9 million to the China Business Partner, which we included in Sales and marketing expense. Any advances the VIE makes under the executed agreement with the China Business Partner 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 the VIE’s election into equity of the China Business Partner upon any equity financing our China Business Partner undertakes during the term of the agreement. The Sales and marketing expense the VIE incurred with the China Business Partner was partially offset by approximately $0.6 million resulting from our completion of certain initial orders from a client that resulted from the efforts of the China Business Partner and the VIE. Because the VIE provided the advances to our China Business Partner for the business development efforts that resulted in the customer orders, we have recorded the $0.6 million as an offset to the expense.


Contingencies

As of September 30, 2021, 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.

CBG Litigation

On February 21, 2018, we initiated 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 warrants allowing for the purchase of 5,710,000 shares of common
21
Financial Statement Index


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 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.

On August 31, 2021, we entered into the CBG Settlement Agreement that is described in more detail in Note 4.


NOTE 14. STOCKHOLDERS' EQUITY, SHARE-BASED COMPENSATION AND NET LOSS PER SHARE

Equity Issuance

On September 29, 2021, we issued and sold to Armistice Capital Master Fund Ltd. (the “Investor”) 4,237,290 shares of our common stock at a purchase price of $1.18 per share together with a warrant (the “Investor Warrant”) to purchase up to 4,237,290 shares of our common stock at an exercise price of $1.35 per share, subject to certain customary anti-dilution adjustments, pursuant to the terms of the securities purchase agreement we entered into with the Investor on September 27, 2021 (the “Purchase Agreement”). We received net proceeds of $4.6 million from such sale. Concurrently with the entry into the Purchase Agreement, we also entered into a financial advisor agreement (the “Financial Advisor Agreement”) with A.G.P./Alliance Global Partners (“A.G.P.”), pursuant to which we agreed to pay A.G.P. a cash fee of approximately $0.4 million and to reimburse A.G.P. for certain legal and escrow expenses. In addition, pursuant to the terms of the Financial Advisor Agreement, on September 29, 2021, we issued to A.G.P. and its designees warrants (the “Financial Advisor Warrants” and together with the Investor Warrant, the “Private Placement Warrants”) to purchase up to an aggregate of 127,118 shares of our common stock at an exercise price of $1.35 per share, subject to certain customary anti-dilution adjustments. Based on the terms of the Private Placement Warrants, we recorded such warrants as equity instruments.


Share-Based Compensation 

We are authorized to issue equity-based awards under 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.

22
Financial Statement Index


The following table summarizes activity under our equity incentive plans related to equity-classified stock option grants as of September 30, 2021, 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, 20219,942,341 $4.29 
Granted