Remark Holdings
REMARK HOLDINGS, INC. (Form: 10-Q, Received: 05/15/2017 08:25:17)


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 March 31, 2017
Commission File Number 001-33720
LOGOREMARKHOLDINGS.JPG
Remark Holdings, Inc.


 
Delaware
 
33-1135689
 
 
State of Incorporation
 
IRS Employer Identification Number
 
 
 
 
 
 
 
3960 Howard Hughes Parkway, Suite 900
Las Vegas, NV 89169
 
702-701-9514
 
 
Address, including zip code, of principal executive offices
 
Registrant's telephone number, including area code
 


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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).    Yes       No  

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

Non-accelerated filer
 
Smaller reporting company
 
 
 
Emerging growth company


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

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

As of May 12, 2017 , a total of 22,653,322 shares of our common stock were outstanding.



TABLE OF CONTENTS


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

i
 



SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

The information included or incorporated by reference in this Quarterly Report on Form 10-Q contains forward-looking statements, including information relating to future events, future financial performance, strategies, expectations, competitive environment and regulation. 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 . Words such as “may,” “should,” “could,” “would,” “predicts,” “potential,” “continue,” “expects,” “anticipates,” “future,” “intends,” “plans,” “believes,” “estimates,” and similar expressions, as well as statements in future tense, identify forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors, including those discussed in Part I, Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2016 , that could cause our actual results, levels of activity, performance or achievement to differ materially from those expressed or implied by these forward-looking statements.

Any forward-looking statements in this report reflect our current views with respect to future events, are based on assumptions and are subject to risks and uncertainties. Given such uncertainties, you should not place undue reliance on any forward-looking statements, which represent our estimates and assumptions only as of the date hereof. Except as required by law, we undertake no obligation to update or revise publicly any forward-looking statements after the date hereof, whether as a result of new information, future events or otherwise.


ii
 





PART I FINANCIAL INFORMATION


ITEM 1.
FINANCIAL STATEMENTS

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

 
March 31, 2017
 
December 31, 2016
 
(Unaudited)
 
 
Assets
 
 
 
Cash and cash equivalents
$
8,603

 
$
6,893

Restricted cash
9,406

 
9,405

Trade accounts receivable
951

 
1,372

Prepaid expense and other current assets
3,913

 
3,323

Notes receivable, current
190

 
181

Total current assets
23,063

 
21,174

Restricted cash
2,250

 
2,250

Notes receivable

 
190

Property and equipment, net
15,020

 
15,531

Investment in unconsolidated affiliate
1,030

 
1,030

Intangibles, net
35,858

 
37,406

Goodwill
26,768

 
26,763

Other long-term assets
1,392

 
1,355

Total assets
$
105,381

 
$
105,699

Liabilities and Stockholders’ Equity
 
 
 
Accounts payable
$
10,934

 
$
16,546

Accrued expense and other current liabilities
14,130

 
13,965

Deferred merchant booking
13,592

 
6,991

Deferred revenue
7,109

 
4,072

Current maturities of long-term debt
100

 
100

Capital lease obligations
179

 
179

Total current liabilities
46,044

 
41,853

Long-term debt, less current portion and net of debt issuance cost
37,848

 
37,825

Warrant liability
18,461

 
25,030

Other liabilities
4,087

 
3,591

Total liabilities
106,440

 
108,299

 
 
 
 
Commitments and contingencies ( Note 13 )


 


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

 

Common stock, $0.001 par value; 100,000,000 shares authorized; 22,614,312 and 22,232,004 shares issued and outstanding; each at March 31, 2017 and December 31, 2016, respectively
23

 
22

Additional paid-in-capital
192,096

 
190,507

Accumulated other comprehensive loss
(40
)
 
(16
)
Accumulated deficit
(193,138
)
 
(193,113
)
Total stockholders’ equity (deficit)
(1,059
)
 
(2,600
)
Total liabilities and stockholders’ equity
$
105,381

 
$
105,699

See Notes to Unaudited Condensed Consolidated Financial Statements


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

 
Three Months Ended March 31,
 
2017
 
2016
Revenue, net
$
15,299

 
$
14,254

Cost and expense
 
 
 
Cost of revenue (excluding depreciation and amortization)
2,664

 
2,349

Sales and marketing
5,875

 
5,528

Technology and development
908

 
404

General and administrative
8,326

 
8,420

Depreciation and amortization
2,861

 
2,397

Other operating expense
45

 
332

Total cost and expense
20,679

 
19,430

Operating loss
(5,380
)
 
(5,176
)
Other income (expense)
 
 
 
Interest expense
(1,018
)
 
(1,210
)
Other income, net
19

 
29

Change in fair value of warrant liability
6,569

 
3,985

Other loss
(31
)
 
(3
)
Total other income, net
5,539

 
2,801

Income (loss) before income taxes
159

 
(2,375
)
Provision for income taxes
(184
)
 

Net loss
$
(25
)
 
$
(2,375
)
 
 
 
 
Weighted-average shares outstanding, basic and diluted
22,468

 
19,736

 
 
 
 
Net loss per share, basic and diluted
$

 
$
(0.12
)
See Notes to Unaudited Condensed Consolidated Financial Statements


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

 
Three Months Ended March 31,
 
2017
 
2016
Net cash provided by operating activities
$
1,209

 
$
4,686

Cash flows from investing activities:
 
 
 
Purchases of property, equipment and software
(813
)
 
(715
)
Net cash used in investing activities
(813
)
 
(715
)
Cash flows from financing activities:
 
 
 
Proceeds from issuance of common stock, net
1,315

 
801

Net cash provided by financing activities
1,315

 
801

Net increase in cash, cash equivalents and restricted cash
1,711

 
4,772

Cash, cash equivalents and restricted cash:
 
 
 
Beginning of period
18,548

 
17,088

End of period
$
20,259

 
$
21,860

 
 
 
 
Supplemental cash flow information:
 
 
 
Cash paid for interest
$
989

 
$
777

See Notes to Unaudited Condensed Consolidated Financial Statements


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



NOTE 1. ORGANIZATION AND BUSINESS

Organization and Business

Remark Holdings, Inc. and subsidiaries (“Remark”, “we”, “us”, or “our”) own, operate and acquire innovative digital media properties across multiple verticals, such as travel, personal finance, social media, young adult lifestyle and entertainment, that deliver culturally relevant, dynamic content that attracts and engages users around the world. We leverage our unique digital media assets to target the Millennial demographic, which provides us with access to fast-growing, lucrative markets. Our common stock is listed on the Nasdaq Capital Market under the ticker symbol MARK.

 
Liquidity Considerations
 
During the three months ended March 31, 2017 , and in each fiscal year since our inception, we have incurred net losses and generated negative cash flow from operations, resulting in an accumulated deficit of $193.1 million and a cash and cash equivalents balance of $8.6 million , both amounts as of March 31, 2017 . Also as of March 31, 2017 , we had a negative working capital balance of $23.0 million . Our net revenue during the three months ended March 31, 2017 was $15.3 million .
 
During the three months ended March 31, 2017 , we issued a total of 382,308 shares of our common stock to accredited investors in certain private placements in exchange for approximately $1.3 million in cash.

We are a party to a financing agreement dated as of September 24, 2015 (as amended, the “Financing Agreement”) with certain of our subsidiaries as borrowers (together with Remark, the “Borrowers”), certain of our subsidiaries as guarantors (the “Guarantors”), the lenders from time to time party thereto (the “Lenders”) and MGG Investment Group LP, in its capacity as collateral agent and administrative agent for the Lenders (“MGG”), pursuant to which the Lenders initially extended credit to the Borrowers consisting of a term loan in the aggregate principal amount of $27.5 million (the “Loan”). On September 20, 2016, we entered into Amendment No. 1 to Financing Agreement (the “Financing Amendment”) which, among other changes, increased the Loan by $8.0 million to a total aggregate principal amount of $35.5 million . The terms of the Financing Agreement and related documents are described in Note 11 .

Conditions in the debt and equity markets, as well as the volatility of investor sentiment regarding macroeconomic and microeconomic conditions, will play primary roles in determining whether we can successfully obtain additional capital. Pursuant to the Financing Agreement, we are subject to certain limitations on our ability and the ability of our subsidiaries to, among other things, incur additional debt and transfer, sell or otherwise dispose of assets, without the consent of the Lenders. We cannot be certain that we will be successful at raising capital, whether in an equity financing, debt financing, or by divesting of certain assets or businesses, on commercially reasonable terms, if at all. In addition, if we obtain capital by issuing equity, such transaction(s) may dilute existing stockholders.

A variety of factors, many of which are outside of our control, affect our cash flow; those factors include regulatory issues, competition, financial markets and other general business conditions. Based upon our most recent cash flow projections, we believe that we have sufficient existing cash, cash equivalents and cash resources to meet our ongoing requirements through March 31, 2018 , including repayment of our existing debt as it matures. However, projecting operating results is inherently uncertain because anticipated expenses may exceed current forecasts; therefore, we cannot assure you that we will generate sufficient income and cash flow to meet all of our liquidity requirements.


Comparability

We reclassified an amount in the December 31, 2016 Consolidated Balance Sheet to conform to the current presentation as of March 31, 2017 .


NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

We prepared the accompanying unaudited Condensed Consolidated Balance Sheet as of  March 31, 2017 , with the audited Consolidated Balance Sheet amounts as of  December 31, 2016  presented for comparative purposes, and the related unaudited



Condensed Consolidated Statements of Operations and Statements of Cash Flows in accordance with the instructions for Form 10-Q. In compliance with those instructions, we have omitted certain information and footnote disclosures normally included in annual consolidated financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”), though management believes the disclosures made herein are sufficient to ensure that the information presented is not misleading.

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

Management believes that we have included all adjustments (including those of a normal, recurring nature) considered necessary to fairly present our unaudited Condensed Consolidated Balance Sheet as of  March 31, 2017 , our unaudited Condensed Consolidated Statements of Operations and our unaudited 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 our Annual Report on Form 10-K for the year ended December 31, 2016 (the “ 2016  Form 10-K”).


Consolidation

We include all of our subsidiaries in our consolidated financial statements, eliminating all significant intercompany balances and transactions during consolidation. The equity of certain of our subsidiaries is either partially or fully held by citizens of the country of incorporation to comply with local laws and regulations.

 
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, stock-based compensation, the fair value of the warrant liability, income taxes, inventory reserve and purchase price allocation, among other items.


Changes to Significant Accounting Policies

We have made no material changes to our significant accounting policies as reported in our  2016 Form 10-K.


Recently Issued Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2016-02,  Leases (Topic 842) , which changes GAAP primarily by requiring lessees to recognize, at lease commencement, a lease liability representing the present value of the lessee’s obligation to make lease payments, and a right-of-use asset representing the lessee’s right to use (or control the use of) a specified asset during the lease term, for leases classified as operating leases. For us the amendments in ASU 2016-02 will become effective on January 1, 2019, and early adoption is permitted. We are currently evaluating the impact that application of ASU 2016-02 will have on our consolidated financial statements, results of operations and cash flows.

In May 2014, the FASB issued ASU 2014-09,  Revenue from Contracts with Customers (Topic 606) , which outlines a single, comprehensive model for an entity to use to ensure that it recognizes revenue in a manner that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. For us, the amendments in ASU 2014-09 are effective for fiscal years beginning after December 15, 2017, including interim periods therein. Though we do not believe that this guidance will have a material effect upon the financial condition, results of operations, cash flows or reporting thereof for most of our existing subsidiaries, we are evaluating the impact the guidance will have on the business we acquired when we, together with our wholly-owned subsidiary KanKan Limited, completed the acquisition (the “CBG Acquisition”) of assets of China Branding Group Limited (“CBG”) on



September 20, 2016, pursuant to the terms of the Second Amended and Restated Asset and Securities Purchase Agreement, dated as of the same date.

We have reviewed all recently issued accounting pronouncements. The 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 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. BUSINESS ACQUISITIONS

China Branding Group Limited

We completed the CBG Acquisition on September 20, 2016. The aggregate consideration of $15.4 million included $7.4 million of cash and the future issuance of seven -year warrants (the “CBG Acquisition Warrants”) to purchase 5,750,000 shares of our common stock at $10.00 per share, subject to certain anti-dilution adjustments. For more information regarding the CBG Acquisition, see Note 3 to the Consolidated Financial Statements in our 2016 Form 10-K.

We based our preliminary allocation of the purchase consideration we paid to the net tangible and intangible assets we acquired based on their estimated fair values on the closing date of the CBG Acquisition. Such fair values represented our best estimates based on information available to us at the time we calculated the estimates. Final purchase accounting is not yet complete, and additional adjustments are likely during the measurement period. We did not record any material adjustments to acquisition-date values during the three months ended March 31, 2017 .

The following table presents the current status of our preliminary allocation of the purchase consideration we paid to the net tangible and intangible assets we acquired based on their estimated fair values on the closing date of the CBG Acquisition (in thousands):
 
Purchase Price Allocation
Cash and cash equivalents
$
60

Accounts receivable
368

Other current assets
17

Total current assets
$
445

Intangibles
9,206

Total identifiable assets acquired
$
9,651

Accounts payable
528

Deferred revenue
145

Other current liabilities
11

Net identifiable assets acquired
$
8,967

Goodwill
6,426

Total purchase consideration
$
15,393



The recorded goodwill primarily results from the synergies we expect to realize from the combination of the entities and the assembled workforce we acquired in connection with the CBG Acquisition.





NOTE 4. FAIR VALUE MEASUREMENTS

Liabilities Related to Warrants to Purchase Common Stock

At the end of each reporting period, we use the Monte Carlo Simulation model to estimate and report the fair value of liabilities related to certain outstanding warrants to purchase our common stock that are subject to potential anti-dilution adjustments or that contain put options or call options. Our outstanding warrants include warrants we issued in connection with our acquisition of all of the outstanding equity interests in Vegas.com, LLC (“Vegas.com”) in September 2015 (the “VDC Acquisition”) and the financing related thereto (referred to herein as the VDC Acquisition Warrants and the VDC Financing Warrants, respectively), the CBG Acquisition Warrants and warrants we issued in connection with the Financing Amendment (the “CBG Financing Warrants”).

The following table presents the quantitative inputs, which we classify in Level 3 of the fair value hierarchy, used in estimating the fair value of the warrants:
 
March 31, 2017
 
December 31, 2016
Warrants issued in February 2012
 
 
 
 
 
 
 
Expected volatility
45.00
%
 
 
 
45.00
%
 
 
Risk-free interest rate
0.89
%
 
 
 
0.69
%
 
 
Expected remaining term (years)
0.41

 
 
 
0.66

 
 
 
 
 
 
 
 
 
 
 
March 31, 2017
 
December 31, 2016
 
VDC
 
CBG
 
VDC
 
CBG
Financing Warrants
 
 
 
 
 
 
 
Expected volatility
50.00
%
 
50.00
%
 
50.00
%
 
50.00
%
Risk-free interest rate
1.60
%
 
1.60
%
 
1.64
%
 
1.64
%
Expected remaining term (years)
3.48

 
3.48

 
3.73

 
3.73

Acquisition Warrants
 
 
 
 
 
 
 
Expected volatility
50.00
%
 
50.00
%
 
50.00
%
 
50.00
%
Risk-free interest rate
1.60
%
 
2.14
%
 
1.64
%
 
2.21
%
Expected remaining term (years)
3.48

 
6.47

 
3.73

 
6.72



In addition to the quantitative assumptions above, we also consider whether we would issue additional equity and, if so, the price per share of such equity. At March 31, 2017 , we estimated that four future equity financing events would potentially occur within the subsequent twelve months.




Our estimate of expected volatility and our stock price tend to have the most significant impact on the estimated fair value of the VDC and CBG Financing Warrants and the VDC and CBG Acquisition Warrants. If we added or subtracted five percentage points with regard to our estimate of expected volatility, or if our stock price increased or decreased by five percent, our estimates of fair value would change approximately as follows (in thousands):
Change in volatility
Increase
 
Decrease
CBG Financing Warrants
$
245

 
$
300

VDC Financing Warrants
280

 
305

CBG Acquisition Warrants
750

 
690

VDC Acquisition Warrants
430

 
430

 
 
 
 
Change in stock price
 
 
 
CBG Financing Warrants
$
165

 
$
220

VDC Financing Warrants
140

 
110

CBG Acquisition Warrants
290

 
230

VDC Acquisition Warrants
170

 
170



The following table presents the reconciliation of the beginning and ending balances of the liabilities associated with the VDC and CBG Acquisition Warrants, the VDC and CBG Financing Warrants and the warrants issued in February 2012 that remain outstanding (in thousands):
 
Three Months Ended March 31,
 
Year Ended December 31,
 
2017
 
2016
Balance at beginning of period
$
25,030

 
$
19,195

New warrant issuances

 
11,625

Increase (decrease) in fair value
(6,569
)
 
(5,790
)
Balance at end of period
$
18,461

 
$
25,030

 
 
 
 


At March 31, 2017 , the price of our common stock was less than the exercise price of the VDC Acquisition Warrants, effectively precluding exercise of the warrants. However, each holder has the right to sell its VDC Acquisition Warrant back to us on its expiration date in exchange for shares of our common stock having a value equivalent to the value of the VDC Acquisition Warrant at closing of the VDC Acquisition (reduced pro rata based on the percentage of the VDC Acquisition Warrant exercised), provided that this put option terminates if the closing price of our common stock equals or exceeds $10.16 for any 20 trading days during a period of 30 consecutive trading days at any time on or prior to the expiration date. If the holders had exercised the put option as if March 31, 2017 was the expiration date of the VDC Acquisition Warrants, we would have issued to the holders 3,267,974 shares with a fair value of $2.96 per share. The number of shares issuable upon exercise of the put option is calculated based on the volume weighted average price of our common stock during the 30 trading days ending on the warrants’ expiration date (“30-day VWAP”); the more that the 30-day VWAP decreases, the number of shares we would issue to the holders increases significantly.





Contingent Consideration Issued in Business Acquisition

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

The following table presents the change during the three months ended March 31, 2017 in the balance of the liability associated with the Earnout Payments (in thousands):
Balance at beginning of period
$
2,830

Change in fair value of contingent consideration
30

Balance at end of period
$
2,860



On the Condensed Consolidated Balance Sheet, we included the current portion of the liability for contingent consideration as a component of Accrued expense and other liabilities, and the long-term portion as a component of Other liabilities (see Note 12 ).


NOTE 5. RESTRICTED CASH

Regarding our restricted cash, approximately $2.3 million relates to the Financing Agreement and secures our obligations under that agreement. The restriction on the cash related to the Financing Agreement will not be released until we have repaid all of our obligations under the Financing Agreement. The remaining amount of our restricted cash relates to the Letter of Credit Facility Agreement we have in place to satisfy the requirements of several of the vendors for whom we sell products (hotel rooms, air travel, show tickets, et cetera) through our online outlets. By contract, certain vendors require the letters of credit as a means of securing our payment to them of amounts related to the sales we make on their behalf. We renew the letter of credit facility annually, and the restrictions on the cash related to the letters of credit will not be released until we negotiate contracts which do not require the security of letters of credit.

The following table provides a reconciliation of the amounts separately reported as Cash and cash equivalents and Restricted cash on our consolidated balance sheets with the single line item reported on our consolidated statements of cash flows as Cash, cash equivalents and restricted cash (in thousands):
 
March 31,
2017
 
December 31, 2016
Cash and cash equivalents
$
8,603

 
$
6,893

Restricted cash reported in current assets
9,406

 
9,405

Restricted cash reported in long-term assets
2,250

 
2,250

Total cash, cash equivalents and restricted cash
$
20,259

 
$
18,548



NOTE 6. INVESTMENT IN UNCONSOLIDATED AFFILIATE

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 March 31, 2017 , we owned approximately five percent of Sharecare’s issued stock and maintained representation on its Board of Directors.





NOTE 7. PREPAID EXPENSE AND OTHER CURRENT ASSETS

The following table presents the components of prepaid expense and other current assets (in thousands):
 
March 31, 2017
 
December 31, 2016
Prepaid expense
$
2,884

 
$
2,160

Deposits
145

 
137

Inventory
342

 
314

Other current assets
542

 
712

Total
$
3,913

 
$
3,323

 
 
 
 


NOTE 8. PROPERTY AND EQUIPMENT
Property and equipment consist of the following (in thousands, except estimated lives):
 
Estimated Life
(Years)
 
March 31,
2017
 
December 31, 2016
Vehicles
2
 
$
150

 
$
150

Computers and equipment
2 - 12
 
1,318

 
1,192

Furniture and fixtures
2 - 9
 
244

 
244

Software
3 - 5
 
19,564

 
19,538

Software development in progress
 
 
1,495

 
839

Leasehold improvements
1
 
162

 
166

Total property, equipment and software
 
 
$
22,933

 
$
22,129

Less accumulated depreciation
 
 
(7,913
)
 
(6,598
)
Total property, equipment and software, net
 
 
$
15,020

 
$
15,531



For the three months ended March 31, 2017 and 2016 , depreciation (and amortization of software) expense was $1.3 million and $0.6 million , respectively.





NOTE 9. GOODWILL AND OTHER INTANGIBLE ASSETS

The following table summarizes intangible assets by category (in thousands):
 
March 31, 2017
 
December 31, 2016
 
Gross Amount
 
Accumulated
Amortization
 
Net Amount
 
Gross Amount
 
Accumulated
Amortization
 
Net Amount
Finite-lived intangible assets
 
 
 
 
 
 
 
 
 
 
 
Domain names
$
3,041

 
$
(1,619
)
 
$
1,422

 
$
3,041

 
$
(1,554
)
 
$
1,487

Customer relationships
27,064

 
(7,708
)
 
19,356

 
27,064

 
(6,513
)
 
20,551

Media content and broadcast rights
3,491

 
(766
)
 
2,725

 
3,491

 
(541
)
 
2,950

Acquired technology
578

 
(325
)
 
253

 
578

 
(268
)
 
310

Other intangible assets
68

 
(67
)
 
1

 
68

 
(61
)
 
7

 
$
34,242

 
$
(10,485
)
 
$
23,757

 
$
34,242

 
$
(8,937
)
 
$
25,305

Indefinite-lived intangible assets
 
 
 
 
 
 
 
 
 
 
 
Trademarks and trade names
$
12,001

 
 
 
$
12,001

 
$
12,001

 
 
 
$
12,001

License to operate in China
100

 

 
100

 
100

 

 
100

Total intangible assets
$
46,343

 

 
$
35,858

 
$
46,343

 

 
$
37,406



Total amortization expense was $1.5 million and $1.8 million for the three months ended March 31, 2017 and 2016 , respectively.

The following table summarizes the changes in goodwill during the three months ended March 31, 2017 and the year ended December 31, 2016 (in thousands):
 
Three Months Ended March 31, 2017
 
Year Ended December 31, 2016
 
Travel and Entertainment Segment
 
Corporate Entity and Other Business Units
 
Total
 
Travel and Entertainment Segment
 
Corporate Entity and Other Business Units
 
Total
Balance at beginning of period
$
18,514

 
$
8,249

 
$
26,763

 
$
18,514

 
$
1,823

 
$
20,337

Business acquisitions

 

 

 

 
6,426

 
6,426

Other

 
5

 
5

 

 

 

Balance at end of period
$
18,514

 
$
8,254

 
$
26,768

 
$
18,514

 
$
8,249

 
$
26,763






NOTE 10. CAPITAL LEASE

Our Vegas.com subsidiary has leased certain computer hardware and related software that processes and stores its production data. Under the agreement, we will make one more payment of approximately $0.2 million in June 2017. After the final payment in June 2017, ownership of the hardware and software transfers to us.


NOTE 11. LONG-TERM DEBT

The following table presents long-term debt as of March 31, 2017 (in thousands):
 
March 31, 2017
 
December 31, 2016
Loan due September 2018
$
35,500

 
35,500

Unamortized debt issuance cost
(152
)
 
(175
)
Carrying value of Loan
35,348

 
35,325

Exit fee payable in relation to Loan
2,500

 
2,500

Convertible promissory note payable to an accredited investor
100

 
100

Total long-term debt
$
37,948

 
$
37,925

Less: current portion
(100
)
 
(100
)
Long-term debt, less current portion and net of debt issuance cost
37,848

 
37,825



On September 24, 2015, we entered into the Financing Agreement, pursuant to which the Lenders provided us with the $27.5 million Loan. As described in Note 3 , we entered into the Financing Amendment on September 20, 2016 which, among other changes, increased the Loan by $8.0 million to a total aggregate principal amount of $35.5 million . The Loan bears interest at three-month LIBOR (with a floor of 1% ) plus 10% per annum, payable monthly, and has a maturity date of September 24, 2018. As of March 31, 2017 , the applicable interest rate on the Loan was 11% per annum.

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

The Financing Agreement and the Security Agreement contain representations, warranties, affirmative and negative covenants (including financial covenants with respect to quarterly EBITDA levels and the value of our assets), events of default, indemnifications and other provisions customary for financings of this type. The occurrence of any event of default under the Financing Agreement may result in the Loan amount outstanding and unpaid interest thereon, becoming immediately due and payable. As of and for the three months ended March 31, 2017 , we were in compliance with all applicable financial covenants under the Financing Agreement.





NOTE 12. OTHER LIABILITIES

The following table presents the components of other liabilities (in thousands):
 
March 31, 2017
 
December 31, 2016
Contingent consideration liability, net of current portion
$
1,860

 
$
1,840

Deferred rent
1,294

 
1,002

Deferred tax liability, net
933

 
749

Total
$
4,087

 
$
3,591

 
 
 
 


NOTE 13. COMMITMENTS AND CONTINGENCIES

We are neither a defendant in any material pending legal proceeding nor are we aware of any material threatened claims against us; therefore, we have not accrued any contingent liabilities.


NOTE 14. STOCKHOLDERS' EQUITY AND NET LOSS PER SHARE

Equity Issuances

During the three months ended March 31, 2017 , we issued a total of 382,308 shares of our common stock to investors in certain private placements in exchange for approximately $1.3 million in cash.


Stock-Based Compensation 

We are authorized to issue equity-based awards under our 2010 Equity Incentive Plan and our 2014 Incentive Plan, each of which our stockholders have approved. 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 awarded generally expire 10 years from the grant date. All forms of equity awards vest upon the passage of time, the attainment of performance criteria, or both.

The following table summarizes the stock option activity under our equity incentive plans as of March 31, 2017 , and changes during the three months then ended:
 
Shares
 
Weighted-Average Exercise Price
 
Weighted-Average Remaining Contractual Term
(in years)
 
Aggregate Intrinsic Value (in thousands)
Outstanding at January 1, 2017
7,344,140

 
$
5.01

 
 
 
 
Granted
44,000

 
3.20

 
 
 
 
Forfeited, cancelled or expired
(111,127
)
 
4.47

 
 
 
 
Outstanding at March 31, 2017
7,277,013

 
$
5.00

 
8.1
 
$
5

Options exercisable at March 31, 2017
6,689,542

 
$
5.06

 
8.0
 
$
5






We incurred share-based compensation expense of $0.3 million and $1.4 million , respectively, during the three months ended March 31, 2017 and 2016 .


Net Income (Loss) per Share 
 
For the three months ended March 31, 2017 and 2016 , there were no reconciling items related to either the numerator or denominator of the loss per share calculation.

Securities which would have been anti-dilutive to a calculation of diluted earnings per share include:

the outstanding stock options described above;

the outstanding CBG Acquisition Warrant, 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 at the same per-share exercise price as the CBG Acquisition Warrant that has already been issued), and the outstanding CBG Financing Warrants, which may be exercised to purchase 2,739,229 shares of our common stock at an exercise price of $5.36 per share;

the outstanding VDC Acquisition Warrants, which may be exercised to purchase 8,601,410 shares of our common stock at an exercise price of $9.00 per share, and the outstanding VDC Financing Warrants, which may be exercised to purchase 2,783,513 shares of our common stock at an exercise price of $8.34 per share;

the warrants issued in conjunction with our acquisition of Hotelmobi, Inc., which may be exercised to purchase 1,000,000 shares of our common stock, half at an exercise price of $8.00 per share and half at an exercise price of $12.00 per share; and

the warrants issued in conjunction with a private placement in 2012, which may be exercised to purchase 215,278 shares of our common stock at an exercise price of $4.85 per share.


NOTE 15. SEGMENT INFORMATION

In the presentation of our segment information, we include Adjusted EBITDA, which is a “non-GAAP financial measure” as defined in Item 10(e) of Regulation S-K promulgated by the Securities and Exchange Commission (“SEC”). We use Adjusted EBITDA as a supplement to operating income (loss), the most comparable GAAP financial measure, to evaluate the operational performance of our reportable segment. Adjusted EBITDA represents operating income (loss) plus depreciation and amortization expense, share-based compensation expense, impairments and net other income, less other loss. You should not consider our presentation of Adjusted EBITDA in isolation, or consider it superior to, or as a substitute for, financial information prepared and presented in accordance with GAAP. You should also note that our calculation of Adjusted EBITDA may be different from the calculation of Adjusted EBITDA or similarly-titled non-GAAP financial measures used by other companies; therefore, our Adjusted EBITDA may not be comparable to such other measures.

The following table presents certain financial information regarding our travel and entertainment segment for the three months ended March 31, 2017 and 2016 (in thousands):



 
Segment
 
Corporate Entity and Other
 
Consolidated
Three Months Ended March 31, 2017
 
 
 
 
 
GAAP financial measures:
 
 
 
 
 
Net revenue
$
14,193

 
$
1,106

 
$
15,299

Operating loss
$
(1,455
)
 
$
(3,925
)
 
$
(5,380
)
Non-GAAP financial measure:
 
 
 
 
 
Adjusted EBITDA
$
604

 
$
(2,860
)
 
$
(2,256
)
 
 
 
 
 
 
Three Months Ended March 31, 2016
 
 
 
 
 
GAAP financial measures:
 
 
 
 
 
Net revenue
$
13,543

 
$
711

 
$
14,254

Operating loss
$
(1,383
)
 
$
(3,793
)
 
$
(5,176
)
Non-GAAP financial measure:
 
 
 
 
 
Adjusted EBITDA
$
645

 
$
(1,988
)
 
$
(1,343
)
 
 
 
 
 
 


The following table reconciles Adjusted EBITDA for the segment and for the corporate entity and other business units to Operating loss (in thousands):
 
Segment
 
Corporate Entity and Other
 
Consolidated
Three Months Ended March 31, 2017
 
 
 
 
 
Adjusted EBITDA
$
604

 
$
(2,860
)
 
(2,256
)
Less:
 
 
 
 
 
Depreciation, amortization and impairments
(2,040
)
 
(821
)
 
(2,861
)
Share-based compensation expense

 
(275
)
 
(275
)
Other income, net
(19
)
 

 
(19
)
Plus:
 
 
 
 
 
Other loss

 
31

 
31

Operating loss
$
(1,455
)
 
$
(3,925
)
 
$
(5,380
)
 
 
 
 
 
 
Three Months Ended March 31, 2016
 
 
 
 
 
Adjusted EBITDA
$
645

 
$
(1,988
)
 
(1,343
)
Less:
 
 
 
 
 
Depreciation, amortization and impairments
(1,999
)
 
(398
)
 
(2,397
)
Share-based compensation expense

 
(1,410
)
 
(1,410
)
Other income, net
(29
)
 

 
(29
)
Plus:
 
 
 
 
 
Other loss

 
3

 
3

Operating loss
$
(1,383
)
 
$
(3,793
)
 
$
(5,176
)
 
 
 
 
 
 





The following table presents total assets for our travel and entertainment segment (in thousands):
 
March 31,
2017
 
December 31, 2016
Travel and entertainment segment
$
76,611

 
$
76,074

Corporate entity and other business units
28,770

 
29,625

Consolidated
$
105,381

 
$
105,699

 
 
 
 


During the three months ended March 31, 2017 and 2016 , capital expenditures for the travel and entertainment segment totaled $0.4 million and $0.3 million , respectively.


NOTE 16. SUBSEQUENT EVENT

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, requires us to repay the note plus a fee of $115,000 on the maturity date of June 30, 2017. If we do not repay the outstanding principal amount on the maturity date, the note accrues interest at $500 per day until we repay the note.


ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read our discussion and analysis of our financial condition and results of operations for the three months ended March 31, 2017 in conjunction with our unaudited condensed consolidated financial statements and notes thereto set forth in Part I, Item 1 of this Quarterly Report on Form 10-Q.  Such discussion and analysis includes forward-looking statements that involve risks and uncertainties and that are not historical facts, including statements about our beliefs and expectations. You should also read “ Special Note Regarding Forward-Looking Statements ” in the section following the table of contents of this report.


OVERVIEW

We own, operate and acquire innovative digital media properties across multiple verticals, such as travel and entertainment, technology and data intelligence, young adult lifestyle and personal finance, that deliver culturally relevant, dynamic content that attracts and engages users on a global scale. We leverage our unique digital media assets to target the Millennial demographic, which provides us with access to fast-growing, lucrative markets.

During the three months ended March 31, 2017 , we earned most of our revenue from sales of travel and entertainment products, with various advertising mechanisms and merchandise sales also contributing to our revenue.

With regard to the operations of our travel and entertainment segment, our sales via mobile devices were a significant percentage of total sales. We intend to continue investing in improvements to our mobile platform, including a project to ensure customers receive current data on their travel and entertainment options as rapidly as possible as they use our mobile platform. We view improving and expanding our presence on mobile devices as the best way in which we can differentiate our Vegas.com offerings from our competitors’ offerings, as our competitors in the Las Vegas market tend to be “brick-and-mortar” operations, and drive increases in revenue.

Our recent improvements to the desktop experience of our customers has, for example, led to significant improvement in conversion rates related to entertainment bookings. Therefore, while we will continue to focus on our mobile platform, we will also continue to make improvements to the desktop experience, including an update to system architecture that will allow us to more rapidly institute such improvements. We also gave notice to our partner in the operation of the LasVegas.com website that we would end our co-management of the website and assume full control over operation of the website by the third quarter of



2017. We believe that we can implement on the LasVegas.com website many of the same improvements that we have implemented on the Vegas.com website and mobile application, thereby improving the revenue stream.

On September 20, 2016, we completed the CBG Acquisition primarily to capitalize on the branded-content expertise in the China market of the entities we acquired from CBG, including FansTang. FansTang, which is based in Shanghai, China, distributes Western digital entertainment content in China. We also acquired an operation in Los Angeles, California that produces content distributed by FansTang. We plan to continue the focus on branded content in China, and to launch a branded-content strategy across all of our brands in the U.S.


Matters Affecting Comparability of Results

We completed the CBG Acquisition on September 20, 2016. Our financial condition at March 31, 2017 , and our results of operations for the three months ended March 31, 2017 include the results from our subsidiaries acquired in the CBG Acquisition, while the same period in 2016 does not include results from our subsidiaries acquired in the CBG Acquisition.


CRITICAL ACCOUNTING POLICIES

During the three months ended March 31, 2017 , we made no material changes to our critical accounting policies as we disclosed them in Part II, Item 7 of our 2016 Form 10-K.


RESULTS OF OPERATIONS

Reportable Segment Results

 
 
 
 
 
 
Change
Revenue, net
 
2017
 
2016
 
Dollars
 
Percentage
Three months ended March 31st
 
$
14,193

 
$
13,543

 
$
650

 
5
%


Our reportable segment results during the three months ended March 31, 2017 in comparison to the same period of 2016, including the increase in net revenue, were primarily affected by the various improvements we have made to our Vegas.com website and mobile application. The improvements led to an increase in our conversion of traffic on our Vegas.com website and mobile application which boosted show ticket sales. The increased show ticket sales through our Vegas.com website and mobile application, as well as improved commission rates we earn on sales of third-party show tickets, increased net revenue by approximately $1.8 million, and contributed to corresponding increases in cost of revenue and in sales and marketing expense. The increased net revenue from show ticket sales was partially offset by a decrease of approximately $0.3 million in net revenue from tour sales and a decrease of approximately $0.5 million in net revenue from sales of hotel room nights and hotel and air travel packages, as well as immaterial decreases in other various revenue categories. A portion of the decreases in tour sales and in sales of hotel room nights and hotel and air travel packages resulted from a continuing decline in traffic to the LasVegas.com website. The decreased sales through the LasVegas.com website led to our decision to assume full control over operation of the LasVegas.com website by the third quarter of 2017.

The increase of approximately $0.6 million in Technology and development expense during the three months ended March 31, 2017 relates to licensing fees we incurred in relation to the LasVegas.com website beginning in July 2016 when the term of the related agreement became month-to-month. Prior to July 2016, our payments under the agreement were reducing a previously-established liability related to the portion of the agreement term during which we were committed to make payments.





Consolidated Results

 
 
 
 
 
 
Change
Revenue, net
 
2017
 
2016
 
Dollars
 
Percentage
Three months ended March 31st
 
$
15,299

 
$
14,254

 
$
1,045

 
7
%


Consolidated results of operations were primarily impacted by the results of operations of our travel and entertainment segment, as described above, with additional contribution from the operations of the subsidiaries we acquired in the CBG Acquisition. Excluding the increase in net revenue earned by the travel and entertainment segment and the $0.3 million of net revenue earned by the subsidiaries we acquired in the CBG Acquisition, consolidated net revenue earned during the three months ended March 31, 2017 did not materially change compared to the same period of 2016.

For the three months ended March 31, 2017 , the CBG Acquisition added approximately $0.3 million to Depreciation and amortization, and $0.6 million to General and administrative expense. In addition, in January 2016, we granted an option to purchase shares of our common stock to an executive. Such grant resulted in $1.0 million of share-based compensation expense included in General and administrative expense during the three months ended March 31, 2016, while we did not grant a similar award during the three months ended March 31, 2017 . The effect of the decrease in share-based compensation expense was partially offset by individually immaterial increases in other expenses, primarily in rent and in salaries and benefits costs related to our subsidiaries operating in China, which categories each added approximately $0.2 million.

Our issuance of the CBG Financing Warrants and the CBG Acquisition Warrants was the primary cause of the differences in the amount of change we recorded in relation to estimating the fair value of the warrant liabilities at the reporting date.


LIQUIDITY AND CAPITAL RESOURCES
 
Overview
 
During the three months ended March 31, 2017 , and in each fiscal year since our inception, we have incurred net losses and generated negative cash flow from operations, resulting in an accumulated deficit of $193.1 million and a cash and cash equivalents balance of $8.6 million , both amounts as of March 31, 2017 . Our net revenue during the three months ended March 31, 2017 was $15.3 million .
 
During the three months ended March 31, 2017 , we issued a total of 382,308 shares of our common stock to accredited investors in certain private placements in exchange for approximately $1.3 million in cash.

On September 24, 2015, concurrently with the closing of the VDC Acquisition, we entered into the Financing Agreement, pursuant to which the Lenders extended credit to the Borrowers consisting of the Loan in the aggregate principal amount of $27.5 million. On September 20, 2016, concurrently with the closing of the CBG Acquisition, we entered into the Financing Amendment which, among other changes, increased the Loan by $8.0 million to a total aggregate principal amount of $35.5 million. The Loan amount outstanding accrues interest at three-month LIBOR plus 10.0% per annum, payable monthly, and the Loan has a maturity date of September 24, 2018. The Financing Agreement and related documents also provide for certain fees payable to the Lenders, including a $2.5 million exit fee, and for the issuance of the VDC Financing Warrants, which provide the holders with the right to sell the warrant back to Remark on its expiration date in exchange for $3.0 million in cash (reduced pro rata based on the percentage of the warrant exercised). As of March 31, 2017 , $35.5 million of aggregate principal remained outstanding under the Loan.

The Financing Agreement contains certain affirmative and negative covenants, including but not limited to financial covenants with respect to quarterly EBITDA levels and the value of our assets.  If we fail to comply with any financial covenant under the Financing Agreement going forward, under certain circumstances after a cure period, the Lender may demand the repayment of the Loan amount outstanding and unpaid interest thereon, which could have a material adverse effect on our financial condition. As of and for the three months ended March 31, 2017 , we were in compliance with all applicable financial covenants under the Financing Agreement.





On September 24, 2015, concurrently with the closing of the VDC Acquisition, Vegas.com entered into a Letter of Credit Facility Agreement with Bank of America, N.A., which currently expires on May 31, 2017 and which we expect to renew for another year, providing for a letter of credit facility with up to $9.3 million of availability. Amounts available under the letter of credit facility are subject to customary fees and are secured by a first-priority lien on, and security interest in, a cash collateral account with the bank containing cash equal to 101.25% of the aggregate outstanding undrawn face amount of all letters of credit under the letter of credit facility outstanding.

We are obligated to make certain cash payments stipulated in the VDC Acquisition that are contingent upon the performance of Vegas.com in the year ended December 31, 2016, and in the years ending December 31, 2017 and 2018. For the year ended December 31, 2016, the performance of Vegas.com exceeded the threshold that triggers the maximum payment of $1.0 million; therefore, we will make such payment during the second quarter of 2017.

On November 9, 2016, we entered into a common stock purchase agreement (the “Aspire Purchase Agreement”) with Aspire Capital Fund, LLC, an Illinois limited liability company (“Aspire Capital”), which provides that Aspire Capital is committed to purchase up to an aggregate of $20.0 million of shares of our common stock over the 30-month term of the Aspire Purchase Agreement. As of May 12, 2017 , Aspire has purchased $2.5 million of shares of our common stock under the Aspire Purchase Agreement.

We cannot provide assurance that revenue generated from our businesses will be sufficient to sustain our operations in the long term; therefore, we have implemented measures to reduce operating costs, and we continuously evaluate other opportunities to reduce costs. Additionally, we are actively assessing the sale of certain non-core assets, considering sales of minority interests in certain of our operating businesses, and evaluating potential acquisitions that would provide additional revenue. However, we may need to obtain additional capital through equity financing, debt financing, or by divesting of certain assets or businesses.

Conditions in the debt and equity markets, as well as the volatility of investor sentiment regarding macroeconomic and microeconomic conditions, will play primary roles in determining whether we can successfully obtain additional capital. Additionally, pursuant to the Financing Agreement, we are subject to certain limitations on our ability and the ability of our subsidiaries to, among other things, incur additional debt and transfer, sell or otherwise dispose of assets, without the consent of the Lenders. We cannot be certain that we will be successful at raising capital, whether in an equity financing, debt financing, or by divesting of certain assets or businesses, on commercially reasonable terms, if at all. In addition, if we obtain capital by issuing equity, such transaction(s) may dilute existing stockholders.

A variety of factors, many of which are outside of our control, affect our cash flow; those factors include regulatory issues, competition, financial markets and other general business conditions. Based upon our most recent cash flow projections, we believe that we have sufficient existing cash, cash equivalents and cash resources to meet our ongoing requirements through March 31, 2018 , including repayment of our existing debt as it matures. However, projecting operating results is inherently uncertain because anticipated expenses may exceed current forecasts; therefore, we cannot assure you that we will generate sufficient income and cash flow to meet all of our liquidity requirements.
 

Cash Flows - Operating Activities
 
We generated $3.5 million less cash from operating activities during the three months ended March 31, 2017 than we did during the three months ended March 31, 2016 . The decrease in cash provided by operating activities is a result of the timing of payments related to elements of working capital.


Cash Flows - Investing Activities
 
During the three months ended March 31, 2017 , the amount of cash we used in investing activities remained essentially flat in comparison to the same period of 2016.






Cash Flows - Financing Activities

During the three months ended March 31, 2017 , sales of our common stock provided $0.5 million more than during the three months ended March 31, 2016 .


Off-Balance Sheet Arrangements

We currently have no off-balance sheet arrangements.


Recently Issued Accounting Pronouncements
 
Please refer to Note 2 in the Notes to Unaudited Condensed Consolidated Financial Statements included in this report for a discussion regarding recently issued accounting pronouncements which may affect us.


ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
Not applicable


ITEM 4.
CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We maintain a set of disclosure controls and procedures designed to provide reasonable assurance that the information we must disclose in reports we file or submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms. We designed our disclosure controls with the objective of ensuring we accumulate and communicate this information to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of the design and operations of our disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) under Exchange Act, as of the end of the period covered by this report. Based upon that evaluation, our management, including our principal executive officer and principal financial officer, concluded that our disclosure controls and procedures were effective as of March 31, 2017 .


Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting during the fiscal quarter ended March 31, 2017 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.


PART II OTHER INFORMATION

ITEM 1.
LEGAL PROCEEDING S

None

ITEM 1A.
RISK FACTORS

Not Applicable






ITEM 2.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

On January 23, 2017 and March 16, 2017, we issued a total of 290,000 and 92,308 shares, respectively, of our common stock to accredited investors in private placements in exchange for $1.0 million and $0.3 million, respectively. Except for an amount equal to the par value of the shares issued, we recorded the proceeds in additional paid-in capital.

We made the offer and sale of securities in the above-described private placements in reliance upon an exemption from registration requirements pursuant to Section 4(a)(2) under the Securities Act of 1933, as amended, based upon representations made to us by the investors in purchase agreements we entered into with the investors.


ITEM 3.
DEFAULTS UPON SENIOR SECURITIES

None


ITEM 4.
MINE SAFETY DISCLOSURES

Not applicable


ITEM 5.
OTHER INFORMATION

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, requires us to repay the note plus a fee of $115,000 on the maturity date of June 30, 2017. If we do not repay the outstanding principal amount on the maturity date, the note accrues interest at $500 per day until we repay the note.






ITEM 6.
EXHIBITS

 
 
 
 
Incorporated Herein
By Reference To
Exhibit Number
 
Description
 
Document
 
Filed On
 
Exhibit Number
31.1
 
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002.
 
 
 
 
 
 
31.2
 
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002.
 
 
 
 
 
 
32
 
Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes Oxley Act of 2002.
 
 
 
 
 
 
101.INS
 
XBRL Instance Document
 
 
 
 
 
 
101.SCH
 
XBRL Taxonomy Extension Schema Document
 
 
 
 
 
 
101.CAL
 
XBRL Taxonomy Extension Calculation Linkbase Document
 
 
 
 
 
 
101.DEF
 
XBRL Taxonomy Extension Definition Linkbase Document
 
 
 
 
 
 
101.LAB
 
XBRL Taxonomy Extension Label Linkbase Document
 
 
 
 
 
 
101.PRE
 
XBRL Taxonomy Extension Presentation Linkbase Document
 
 
 
 
 
 

1.
We have omitted certain schedules and exhibits to this agreement in accordance with Item 601(b)(2) of Regulation S-K. We will furnish a copy of any omitted schedule and/or exhibit to the SEC upon request.




SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 
 
 
 
REMARK HOLDINGS, INC.
 
 
 
 
 
Date:
May 15, 2017
By:
 
/s/ Douglas Osrow
 
 
 
 
Douglas Osrow
 
 
 
 
Chief Financial Officer
 
 
 
 
(principal financial officer)




23

EXHIBIT 31.1


CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Kai-Shing Tao (the registrant's principal executive officer), certify that:

1.
I have reviewed this Quarterly Report on Form 10-Q of Remark Holdings, Inc.;

2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.
Based on my knowledge, the financial statements, and other financial information included in this report fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 15, 2017

By:
/s/ Kai-Shing Tao
 
 
Kai-Shing Tao
 
 
Chief Executive Officer and Chairman
 




EXHIBIT 31.2


CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Douglas Osrow, (the registrant's principal financial officer and principal accounting officer), certify that:

1.
I have reviewed this Quarterly Report on Form 10-Q of Remark Holdings, Inc.;

2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.
Based on my knowledge, the financial statements, and other financial information included in this report fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 15, 2017
 
By
/s/ Douglas Osrow
 
 
Douglas Osrow
 
 
Chief Financial Officer
 




EXHIBIT 32


CERTIFICATIONS OF PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

We, Kai-Shing Tao, the registrant's principal executive officer, and Douglas Osrow, the registrant's principal financial officer and principal accounting officer, certify that, to our knowledge:

1.
the accompanying Quarterly Report on Form 10-Q for the period ended March 31, 2017 (the “Report”), fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and

2.
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Remark Holdings, Inc. at the dates and for the periods indicated.


Date: May 15, 2017
 
/s/ Kai-Shing Tao
 
Kai-Shing Tao
 
Chief Executive Officer and Chairman
 
 
 
 
 
/s/ Douglas Osrow
 
Douglas Osrow
 
Chief Financial Officer