Remark Holdings
Remark Media, Inc. (Form: 10-Q, Received: 08/19/2013 17:28:31)

 

U NITED STATES  

SECURITIES AND EXCHANGE COMMISSION  

WASHINGTON, D. C. 20549  

 

FORM 10-Q  

 

x   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)  

OF THE SECURITIES EXCHANGE ACT OF 1934  

 

For the Quarterly Period E nded June 30, 2013  

 

OR  

 

o   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)  

OF THE SECURITIES EXCHANGE ACT OF 1934  

 

For the transition period from _____ to _____  

 

Commission file number   001-33720  

________________________________________  

 

REMARK MEDIA , INC.  

(Exact name of registrant as specified in its charter)  

 

 

 

 

Delaware

 

33-1135689

(State of Incorporation)

 

(I.R.S. Employer

 

 

Identification Number)

 

 

 

F ive Concourse Parkway, Suite 240 0  

Atlanta, Georgia 30328

(Address of principal executive offices, including zip code)

770-821-6670

(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  x  No o  

 

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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes   x   No o    

 

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

 

 

 

 

Large accelerated filer o

 

Accelerated filer o

Non-accelerated filer o

 

Smaller reporting company x

(Do not check if a smaller reporting company)

 

 

   

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  

Yes  o  No  x  

 

At August 19 , 2013 , the number of common shares outstanding was 7,193,632 .  

 

  

 

 

The total number of pages is 29

  

 


 

 

 

REMARK MEDIA, INC.

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2013  

TABLE O F CONTENTS  

 

 

 

 

 

 

 

 

 

Page

PART I – FINANCIAL INFORMATION

 

 

 

 

ITEM 1.  

Condensed Consolidated Financial Statements

 

 

Condensed Consol idat ed Balance Sheets as of June 30, 2013   and December 31, 201 2  

1

 

Condensed Consolidated Statements of Operations and Comprehensive Loss   for the Three and Six Months Ended   June 30, 2013 and 201 2

2

 

Condensed Consolidated Stat ements of Cash Flows for the Six Months Ended June 30, 2013 and 201 2  

3

 

Notes to Condensed Consolidated Financial Statements

4

 

 

 

ITEM 2.  

Management’s Discussion and Analysis of Financial Condition and Results of Operations

17

 

 

 

ITEM 3.  

Quantitative and Qualitative Disclosures about Market Risk

25

 

 

 

ITEM 4.  

Controls and Procedures

25

 

 

 

   

PART II – OTHER INFORMATION

 

 

 

 

ITEM 1.  

Legal Proceedings

25

 

 

 

ITEM 1A.  

Risk Factors

26

 

 

 

ITEM 2.  

Unregistered Sales of Equity Securities and Use of Proceeds

28

 

 

 

ITEM 3.  

Defaults Upon Senior Securities

28

 

 

 

ITEM 4.  

Mine Safety Disclosures

28

 

 

 

ITEM 5.  

Other Information

28

 

 

 

ITEM 6.  

Exhibits

29

 

 

 

Signature  

 

30

 

 

 

 

 

  

 

 

 

 


 

 

Table of Contents  

 

PART I – FINANCIAL INFORMATIO N  

 

ITEM 1. Condensed Consolidated Financial Statements  

 

REMARK MEDIA , INC. and SUBSIDIARIES  

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited )

 

 

 

 

 

 

 

 

 

 

June 30, 2013

 

December 31, 2012

Assets

 

 

 

(Restated)

 

 

 

 

 

 

Current assets

 

 

 

 

 

Cash and cash equivalents

$

1,576,381 

 

$

1,355,332 

Trade accounts receivable, net

 

122,962 

 

 

101,865 

Prepaid expenses and other current assets

 

1,076,300 

 

 

503,256 

Total current assets

 

2,775,643 

 

 

1,960,453 

 

 

 

 

 

 

Property and equipment, net

 

449,846 

 

 

400,526 

Investment in unconsolidated affiliate

 

229,929 

 

 

452,636 

Licenses to operate in China

 

100,000 

 

 

100,000 

Intangible assets, net

 

3,721,912 

 

 

1,754,108 

Goodwill

 

1,799,802 

 

 

1,584,976 

Other long-term assets

 

173,604 

 

 

106,476 

Total assets

$

9,250,736 

 

$

6,359,175 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

Accounts payable

$

534,425 

 

$

516,623 

Advances from shareholder

 

85,745 

 

 

85,745 

Accrued expenses and other current liabilities

 

2,226,958 

 

 

459,548 

Derivative liability

 

478,765 

 

 

277,646 

Current portion of capital lease obligations

 

126,458 

 

 

117,549 

Total current liabilities

 

3,452,351 

 

 

1,457,111 

 

 

 

 

 

 

Long-term liabilities

 

 

 

 

 

Deferred tax liability

 

25,000 

 

 

25,000 

Other long-term liabilities

 

 -

 

 

282,791 

Capital lease obligations, less current portion

 

228,805 

 

 

294,214 

Long-term debt with related party

 

5,800,000 

 

 

1,800,000 

Total liabilities

 

9,506,156 

 

 

3,859,116 

 

 

 

 

 

 

Stockholders’ equity

 

 

 

 

 

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

 

 -

 

 

 -

Common stock, $0.001 par value; 20,000,000 shares authorized, 7,193,632 and 7,113,744 issued and outstanding at June 30, 2013 and December 31, 2012, respectively

 

7,194 

 

 

7,114 

Additional paid-in capital

 

108,685,526 

 

 

107,300,077 

Accumulated other comprehensive income (loss)

 

(1,024)

 

 

5,370 

Accumulated deficit

 

(108,947,116)

 

 

(104,812,502)

Total stockholders’ equity

 

(255,420)

 

 

2,500,059 

Total liabilities and stockholders’ equity

$

9,250,736 

 

$

6,359,175 

 

 

 

 

 

 

See notes to condensed consolidated financial statements

 

 

 

 

 

1  


 

 

Table of Contents  

REMARK MED IA , INC. and SUBSIDIARIES  

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS an d COMPREHENSIVE LOSS  

(Unaudited )  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

 

 

2013

 

 

2012

 

 

2013

 

 

2012

 

 

 

 

 

(Restated)

 

 

 

 

(Restated)

Operating revenue

 

 

 

 

 

 

 

 

 

 

 

 

Brands

 

$

663,163 

 

$

33,003 

 

$

871,328 

 

$

57,114 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

Sales and marketing

 

 

186,727 

 

 

83,462 

 

 

187,420 

 

 

107,160 

Content, technology and development

 

 

208,439 

 

 

371,791 

 

 

337,911 

 

 

699,015 

General and administrative

 

 

1,981,754 

 

 

1,132,322 

 

 

2,762,114 

 

 

2,254,176 

Depreciation and amortization expense

 

 

122,952 

 

 

27,056 

 

 

206,989 

 

 

52,524 

Total operating expenses

 

 

2,499,872 

 

 

1,614,631 

 

 

3,494,434 

 

 

3,112,875 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating loss

 

 

(1,836,709)

 

 

(1,581,628)

 

 

(2,623,106)

 

 

(3,055,761)

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expense)

 

 

 

 

 

 

 

 

 

 

 

 

   Gain (loss) on change in fair value of derivative  liability

 

 

(218,361)

 

 

578,793 

 

 

(201,119)

 

 

694,528 

Interest expense

 

 

(113,191)

 

 

(2,441)

 

 

(157,545)

 

 

(27,125)

Other income (expense)

 

 

152 

 

 

3,915 

 

 

(5)

 

 

7,107 

Total other income (expense)

 

 

(331,400)

 

 

580,267 

 

 

(358,669)

 

 

674,510 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss before gain (loss) from equity-method investments

 

 

(2,168,109)

 

 

(1,001,361)

 

 

(2,981,775)

 

 

(2,381,251)

 

 

 

 

 

 

 

 

 

 

 

 

 

Change of interest gain of equity-method investment

 

 

 -

 

 

(894,502)

 

 

 -

 

 

(1,813,382)

Proportional share in loss of equity-method investment

 

 

 -

 

 

302,235 

 

 

(222,707)

 

 

2,494,990 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net gain (loss) from equity-method investment

 

 

 -

 

 

(592,267)

 

 

(222,707)

 

 

681,608 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss before benefit from income taxes

 

 

(2,168,109)

 

 

(1,593,628)

 

 

(3,204,482)

 

 

(1,699,643)

 

 

 

 

 

 

 

 

 

 

 

 

 

Income tax (benefit) expense

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(2,168,109)

 

$

(1,593,628)

 

$

(3,204,482)

 

$

(1,699,643)

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss per share

 

 

 

 

 

 

 

 

 

 

 

 

Net loss per share, basic and diluted

 

$

(0.30)

 

$

(0.25)

 

$

(0.45)

 

$

(0.28)

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted weighted average shares outstanding

 

 

7,193,632 

 

 

6,414,200 

 

 

7,193,632 

 

 

6,089,553 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(2,168,109)

 

$

(1,593,628)

 

$

(3,204,482)

 

$

(1,699,643)

Cumulative translation adjustments

 

 

(2,434)

 

 

1,179 

 

 

(6,394)

 

 

(4,554)

 

 

 

 

 

 

 

 

 

 

 

 

 

Total comprehensive loss

 

$

(2,170,543)

 

$

(1,592,449)

 

$

(3,210,876)

 

$

(1,704,197)

 

 

 

 

 

 

 

 

 

 

 

 

 

See notes to condensed consolidated financial statements

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2  


 

 

Table of Contents  

REMARK MEDIA , I N C. and SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF   CASH FLOWS

(Unaudited )  

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended June 30,

 

 

2013

 

2012

 

 

 

 

 

 

Cash flows from operating activities:

 

 

 

 

 

 

Net cash used in operating activities

 

$

(1,054,324)

 

$

(2,230,677)

Cash used in operating activities

 

 

(1,054,324)

 

 

(2,230,677)

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

Purchases of property, equipment and software

 

 

(10,335)

 

 

(451,834)

Cash paid for acquisition

 

 

(2,375,000)

 

 

(371,189)

Other long-term, net

 

 

(282,791)

 

 

 -

Cash used in investing activities

 

 

(2,668,126)

 

 

(823,023)

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

Proceeds from issuance of equity securities/debt

 

 

4,000,000 

 

 

4,251,500 

Payment of capital leases

 

 

(56,500)

 

 

 -

Stock issuance costs

 

 

 -

 

 

(401,049)

Cash flows from financing activities

 

 

3,943,500 

 

 

3,850,451 

 

 

 

 

 

 

 

Net change in cash and cash equivalents

 

 

221,049 

 

 

796,751 

Impact of foreign currency translation on cash

 

 

 -

 

 

(788)

Cash and cash equivalents at beginning of period

 

 

1,355,332 

 

 

1,531,502 

Cash and cash equivalents at end of period

 

$

1,576,381 

 

$

2,327,465 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended June 30,

 

 

2013

 

2012

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information

 

 

 

 

 

 

 

 

 

 

 

 

 

Other non-cash financing and investing activities

 

 

 

 

 

 

Debt issuance costs

 

$

 -

 

$

133,567 

 

 

 

 

 

 

 

See notes to condensed consolidated financial statements

 

 

 

 

 

 

 

 

 

 

 

 

3  


 

 

Table of Contents  

REMARK MEDIA INC. and SUBSIDIARIES  

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Three and Six Months Ended June 30, 2013 and 2012  

(Unaudited)

 

1.  DESCRIPTION OF BUSINESS  

 

 

Principal Operations  

Remark Media, Inc.  (“Remark Media” or the “Company”) is a global digital media company incorporated in Delaware and headquartered in Atlanta, with operations in Las Vegas, Miami, Beijing and São Paulo. Remark Media is listed on The NASDAQ Capital Market.   

 

Pop Factory Acquisition

 

On March 29, 2013 , Remark Media acquired Pop Factory, LLC, the owner and operator of Bikini.com, a digital beach lifestyle brand providing websites, branded merchandise, and mobile content, for total cash consideration of $ 2,375,000 . I n   connection with the purchase, the two founders, who had remained executives of Pop Factory, entered into one year employment agreements with Pop Factory and noncompetition agreements with the Company.

 

Banks.com Merger   

On February 26, 2012 , the Company entered into an agreement and plan of merger with Banks.com, Inc. (“Banks.com”), pursuant to which Banks .com became a wholly-owned subsidiary of Remark Media (the “Banks.com Merger”). Banks.com is a leading financial services portal operating a unique breadth and depth of financial products and services. The Company completed the acquisition on June 28, 2012 pursuant to which Remark Media issued approximately 702,267 shares of Common Stock to the shareholders of Banks.com, and paid $ 300,000 in cash, as consideration for the merger. Also, on the effective date of the merger, the Company paid $ 131,250 in settlement of a promissory note in the amount of $ 125,000   (and related unpaid interest), which matured on June 28, 2012.

 

Sale of Intersearch Corporate Services

 

On August 2, 2012 Remark Media sold Intersearch Corporate Services, Inc, a subsidiary of Banks.com, for a minimal consideration to better focus its resources on the Company’s core strategy.

 

Funding and Liquidity Considerations 

As of June 30, 2013 , the Company’s total cash and cash equivalent s balance was approximately $1.6 million.

 

The Company has incurred net losses and generated negative cash f low from operations in the six months ended June 30 , 201 3 and in each fiscal year since its inception and has an accumulated deficit of $ 108.6 million as of June 30 , 2013. The Company had minimal revenues in the first two quarter s of 2013 due to its transition to owning and operating its own digital media properties.  The Company has been focused on building and acquiring wholly-owned digital media properties. 

 

On April 2, 2013, the Company entered into a $ 4.0 million Promissory Note, at a 6.67 % annual interest rate for the first year and 8.67 % for the second year, with a lender controlled by and in part owned by Mr. Kai-Shing Tao, the Company’s Chairman and Chief Executive Officer.  The Promissory Note is secured pursuant to the Term Loan Agreement detailed below, as amended by Amendment Number One to that Term Loan Agreement, dated April 2, 2013.  The principal and accrued interest under the Promissory Note is convertible into Common Stock of the Company at the rate of $ 2.00 per share, which represents an approximately 11 % premium to the average of the volume weighted average prices of the Company’s common stock for the t en trading days prior to the entrance into the agreement and an approximately 16% premium to the closing price of the Company's common stock on the day of entrance into the agreement .  The balance is due April 2015. 

 

On November 23, 2012, the Company entered into a $ 1.8 million Term Loan Agreemen t, with net proceeds of  $ 1.7 mill i on, at a 6.67 % annual interest rate with a lender controlled by and in part owned by Mr. Kai-Shing Tao, the Company’s Chairman and Co-Chief Executive Officer.  Mr. Tao has been a director of the Company since 2007.  The Term Loan is secured by substantially all the tangible and intangible assets of the Company, excluding its shares of common stock of Sharecare. The principal and accrued interest under the Term Loan Agreement is convertible into Common Stock of the Company at the rate of $ 1.30 per share, which represents an approximately 33 % premium to the average closing prices of the Company’s common stock for the ten days prior to entrance into the agreement and an approximately 53 % premium to the closing price of the Company’s common stock on the day of entrance into the agreement.  The balance is due November 2014. 

 

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Table of Contents  

REMARK MEDIA INC. and SUBSIDIARIES  

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Three and Six Months Ended June 30, 2013 and 2012  

(Unaudited)

 

The Company intends to fund its future operations through revenue growth, particularly its youth adult lifestyle and personal finance properties.  Additionally, the Company is actively engaged in evaluating future acquisitions to provide revenue growth and the sale of certain non-core assets to provid e capital.  T he Company has taken steps to reduce ope rating costs and will continue to evaluate other opportunities to control costs. 

 

Absent any acquisitions of new businesses or the m aterial increase in revenues from its existing customers, current revenue growth may not be sufficient to sustain the Company’s operations in the lon g term. As such, the Company will, in all likelihood, need to obtain additional equity or debt financing and/or divest of certain assets or businesses, neither of which can be assured on commercially reasonable terms, if at all. In addition, any equity financing that might be obtained would substantially dilute existing stockholders.  There is no certainty that the Company will be successful at raising capital, nor is there certainty around the amount of funds that may be raised. In addition, the success of the Company will be subject to performance of the markets and investor sentiment regarding the macro and micro economic conditions under which we operate including stock market volatility. There can be no assurance that the Company will be successful at generating more revenues or selling any of its assets. Any failure by the Company to successfully implement these plans would have a material adverse effect on the Company’s business, including the possible inability to continue operations. 

 

If the November 2012 $1.8 million and the April 2013 $4 million convertible note financings are not converted into common stock of the Company, or if the Company’s shareholders do not approve the ability of the April 2013 $4 million convertible note to convert into common stock of the Company, the Company may be unable to repay such notes when either they or their interest payments become due in November 2014 and April 2015, respectively.

 

Based on the Company’s current financial projections, the Company believes it has sufficient existing cash resources to fund operations through December 2013.  However, projecting operating results is inherently uncertain.  Anticipated expenses can exceed those that are proje cted.  Accordingly, the Company’s cash resources could be fully utilized prior to December 2013.

 

 

2.  BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  

 

Basis of Preparation  

The accompanying interim condensed consolidated financial statements for the three and   six   month s ended June 30 , 2013 and 201 2 are unaudited. Certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for financial information have been omitted pursuant to the rules and regulations of Article 10 of SEC Regulation S-X. In the opinion of management, these condensed consolidated financial statements contain all adjustments, consisting of normal recurring adjustments, necessary to state fairly the financial position, results of operations and cash flows for the periods indicated. The December 31, 2012 condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by U.S. GAAP .     Operating results for the three and six months ended June 30 , 2013 are not necessarily indicative of results that may be expected for any other future interim period or for the year ending December 31, 201 3 . You should read the unaudited condensed consolidated financial statements in conjunction with Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, as well as with Remark Media’s condensed consolidated financial statements and accompanying notes included in the Company’s Form 10-Q for the quarter ended March 31, 2013 and the Annual Report on Form 10-K for the year ended December 31 , 2012 .  

 

Principles of Consolidation  

The condensed consolidated financial statements include the accounts of Remark Media and its subsidiaries (1) HSW Brasil – Tecnologia e Informação Ltda., (2) HSW (HK) Inc. Limited, (3) Bonet (Beijing) Technolog y Limited Liability Company, (4) BoWenWang Technology (Beijing) Limited Liability Company , (5) Banks.com, Inc., (6) My Stock Fund Securities, Inc., (7) Dotted Ventures, and (8) Pop Factory , LLC ("Pop Factory") .   Banks.com, MyStockFund and DottedVentures are wholly-owned subsidiaries acquired through the Banks.com’s acquisition completed on June 28, 2012 Pop Factory is a wholly-owned subsidiary acquired through the Pop Factory acquisition completed on March 29, 2013.  The equity of certain of these entities is partially or fully held by citizens of the country of incorporation to comply with local laws and regulations.  

 

Equity investments in which the Company exercises significant influence but does not control and is not the primary beneficiary are accounted for using the equity method.  In the event of a change in ownership, any gain or loss resulting from an investee share issuance is recorded in earnings.  Investments in which the Company is not able to exercise significant influence over the investee are accounted for under the cost method.  Controlling interest is determined by majority ownership interest and the ability to unilaterally

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Table of Contents  

REMARK MEDIA INC. and SUBSIDIARIES  

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Three and Six Months Ended June 30, 2013 and 2012  

(Unaudited)

 

direct or cause the direction of management and policies of an entity after considering any third-party participatory rights.  All inter-company accounts and transactions between condensed consolidated companies are eliminated in consolidation.  

 

The Company uses qualitative analysis to determine whether or not it is the primary beneficiary of a variable interest entity (" VIE ") in accordance with FASB ASC 810-10, "Consolidation Accounting for a Variable Interest Entity" ("FASB ASC 810") . The Company considers the rights and obligations conveyed by its implicit and explicit variable interest in each VIE and the relationship of these with the variable interests held by other parties to determine whether the variable interests will absorb a majority of a VIE’s expected losses, receive a majority of its expected residual returns, or both.  If the Company determines that its variable interests will absorb a majority of the VIE’s expected losses, receive a majority of its expected residual returns, or both, it consolidates the VIE as the primary beneficiary, and if not, the Company does not consolidate.   

 

The Company has determined that Bonet (Beijing) Technology Limited Liability Company is a variable interest entity as defined in FASB ASC 810. Remark Media is the primary beneficiary of this entity and accordingly, the results of this entity have been consolidated along with other subsidiaries.  

 

Significant Accounting Policies  

 

Use of Estimates  

 

The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires the Company to make estimates and assumptions that affect amounts reported and disclosed in the condensed consolidated financial statements and accompanying notes.  Actual results could differ materially from those estimates.  On an ongoing basis, the Company evaluates its estimates, including those related to accounts receivable, intangible assets, useful lives of property and equipment, stock-based compensation, equity-method investments, and income taxes, among other things.  

 

Revenue Recognition  

The Company generally recognizes revenue when a persuasive evidence of an arrangement exists ; services have been provided ; fees are fixed or determinable ; and collectability is reasonably assured.   

The Company generally recognizes revenue from its network of digital media businesses, which includes DimeSpring.com, Banks.com, IRS.com, FileLater, MyStockFund, and Bikini.com.  Revenue is recognized as visitors are exposed to or react to advertisements on its websites.  Revenue from advertising is generated in the form of sponsored links and image ads.  This includes both pay-per-performance ads and paid-for-impression advertising.  In the pay-per-performance model, revenue is generally earned based on the number of clicks or other actions taken associated with such ads; in the paid-for-impression model, revenue is derived from the display of ads.

 

The Company generally recognizes services revenue during the period services related to the design, development, hosting, and related web services are performed.  Revenue is recorded on a gross versus net basis   when   Remark Media bears the risk of loss related to the services performed, the majority of which relates to services performed by the Company’s resources.  The Company may also recognize content and platform services revenue on certain projects using a percentage of completion method.  Sales are calculated based on the total costs incurred to date divided by total estimated costs at completion times the contract price.    

 

 

Operating Expenses 

In light of the change in RemarkMedia’s business strategy, the Company revised the presentation of operating expenses in its condensed consolidated statements of operations and completed the reclassification of the condensed consolidated statements of operations for the prior year periods presented. Beginning with the second quarter 2012, the Company’s operating expenses reflect sales and marketing; c ontent, technology and development; general and administrative; and depreciation and amortization. Sales and marke ting expenses include all selling and marketing expenses such as promotions, public relations and compensation of our sales and marketing departments. Content, technology and development expenses include costs of translating and localizing content and acquiring original content written by third-parties as well as costs associated with the design, development, hosting of websites in addition to user acquisition and user retentions and compensation of our technology, content, product and web design departments which does not qualify to be capitalized. General and administrative expenses include all legal, finance, accounting and administrative expenses such as professional fees and facilities costs. Depreciation and amortization include the depreciation of our acquired fixed assets and amortization of software and definite-lived intangible assets.     All periods presented have been reclassified to conform to the new presentation .  

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REMARK MEDIA INC. and SUBSIDIARIES  

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Three and Six Months Ended June 30, 2013 and 2012  

(Unaudited)

 

Purchase Price Allocations  

Occasionally, t he Company enters into business combinations.  T he purchase price is allocated to the various assets acquired and liabilities assumed based on their estimated fair value.  Fair values of assets acquired and liabilities assumed are based upon available information and may involve engaging an independent third party to perform an appraisal of tangible and intangible assets.  Estimating fair values can be complex and subject to significant business judgment and most commonly impacts property, equipment, software, and definite- or indefinite-lived intangible assets.  

Software Development Costs  

The Company capitalizes qualifying costs of computer software and website development costs. Costs incurred during the application development stage as well as upgrades and enhancements that result in additional functionality are capitalized. The internally developed software costs capitalized were $ 0.5 million and $ 0.5 million, at June 30 , 2013 and December 31, 2012, respectively and are included in “Property, equipment and software” in the condensed consolidated balance sheet. Internally developed software and w ebsite development costs are being amortized utilizing the straight-line method over a period of three years, the expected period of the benefit. For the three and six months ended June 30, 2013, there was approximately  $ 0.1 million   and $ 0.2 million   of amortization recorded for these costs , respectively. For the three and six months ended June 30, 2012, ther e was   no amortization recorded. 

  

Stock-Based Compensation  

T he Company measures stock-based compensation at the grant date based on the calculated fair value of the award.  The Company recognizes the expense over the recipient ’s requisite service period, generally the vesting period of the award.  The Company estimates the fair value of stock options at the grant date using the Black-Scholes option pricing model with weighted average assumptions for the activity under its stock plans. Option pricing model input assumptions such as expected term, expected volatility and risk-free interest rate among others, impact the fair value estimate.  These assumptions generally require significant analysis and use of judgment and estimates to develop. Options vest based on meeting a minimum service period or performance condition. Restricted stock grants are recorded using the fair value of the granted shares based on the market value at the grant date.  In addition, the forfeiture rate impacts the amount of aggregate compensation. These assumptions are subjective and generally require significant analysis and judgment to develop.  

The Company does not recognize a deferred tax asset for unrealized tax benefits associated with the tax deductions in excess of the compensation recorded (excess tax benefit).  The Company applies the “with and without” approach for utilization of tax attributes upon realization of net operating losses in the future.  This method allocates stock-based compensation benefits last among other tax benefits recognized.  In addition, the Company applies the “direct only” method in calculating the amount of windfalls or shortfalls.  

 

Derivative Liability for Warrants to Purchase Common Stock

 

The Company's derivative liability for warrants represents the fair value of warrants issued in connection with an equity financing  related to the Banks.com acquisition consummated on February 26, 2012 ("Equity Financing").These warrants are presented as liabilities based on certain exercise price reductions provisions. The liability, which is recorded at the fair value on the balance sheet, is calculated using the Monte Carlo simulation valuation method. The change in the fair value of these warrants is recognized as other income or expense in the condensed consolidated statement of operations.

 

Re cent Accounting Pronouncements    

 

In January 2013, the Financial Accounting Standards Board (“FASB”) amended its guidance on the presentation of comprehensive income.  Under the amended guidance, an entity must present information regarding reclassification adjustments from accumulated other comprehensive income in a single note or on the face of the financial statements.  This is required for both annual and interim reporting.  The amendment becomes effective for reporting periods beginning after December 15, 2012 and is applied prospectively.  Early adop tion is permitted.  The Company’s adoption of the standard did not have an impact on the Company’s condensed consolidated balance sheet, s tatement of o perations or cash flows as it was disclosure-only in nature. 

 

 

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REMARK MEDIA INC. and SUBSIDIARIES  

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Three and Six Months Ended June 30, 2013 and 2012  

(Unaudited)

 

3 .     INVESTMENT IN S HARECARE  

 

As of June 30 , 2013 , Remark Media owns approximately 9.4 % of the outstanding common stock of Sharecare , Inc . ("Sharecare").   Until November 30, 2012, the Company accounted for its equity interest in Sharecare under the equity method of accounting.  Under this method, the Company recorded its proportionate share of Sharecare’s net income or loss based on Sharecare’s financial results.  As of December 1, 2012, the Company changed to the cost method of accounting due to a lower percentage of ownership, nonparticipation in policy-making processes, and limited existence of technology dependency by Sharecare on the Company. 

 

The following table shows selected unaudited financial data of Sharecare including Remark Media’s proportional share of net loss in Sharecare as reported under the equity method for the three and six months ended June 30, 2013 and 2012   During the first   quarter of 2013, t he Company recorded a $ 0.2 million change in its estimate of its proportional share in loss of equity-method investment related to the period from January 1, 2012 through November 30, 2012 , based on information that was finalized and provided to the Company subsequent to the issuance of its December 31, 2012 financial statements

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

2013

 

2012

 

2013

 

2012

 

 

 

 

 

 

 

 

 

 

Revenues

$

 -

 

$

8,203,771 

 

$

 -

 

$

12,712,454 

Gross profit

 

 -

 

 

7,474,905 

 

 

 -

 

 

11,583,331 

Loss from operations

 

 -

 

 

(7,514,540)

 

 

 -

 

 

(14,035,035)

Net loss

 

 -

 

 

(7,565,642)

 

 

 -

 

 

(14,170,584)

Proportionate share in loss of equity-method investment, including change in interest gain

$

 -

 

$

(592,267)

 

$

(222,707)

 

$

681,608 

 

 

 

 

 

 

 

 

 

4. FAIR VALUE OF FINANCIAL INSTRUMENTS

 

The Company measures certain financial assets and liabilities at fair value on a recurring basis. The common stock warrants which are classified as liabilities are recorded at their fair market value as of each reporting period.

 

The measurement of fair market value requires the use of techniques based on observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect our market assumptions. The inputs create the following fair market value hierarchy:

 

·

Level 1 - Quoted prices for identical instruments in active markets.

·

Level 2 - Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations where inputs are observable or where significant value drivers are observable.

·

Level 3 - Instruments where significant value drivers are unobservable to third parties.

The Company uses model-derived valuations where inputs are both observable and unobservable in active markets to determine the fair value of certain common stock warrants on a recurring basis. The lowest level of significant inputs are classified as Level 3; thus, the common stock warrants are classified as Level 3. The Company utilized a Monte Carlo simulation valuation model to fair value the warrants.  The assumptions used in the model consist of the following variables: (i) the closing price of Remark's common stock; (ii) the expected remaining life of the warrant; (iii) the historical stock-price trends; (iv) the risk-free interest rate; and (v) probability of Company issuing future equity and debt instruments to satisfy financing needs. At June 30, 2013 and December 31, 2012, the fair value of liability classified warrants were as follows:

 

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REMARK MEDIA INC. and SUBSIDIARIES  

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Three and Six Months Ended June 30, 2013 and 2012  

(Unaudited)

 

 

The change in the fair value of the warrants accounted for as derivative liabilities is reflected below:

 

 

 

 

 

 

 

 

 

June 30, 2013

 

December 31, 2012

 

 

 

 

 

 

 

 

 

 

(Restated)

Derivative liabilities

$

478,765 

 

$

277,646 

 

 

 

 

 

 

     Balance at January 1, 2012

$

 -

 

 

 

     Fair value of warrants issued in February 2012 (revised)

 

1,207,778 

 

 

 

     Increase (Decrease) in fair value resulting in gain (loss)

 

(930,132)

 

 

 

     Fair value at December 31, 2012 (revised)

$

277,646 

 

 

 

 

 

 

 

 

 

     Balance at January 1, 2013 (revised)

$

277,646 

 

 

 

     Increase (Decrease) in fair value resulting in gain (loss) (revised)

 

201,119 

 

 

 

     Fair value at June 30, 2013 (revised)

$

478,765 

 

 

 

 

The Company will continue to adjust the warrant liability for changes in fair value until the earlier of the exercise of the warrants, at which time the liability will be reclassified to stockholders' equity, or expiration of the warrants.

 

5 . ACQUISITIONS 

 

On March 29, 2013 , Remark Media acquired Pop Factory, LLC ("Pop Factory") , the owner and operator of Bikini.com, a digital beach lifestyle brand providing websites, branded merchandise, and mobile content, for total cash consideration of $ 2,375 , 000.  In connection with the purchase, the two founders, who had remained executives of Pop Factory, entered into one year employment agreements with Pop Factory and noncompetition agreements with th e Company. The Company further agreed to use the acquisition date cash to repay the outstanding liabilities of Pop Factory and remit the remaining cash balan ce forty five days subsequent to closing date. As of June 30, 2013, the Company recorded $23 thousand of accrued  expenses relating to this clawback provision in the Purchase Agreement.

 

The total consideration of the transaction was $ 2.4 million in cash.  The acquisition was accounted for under the purchase method and, accordingly, the purchase price was allocated to the assets and liabilities based on their estimated fair values on the date of the acquisition. 

 

During the three months ended June 30, 2013, the Company finalized the valuation of intangible assets related to this acquisition. Based on the valuation of the Pop Factory acquisition, the intangible assets on the acquisition date were $2.1 million. The condensed consolidated balance sheet for the quarter ended March 31, 2013, was retrospectively adjusted to increase the carrying amount of intangible assets by $1.5 million and decrease the carrying amount of goodwill by $1.5 million. Of the total intangibles acquired, $2.1 million related to domain names and has an amortization period of 12 years.

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REMARK MEDIA INC. and SUBSIDIARIES  

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Three and Six Months Ended June 30, 2013 and 2012  

(Unaudited)

 

 

The table below illustrates the allocation of the purchase price over the identifiable assets and assumed liabilities on March 29, 2013.        

 

 

 

 

Tangible assets

 

 

            Current assets

$

23,245 

            Fixed assets

 

5,282 

Total tangible assets

 

28,527 

 

 

 

Intangible assets

 

 

           Customer contracts

 

33,000 

           Domain names

 

2,100,000 

           Other intangible assets

 

5,715 

Total intangible assets

 

2,138,715 

 

 

 

          Accounts payable

 

(7,068)

Total identifiable net assets

 

2,160,174 

 

 

 

Goodwill

 

214,826 

 

 

 

        Total purchase price

$

2,375,000 

 

The acquisition transaction costs incurred for t he period ended June 30 , 2013 totaled $ 0.1 million and were all expensed under the general and administrative expenses in the condensed consolidated statem ent of operations for the six and three months ended June 30 , 2013. Pop Factory's revenue during the three months ended June 30, 2013 have been included in the condensed consolidated statement of operations.    

 

On August 2, 2012, Remark Media sold Intersearch Corporate Services, Inc. a subsidiary of Banks.com for minimal consideration. 

 

On June 28, 2012, Remark Media completed the merger (the “Merger”) contemplated by the Agreement and Plan of Merger dated as of February 26, 2012, among the Company, Banks.com and Remark Florida, Inc., a wholly-owned subsidiary of the Company (“Merger Sub”), pursuant to which Merger submerged with and into Banks.com and Banks.com survived the Merger as a wholly-owned subsidiary of Remark Media.  At the effective time of the Merger, each share of the outstanding common stock of Banks.com was converted into the right to receive 0.0258 shares of Remark Media common stock, for an aggregate of 670,815 shares of Remark Media common stock.  The outstanding shares of Banks.com preferred stock, including all accrued and unpaid dividends as of the date of closing of the Merger on such preferred stock, a Note and a Warrant, all of which are held by Daniel M. O’Donnell, President and Chief Executive Officer of Banks.com, and his affiliates, were converted into cash in the aggregate amount of $300,000 and the right to receive 31,452 shares of Remark Media common stock.  In connection with the Merger, Banks.com issued an Amended and Restated Promissory Note in the principal amount of $125,000 to Mr. O’Donnell and his wife, which matured on June 28, 2012.  The Company settled the cash consideration of $300,000 on the date of closing and $131,250 in settlement of the promissory note in the principal amount of $125,000 and related interest.  

 

The table below reflects a summary of the unaudited pro forma results of operations for the three and six months ended June 30 , 2013 and 2012, as if Remark Media , Banks.com and Pop Factory were co mbined as of January 1,  2 012 .  The pro forma results include estimates and assumptions which management believes are reasonable.  However, pro forma results do not include any anticipated cost savings or other effects of the planned integration of these entities, and are not necessarily indicative of the results that would have occurred if the business combinations had been in effect on the dates indicated, or which may result in the future .    

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REMARK MEDIA INC. and SUBSIDIARIES  

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Three and Six Months Ended June 30, 2013 and 2012  

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unaudited Pro Forma Results of Operations Results of Operations Three Months Ended June 30,

 

Unaudited Pro Forma Results of Operations Results of Operations Six Months Ended June 30,

 

 

 

2013

 

 

2012

 

 

2013

 

 

2012

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$

663,163 

 

$

87,122 

 

$

908,017 

 

$

1,204,222 

Operating Loss

 

 

(1,836,709)

 

 

(1,001,361)

 

 

(2,641,102)

 

 

(2,461,295)

Net Loss

 

$

(1,949,748)

 

$

(1,593,628)

 

$

(3,003,261)

 

$

(1,799,445)

 

 

 

 

6 . CAPITAL LEASES 

 

On December 7, 2010, Banks.com entered into a sale-leaseback arrangement with Domain Capital, LLC, (“Domain Capital”) consisting of an agreement to assign the domain name, banks.com , to Domain Capital in exchange for $ 0.6 million in cash and a Lease Agreement to lease back the domain name from Domain Capital for a five year term. Effective June 28, 2012, Banks.com became a wholly-owned subsidiary of Remark Media and according to the Agreement and Plan of Merger, Remark Media assumed all outstanding liabilities on the effecti ve date of close. As of June 30 , 2013, total obligations under this agreement were $ 0.4 million, $ 0. 1 million of which is included under the current portion of capital lease obligations and the remainder is included under capital lease obligations, net of current portion of the Company’s condensed consoli dated balance sheet at June 30 , 2013. The following table represents the approximate future minimum capital lease payments due und er this agreement as of June 30 , 2013: 

 

 

 

 

 

 

Capital Lease Commitments

 

 

 

July through December 2013

$

99,688 

2014

 

171,288 

2015

 

171,288 

Total commitments

 

442,264 

Interest on capital leases

 

(87,000)

Present value of minimum capital lease payments

$

355,264 

 

 

 

7 . COMMITMENTS AND CONTINGENCIES 

 

The Company has entered into operating leases for office space.  The lease agreement s required security deposit s and included allowance s, which were used against leasehold improvements. The security deposit s and the allowance s were recorded as an asset and a liability, respectively in the Company’s condensed consolidated financial statements.  Rental expense for operating leases, which is recognized on a straight-line basis over the lease term, was $ 0.2 million and $0.3 million for the three and six months ended June 30, 2013.  

 

The following table represents the approximate future mi nimum lease payments at June 30 , 2013 due under non-cancellable operating lease agreements with terms in excess of a year:

 

 

 

 

 

 

Operating Lease Commitments

 

 

 

July through December 2013

$

176,000 

2014

 

412,373 

2015

 

297,282 

2016

 

177,684 

Total commitments

$

1,063,338 

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REMARK MEDIA INC. and SUBSIDIARIES  

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Three and Six Months Ended June 30, 2013 and 2012  

(Unaudited)

 

 

On May 1, 2013, Remark Media abandoned the lease for one of its office spaces. Following the exit of the lease, Remark Media recognized an early termination liability of $30 0 thousand adjusted for sublease rental income, leasehold allowances, and the use of security deposits. The early termination liability principally represents the escalating lease payments inherent in the deferred rent as of the cease use date, net of the sub-lease income. The estimated fair value of the costs was based on the terms of the lease agreement and sub-lease agreement and, as such, represents the lease commitment over the next three years. The Company elected not to present value that obligation because the difference between the gross and discounted future cash flow settlements was immaterial to the financial statements. Changes in the liability subsequent to June 30, 2013 will be captured in the early termination costs.

 

The early termination cost as of June 30, 2013 was $16 thousand adjusted for the remaining deferred rent , use of security deposits, and future sublease income. These fees were included in the general and administrative expenses in the condensed consolidated statement of operations and comprehensive loss. 

 

On July 23, 2012, a complaint was filed by FOLIO fn , Inc. (“FOLIO fn ”), against the Company’s subsidiary MyStockFund Securities, Inc. (“MyStockFund”), alleging that MyStockFund has infringed six U.S. Patents held by FOLIO fn relating to investm ent methods. The complaint sought injunctive relief, damages, pre-judgment interest, and attorneys' fees .  The case was settled between the parties, and on April 23, 2013 the litigation was terminated by the court, resulting in no liability to the Company. 

 

The Company believes that there are no disputes, litigation or other legal proceedings asserted or pending against it that could have, individually or in the aggregate, a material adverse effect on its financial position, results of operations or cash flows, and believe that adequate provision for any probable and estimable losses has been made in the condensed consolidated financial statements. However, the ultimate result of any current or future litigation or other legal proceedings, audits or disputes is inherently unpredictable and could result in liabilities higher than currently predicted.

 

 

8 .  STOCKHOLDERS’ EQUITY AND NET LOSS PER SHARE 

 

  Net Loss per Share  

 

The following is a reconciliation of the numerators and denominators of our basic and diluted loss per share computations: 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

2013

 

2012

 

2013

 

2012

 

 

 

 

(Restated)

 

 

 

 

(Restated)

Loss per share:

 

 

 

 

 

 

 

 

 

 

 

Net loss

$

(2,168,109)

 

$

(1,593,628)

 

$

(3,204,482)

 

$

(1,699,643)

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding

 

7,193,632 

 

 

6,414,200 

 

 

7,193,632 

 

 

6,089,553 

 

 

 

 

 

 

 

 

 

 

 

 

Net  loss per share, basic and diluted

$

(0.30)

 

$

(0.25)

 

$

(0.45)

 

$

(0.28)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common shares and dilutive securities:

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding

 

7,193,632 

 

 

6,414,200 

 

 

7,193,632 

 

 

6,089,553 

Dilutive securities

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 

 

 

 

 

 

 

 

 

 

Total common shares and dilutive securities

 

7,193,632 

 

 

6,414,200 

 

 

7,193,632 

 

 

6,089,553 

 

Stock options and warrants are not included in the diluted earnings per share calculation above as they are anti-dilutive.  The number of anti-dilutive shares outstanding excluded from the calculation above was   2,801,919   and   1,435,349 for the three and six months ended June 30 , 2013 and 2012, respectively. 

 

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REMARK MEDIA INC. and SUBSIDIARIES  

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Three and Six Months Ended June 30, 2013 and 2012  

(Unaudited)

 

Stock-Based Compensation 

 

Remark Media has authorized 800,000 shares unde r the 2006 Equity Incentive Plan adopted April 13, 2006 (the “2006 Plan”), and an additional 525,000 shares authorized under the 2010 Equity Incentive Plan adopted June 15, 2010, and modified on December 30, 2011 (the “2010 Plan”), for grant as part of long-term incentive plans to attract, retain and motivate its eligible executives, employees, officers, directors and consultants.  Options to purchase common stock under the 2006 and 2010 Plans have been granted to its officers and employees with an exercise price equal to the fair market value of the underlying shares on the date of grant.  

 

During the first two quarters ended June 30, 2013 , the Company reached an agreement with certain option holders to replace 442,000 out-of-the-money options with 64,601 options with an exercise price equal to the stock price on the date of the exchange. 

 

On May 20, 2013, the Company agreed to exchange 20,000 vested options with 20,000 restricted shares issued at the price equal to the market value.

 

 

The Company measures stock-based compensation cost at the grant date based on the fair value of the award, and recognizes it as an expense over the requisite service period.  Stock-based compensation expense for the three months ended June 30 , 2013 and 2012 was approximately $0. 24 million and $0.2 2 million, respectively.  For the six months ended June 30, 2013 and 2012, st ock-based compensation was $0.37   million and $0.45 million , respectively. An expense of $18 tho usand was included in the stock compensation expense for the six months ended June 30, 2013 related to the price modification in the terms of the exercise price of 62,242 shares of stock option grants in the second quarter of 2013. As of June 30 , 2013, unrecognized compensation expense relating to non-vested stock options approximated $ 1 . 0 million, and is expect ed to be recognized through 2017.  During the six months ended June 30 , 2013, Remark Media granted 175 ,000 options at a per share exercise price of $ 5.00 .  The grant date fair value of grant options vesting during the six mon ths ended June 30 , 2013 and 2012 was approximately $ 0.4 8 million and $ 0.1 8 million, respectively.  Additionally, the Company granted 203 ,398 shares of restricted stock   related to consulting agreements and employee compensation plans for 2013. The shares of restricted stock vest according to varying terms, ranging from immediate to vesting through 2018 .  Through June 30 , 2013, no options have been exercised under the 2006 Plan or the 2010 Plan.

 

At June 30 , 2013, the Company had additional outstanding warrants to acquire 30,000 shares of common stock which had exercise prices ranging from $ 35.00 to $ 98.90 and which will expire through 2017 .

 

 

9 .  RELATED PARTY TRANSACTIONS 

 

As discussed in Note 1, the Company entered into promissory notes totaling $ 5.8 million with a lender controlled by and in part owned by Mr. Kai-Shing Tao, the Company’s Chairman and Chief Executive Officer. 

 

The future maturity schedule of the long-term debt with related par ty was as follows as of June 30 , 2013:

 

 

 

 

Year ending December 31,

 

 

2013

$

 -

2014

 

1,800,000 

2015

 

4,000,000 

 

Proceeds of $ 5 . 8 million loan were received as of June 30, 2013 , and all amounts mature by April 2, 2015. 

 

The related party interest expense for the promissory notes was $0.1 million and $0.1 for the three and six months ended June 30, 2013. No related party interest expense was recorded for the three and six months ended June 30, 2012.

 

As of June 30, 2013, Remark Media owned approximately 10.8 % of the outstanding common stock of Sharecare.  Jeff Arnold, a former member of the Company’s Board of Directors, is the Chairman and Chief Executive Officer and a significant stockholder of Sharecare.  Additionally, Discovery Communications, Inc., formerly the Company’s largest stockholder, is a significant stockholder of Sharecare.     

   

 

 

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REMARK MEDIA INC. and SUBSIDIARIES  

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Three and Six Months Ended June 30, 2013 and 2012  

(Unaudited)

 

10. RESTATE MENT OF CONSOLIDATED FINANCIAL STATEMENTS

 

In connection with the preparation of the Company's financial statements as of June 30, 2013, and for the three and six months then ended the Company determined that it should have used derivative liability accounting to account for the fair value of the warrants issued in the Company's February 28, 2012 Equity Financing in recording the proceeds received, due to the down round provision associated with the exercise price of the warrants. The Company previously recorded all of the proceeds from the Equity Financing as equity.

The Company has calculated the fair value of the warrants issued in February 2012 Equity Financing for each relevant reporting period using the Monte Carlo simulation method. The Company plans to file a Form 10Q/A for the quarterly periods ended March 31, 2013, September 30, 2012,  June 30, 2012 , and March 31, 2012 in which Form 10K/A   for the year-ended December 31, 2012 and will restate its financial statements to correct the non-cash errors related to derivative liability accounting for warrants issued in February 2012 Equity Financing. The Company also will disclose the affected quarterly information for 2012 in the Form 10-K/A.

 

The effects of the revision on the unaudited financial statements are summarized below.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of December 31, 2012

 

As of June 30, 2013

 

 

As previously reported

 

Adjustment

 

As restated

 

As previously reported

 

Adjustment

 

As restated

Balance sheets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total assets

 

$

6,359,175 

 

$

 -

 

$

6,359,175 

 

$

9,250,736 

 

$

 

 

$

9,250,736 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative liabilities

 

 

 -

 

 

277,646 

 

 

277,646 

 

 

 -

 

 

478,765 

 

 

478,765 

All other current liabilities

 

 

1,179,465 

 

 

 -

 

 

1,179,465 

 

 

2,973,586 

 

 

 -

 

 

2,973,586 

Total current liabilities

 

 

1,179,465 

 

 

277,646 

 

 

1,457,111 

 

 

2,973,586 

 

 

478,765 

 

 

3,452,351 

All other liabilities

 

 

2,402,005 

 

 

 -

 

 

2,402,005 

 

 

6,053,805 

 

 

 -

 

 

6,053,805 

Total liabilities

 

 

3,581,470 

 

 

 

 

 

3,859,116 

 

 

9,027,391 

 

 

 

 

 

9,506,156 

Preferred shares

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

Common stock

 

 

7,114 

 

 

 -

 

 

7,114 

 

 

7,194 

 

 

 -

 

 

7,194 

Additional paid-in capital

 

 

108,507,855 

 

 

(1,207,778)

 

 

107,300,077 

 

 

108,963,172 

 

 

(277,646)

 

 

108,685,526 

Accumulated other comprehensive income (loss)

 

 

5,370 

 

 

 -

 

 

5,370 

 

 

(1,024)

 

 

 -

 

 

(1,024)

Accumulated deficit

 

 

(105,742,634)

 

 

930,132 

 

 

(104,812,502)

 

 

(108,745,997)

 

 

(201,119)

 

 

(108,947,116)

Stockholders' equity

 

 

2,777,105 

 

 

(277,646)

 

 

2,500,059 

 

 

223,345 

 

 

(478,765)

 

 

(255,420)

Total liabilities and stockholders' equity

 

$

6,358,575 

 

$

(277,646)

 

$

6,359,175 

 

$

9,250,736 

 

$

(478,765)

 

$

9,250,736 

 

14  


 

 

Table of Contents  

REMARK MEDIA INC. and SUBSIDIARIES  

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Three and Six Months Ended June 30, 2013 and 2012  

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of December 31, 2012

 

 

As previously reported

 

Adjustment

 

As restated

 

 

 

 

 

 

 

 

 

 

Statement of operations:

 

 

 

 

 

 

 

 

 

Operating Loss

 

$

(6,513,987)

 

$

 -

 

$

(6,513,987)

Gain (loss) on change in fair value of derivative  liability

 

 

 -

 

 

930,132 

 

 

930,132 

All other income (expense) items

 

 

(454,747)

 

 

 -

 

 

 -

Net loss

 

$

(6,968,734)

 

$

 -

 

$

(5,583,855)

Net loss per share (basic and diluted)

 

$

(1.05)

 

$

 -

 

$

(0.85)

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding

 

 

6,605,563 

 

 

 

 

 

6,605,563 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30, 2012

 

 

As previously reported

 

Adjustment

 

As restated

 

 

 

 

 

 

 

 

 

 

Statement of operations:

 

 

 

 

 

 

 

 

 

Operating Loss

 

$

(1,581,628)

 

$

-

 

$

(1,581,628)

Gain (loss) on change in fair value of derivative  liability

 

 

-

 

 

578,793 

 

 

578,793 

All other income (expense) items

 

 

(590,793)

 

 

-

 

 

(590,793)

Net loss

 

$

(2,172,421)

 

$

-

 

$

(1,593,628)

Net loss per share (basic and diluted)

 

$

(0.34)

 

$

-

 

$

(0.25)

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding

 

 

6,414,200 

 

 

 

 

 

6,414,200 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended June 30, 2012

 

 

As previously reported

 

Adjustment

 

As restated

 

 

 

 

 

 

 

 

 

 

Statement of operations:

 

 

 

 

 

 

 

 

 

Operating Loss

 

$

(3,055,761)

 

$

 -

 

$

(3,055,761)

Gain (loss) on change in fair value of derivative  liability

 

 

 -

 

 

694,528 

 

 

694,528 

All other income (expense) items

 

 

661,590 

 

 

 -

 

 

661,590 

Net loss

 

$

(2,394,171)

 

$

 -

 

$

(1,699,643)

Net loss per share (basic and diluted)

 

$

(0.39)

 

$

 -

 

$

(0.28)

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding

 

 

6,089,553 

 

 

 

 

 

6,089,553 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 2013

 

 

As previously reported

 

Adjustment

 

As restated

 

 

 

 

 

 

 

 

 

 

Statement of operations:

 

 

 

 

 

 

 

 

 

Operating Loss

 

$

(830,690)

 

$

 -

 

$

(830,690)

Gain (loss) on change in fair value of derivative  liability

 

 

 -

 

 

17,242 

 

 

17,242 

All other income (expense) items

 

 

(222,707)

 

 

 -

 

 

(222,707)

Net loss

 

$

(1,053,397)

 

$

 -

 

$

(1,036,155)

Net loss per share (basic and diluted)

 

$

(0.164)

 

$

 -