|
|
ITEM 1.
|
FINANCIAL STATEMENTS
|
REMARK HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(dollars in thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
September 30, 2017
|
|
December 31, 2016
|
|
(Unaudited)
|
|
|
Assets
|
|
|
|
Cash and cash equivalents
|
$
|
15,970
|
|
|
$
|
6,893
|
|
Restricted cash
|
11,670
|
|
|
9,405
|
|
Trade accounts receivable
|
1,050
|
|
|
1,372
|
|
Prepaid expense and other current assets
|
4,828
|
|
|
3,323
|
|
Notes receivable, current
|
190
|
|
|
181
|
|
Assets held for sale
|
404
|
|
|
—
|
|
Total current assets
|
34,112
|
|
|
21,174
|
|
Restricted cash
|
—
|
|
|
2,250
|
|
Notes receivable
|
—
|
|
|
190
|
|
Property and equipment, net
|
14,036
|
|
|
15,531
|
|
Investment in unconsolidated affiliate
|
1,030
|
|
|
1,030
|
|
Intangibles, net
|
31,135
|
|
|
37,406
|
|
Goodwill
|
28,889
|
|
|
26,763
|
|
Other long-term assets
|
544
|
|
|
1,355
|
|
Total assets
|
$
|
109,746
|
|
|
$
|
105,699
|
|
Liabilities and Stockholders’ Equity
|
|
|
|
Accounts payable
|
$
|
20,096
|
|
|
$
|
16,546
|
|
Accrued expense and other current liabilities
|
14,810
|
|
|
13,965
|
|
Deferred merchant booking
|
9,990
|
|
|
6,991
|
|
Deferred revenue
|
6,531
|
|
|
4,072
|
|
Note payable
|
3,000
|
|
|
—
|
|
Current maturities of long-term debt, net of debt issuance cost
|
37,896
|
|
|
100
|
|
Capital lease obligations
|
—
|
|
|
179
|
|
Total current liabilities
|
92,323
|
|
|
41,853
|
|
Long-term debt, less current portion and net of debt issuance cost
|
—
|
|
|
37,825
|
|
Warrant liability
|
22,679
|
|
|
25,030
|
|
Other liabilities
|
4,166
|
|
|
3,591
|
|
Total liabilities
|
119,168
|
|
|
108,299
|
|
|
|
|
|
Commitments and contingencies (
Note 12
)
|
|
|
|
|
|
|
|
|
|
Preferred stock, $0.001 par value; 1,000,000 shares authorized; none issued
|
—
|
|
|
—
|
|
Common stock, $0.001 par value; 100,000,000 shares authorized; 25,301,842 and 22,232,004 shares issued and outstanding; each at September 30, 2017 and December 31, 2016, respectively
|
25
|
|
|
22
|
|
Additional paid-in-capital
|
201,245
|
|
|
190,507
|
|
Accumulated other comprehensive loss
|
4
|
|
|
(16
|
)
|
Accumulated deficit
|
(210,696
|
)
|
|
(193,113
|
)
|
Total stockholders’ equity (deficit)
|
(9,422
|
)
|
|
(2,600
|
)
|
Total liabilities and stockholders’ equity
|
$
|
109,746
|
|
|
$
|
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 September 30,
|
|
Nine Months Ended September 30,
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Revenue, net
|
$
|
19,449
|
|
|
$
|
15,142
|
|
|
$
|
52,004
|
|
|
$
|
44,371
|
|
Cost and expense
|
|
|
|
|
|
|
|
Cost of revenue (excluding depreciation and amortization)
|
5,641
|
|
|
2,864
|
|
|
12,270
|
|
|
7,837
|
|
Sales and marketing
|
6,326
|
|
|
4,887
|
|
|
17,975
|
|
|
15,349
|
|
Technology and development
|
865
|
|
|
1,066
|
|
|
2,657
|
|
|
1,904
|
|
General and administrative
|
9,971
|
|
|
7,921
|
|
|
26,656
|
|
|
24,251
|
|
Depreciation, amortization and impairments
|
2,510
|
|
|
2,525
|
|
|
8,265
|
|
|
7,401
|
|
Other operating expense
|
66
|
|
|
77
|
|
|
168
|
|
|
506
|
|
Total cost and expense
|
25,379
|
|
|
19,340
|
|
|
67,991
|
|
|
57,248
|
|
Operating loss
|
(5,930
|
)
|
|
(4,198
|
)
|
|
(15,987
|
)
|
|
(12,877
|
)
|
Other income (expense)
|
|
|
|
|
|
|
|
Interest expense
|
(1,080
|
)
|
|
(1,224
|
)
|
|
(3,279
|
)
|
|
(3,649
|
)
|
Other income (loss), net
|
—
|
|
|
(1
|
)
|
|
20
|
|
|
29
|
|
Loss on extinguishment of debt
|
—
|
|
|
(9,157
|
)
|
|
—
|
|
|
(9,157
|
)
|
Change in fair value of warrant liability
|
(5,978
|
)
|
|
(647
|
)
|
|
2,351
|
|
|
2,691
|
|
Other loss
|
(33
|
)
|
|
(33
|
)
|
|
(85
|
)
|
|
(104
|
)
|
Total other expense, net
|
(7,091
|
)
|
|
(11,062
|
)
|
|
(993
|
)
|
|
(10,190
|
)
|
Loss before income taxes
|
(13,021
|
)
|
|
(15,260
|
)
|
|
(16,980
|
)
|
|
(23,067
|
)
|
Provision for income taxes
|
(229
|
)
|
|
—
|
|
|
(603
|
)
|
|
—
|
|
Net loss
|
$
|
(13,250
|
)
|
|
$
|
(15,260
|
)
|
|
$
|
(17,583
|
)
|
|
$
|
(23,067
|
)
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding, basic and diluted
|
22,811
|
|
|
20,359
|
|
|
22,744
|
|
|
20,104
|
|
|
|
|
|
|
|
|
|
Net loss per share, basic and diluted
|
$
|
(0.58
|
)
|
|
$
|
(0.75
|
)
|
|
$
|
(0.77
|
)
|
|
$
|
(1.15
|
)
|
See Notes to Unaudited Condensed Consolidated Financial Statements
REMARK HOLDINGS, INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Cash Flows
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
2017
|
|
2016
|
Net cash provided by (used in) operating activities
|
$
|
616
|
|
|
$
|
(1,950
|
)
|
Cash flows from investing activities:
|
|
|
|
Purchases of property, equipment and software
|
(2,631
|
)
|
|
(2,465
|
)
|
Business acquisitions, net of cash received
|
—
|
|
|
(7,330
|
)
|
Other asset acquisitions
|
(29
|
)
|
|
—
|
|
Net cash used in investing activities
|
(2,660
|
)
|
|
(9,795
|
)
|
Cash flows from financing activities:
|
|
|
|
Proceeds from issuance of common stock, net
|
8,315
|
|
|
4,368
|
|
Proceeds from debt issuance
|
3,000
|
|
|
7,597
|
|
Payment of debt issuance cost
|
—
|
|
|
(163
|
)
|
Payments of capital lease obligations
|
(179
|
)
|
|
(182
|
)
|
Net cash provided by financing activities
|
11,136
|
|
|
11,620
|
|
Net increase in cash, cash equivalents and restricted cash
|
9,092
|
|
|
(125
|
)
|
Cash, cash equivalents and restricted cash:
|
|
|
|
Beginning of period
|
18,548
|
|
|
17,088
|
|
End of period
|
$
|
27,640
|
|
|
$
|
16,963
|
|
|
|
|
|
Supplemental cash flow information:
|
|
|
|
Cash paid for interest
|
$
|
3,031
|
|
|
$
|
2,661
|
|
|
|
|
|
Supplemental schedule of non-cash investing and financing activities:
|
|
|
|
Warrants issued in business acquisition transactions
|
$
|
—
|
|
|
$
|
7,993
|
|
Issuance of common stock upon conversion of debt instruments
|
$
|
121
|
|
|
$
|
—
|
|
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”) are primarily technology-focused. Our KanKan social media data intelligence platform serves as the basis for our development and deployment of artificial-intelligence-based solutions for businesses and software developers in many industries and geographies. We also own and operate digital media properties across multiple verticals,
such as travel and entertainment, young adult lifestyle and personal finance,
that deliver relevant, dynamic content that attracts and engages users on a global scale. Our common stock is listed on the Nasdaq Capital Market under the ticker symbol MARK.
Liquidity Considerations
During the
nine months ended
September 30, 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
$210.7 million
and a cash and cash equivalents balance of
$16.0 million
, both amounts as of
September 30, 2017
. Also as of
September 30, 2017
, we had a negative working capital balance of
$58.2 million
. Our net revenue during the
nine months ended
September 30, 2017
was
$52.0 million
.
During the
nine months ended
September 30, 2017
, we issued a total of
3,052,897
shares of our common stock to investors in exchange for approximately
$8.3 million
in cash. On November 9, 2016, we entered into a common stock purchase agreement (as amended, the “Aspire Purchase Agreement”) with Aspire Capital Fund, LLC (“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. On September 18, 2017, we entered into a First Amendment to the Aspire Purchase Agreement, which provides that the parties may mutually agree to increase the number of shares of our common stock that may be purchased per business day pursuant to the terms of the Aspire Purchase Agreement to
2,000,000
shares. A portion of the shares of our common stock we issued during the nine months ended September 30, 2017 was issued pursuant to the Aspire Purchase Agreement.
We are a party to a financing agreement dated as of September 24, 2015 (as amended, the “Financing Agreement”) with certain of our subsidiaries as borrowers (together with Remark, the “Borrowers”), certain of our subsidiaries as guarantors (the “Guarantors”), the lenders from time to time party thereto (the “Lenders”) and MGG Investment Group LP, 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 10
.
As of
September 30, 2017
, we were not in compliance with the covenant under the Financing Agreement requiring minimum consolidated EBITDA of Remark and its subsidiaries for the trailing twelve-month period ended September 30, 2017 of
$(1.5) million
, as our actual consolidated EBITDA for such period was
$(4.4) million
. As explained in
Note 15
, the Lenders waived specified events of default under the Financing Agreement, including with respect to (i) minimum consolidated EBITDA of Remark and its subsidiaries for the trailing twelve-month periods ended June 30, 2017 and September 30, 2017, (ii) minimum value of certain of our assets for the fiscal quarters ended June 30, 2017 and September 30, 2017, and (iii) minimum restricted cash balance through September 19, 2017.
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 additional capital.
A variety of factors, many of which are outside of our control, affect our cash flow; those factors include regulatory issues, competition, financial markets and other general business conditions. Based on our historical track record and projections, we believe that we will be able to meet our ongoing requirements through September 30,
2018
(including repayment of our existing debt as it matures) with existing cash, cash equivalents and cash resources, and based on the probable success of one or more of the following plans:
|
|
•
|
monetize existing assets
|
|
|
•
|
work with our creditors to modify existing arrangements or refinance our debt
|
|
|
•
|
obtain additional capital through equity issuances, including but not limited to equity issuances to Aspire Capital under its existing purchase commitment (which equity issuances may dilute existing stockholders)
|
However, projections are inherently uncertain and 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
September 30, 2017
.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
We prepared the accompanying unaudited Condensed Consolidated Balance Sheet as of
September 30, 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
September 30, 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 July 2017, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2017-11,
Accounting for Certain Financial Instruments with Down Round Features
, which changes how an entity determines whether certain financial instruments should be classified as liabilities or equity instruments. Under ASU 2017-11, a down round feature no longer precludes equity classification when an entity assesses whether the instrument is indexed to the entity's own stock. As a result, a freestanding equity-linked financial instrument (or embedded conversion option) no longer would be accounted for as a derivative liability at fair value as a result of the existence of a down round feature. The amendments also require entities to recognize the effect of the down round feature as a dividend when the feature is triggered (which would affect the presentation of earnings per share) and they clarify existing disclosure requirements for equity-classified instruments. For us, the amendments in ASU 2017-11 will become effective on January 1, 2019, and early adoption is permitted. Although our evaluation of the impact the guidance will have on our consolidated financial statements, results of operations and cash flows is ongoing, we believe that application of ASU 2017-11 may reduce the amount we report as Warrant liability on our future balance sheets, as well as the amount of change to that liability that we report in our future statements of income.
In February 2016, the FASB issued 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. Based upon our analysis of existing contracts to date, 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 several of our existing subsidiaries due to the type and low volume of transactions at such subsidiaries. Although our analysis is ongoing, we believe that ASU 2014-09 may affect the timing of recognition of certain revenue in our Travel and Entertainment segment.
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 acquisition (the “CBG Acquisition”) of assets of China Branding Group Limited (“CBG”) 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.
The following table presents our final 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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preliminary Purchase Price Allocation
|
|
|
|
Final Purchase Price Allocation
|
|
September 30, 2016
|
|
Adjustments
|
|
September 30, 2017
|
Cash and cash equivalents
|
$
|
70
|
|
|
$
|
(10
|
)
|
A
|
$
|
60
|
|
Accounts receivable
|
365
|
|
|
(42
|
)
|
B
|
323
|
|
Other current assets
|
17
|
|
|
—
|
|
|
17
|
|
Total current assets
|
$
|
452
|
|
|
$
|
(52
|
)
|
|
$
|
400
|
|
Intangibles
|
9,206
|
|
|
(1,772
|
)
|
C
|
7,434
|
|
Total identifiable assets acquired
|
$
|
9,658
|
|
|
$
|
(1,824
|
)
|
|
$
|
7,834
|
|
Accounts payable
|
378
|
|
|
65
|
|
D
|
443
|
|
Taxes payable
|
—
|
|
|
298
|
|
E
|
298
|
|
Deferred revenue
|
145
|
|
|
—
|
|
|
145
|
|
Other current liabilities
|
12
|
|
|
94
|
|
F
|
106
|
|
Net identifiable assets acquired
|
$
|
9,123
|
|
|
$
|
(2,281
|
)
|
|
$
|
6,842
|
|
Goodwill
|
6,270
|
|
|
2,281
|
|
|
8,551
|
|
Total purchase consideration
|
$
|
15,393
|
|
|
$
|
—
|
|
|
$
|
15,393
|
|
In the table above, we note the adjustments we made during the period between our preliminary allocation of the purchase price and our final allocation of the purchase price, based on additional information we obtained which indicated that:
|
|
A.
|
a certain amount of cash was owed to another party as of the acquisition date and was not part of assets acquired,
|
|
|
B.
|
certain amounts were not valid receivables as of the acquisition date,
|
|
|
C.
|
the realizable value of certain intangible assets should be changed,
|
|
|
D.
|
additional amounts were owed to several vendors as of the acquisition date,
|
|
|
E.
|
a tax liability owed to the China taxing authorities existed as of the acquisition date, and
|
|
|
F.
|
penalties were owed as of the acquisition date in relation to a lawsuit settled prior to the acquisition date for which all other amounts had been accrued or paid prior to the acquisition date.
|
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2017
|
|
December 31, 2016
|
|
VDC
|
|
CBG
|
|
VDC
|
|
CBG
|
Financing Warrants
|
|
|
|
|
|
|
|
Expected volatility
|
50.00
|
%
|
|
50.00
|
%
|
|
50.00
|
%
|
|
50.00
|
%
|
Risk-free interest rate
|
1.62
|
%
|
|
1.62
|
%
|
|
1.64
|
%
|
|
1.64
|
%
|
Expected remaining term (years)
|
2.98
|
|
|
2.98
|
|
|
3.73
|
|
|
3.73
|
|
Acquisition Warrants
|
|
|
|
|
|
|
|
Expected volatility
|
50.00
|
%
|
|
50.00
|
%
|
|
50.00
|
%
|
|
50.00
|
%
|
Risk-free interest rate
|
1.62
|
%
|
|
2.04
|
%
|
|
1.64
|
%
|
|
2.21
|
%
|
Expected remaining term (years)
|
2.98
|
|
|
5.97
|
|
|
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
September 30, 2017
, we estimated that
three
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
|
$
|
375
|
|
|
$
|
435
|
|
VDC Financing Warrants
|
390
|
|
|
360
|
|
CBG Acquisition Warrants
|
980
|
|
|
980
|
|
VDC Acquisition Warrants
|
515
|
|
|
600
|
|
|
|
|
|
Change in stock price
|
|
|
|
CBG Financing Warrants
|
$
|
290
|
|
|
$
|
320
|
|
VDC Financing Warrants
|
240
|
|
|
180
|
|
CBG Acquisition Warrants
|
460
|
|
|
460
|
|
VDC Acquisition Warrants
|
260
|
|
|
260
|
|
The following table presents the reconciliation of the beginning and ending balances of the liabilities associated with the VDC and CBG Acquisition Warrants and the VDC and CBG Financing Warrants that remain outstanding (in thousands):
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
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
|
(2,351
|
)
|
|
(5,790
|
)
|
Balance at end of period
|
$
|
22,679
|
|
|
$
|
25,030
|
|
|
|
|
|
At
September 30, 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
September 30, 2017
was the expiration date of the VDC Acquisition Warrants, we would have issued to the holders
2,610,967
shares with a fair value of
$3.77
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
nine months ended September 30, 2017
in the balance of the liability associated with the Earnout Payments (in thousands):
|
|
|
|
|
Balance at beginning of period
|
$
|
2,860
|
|
Change in fair value of contingent consideration
|
50
|
|
Balance at end of period
|
$
|
2,910
|
|
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 11
). We have not yet paid the portion of the Earnout Payments which was due on April 30, 2017.
NOTE 5. RESTRICTED CASH
Regarding our restricted cash,
$2.25 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, unless we obtain the written authorization of the Lenders. 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 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 in May, and the restrictions on the cash related to the letters of credit will remain to the extent we continue to enter into contracts requiring 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):
|
|
|
|
|
|
|
|
|
|
September 30,
2017
|
|
December 31, 2016
|
Cash and cash equivalents
|
$
|
15,970
|
|
|
$
|
6,893
|
|
Restricted cash reported in current assets
|
11,670
|
|
|
9,405
|
|
Restricted cash reported in long-term assets
|
—
|
|
|
2,250
|
|
Total cash, cash equivalents and restricted cash
|
$
|
27,640
|
|
|
$
|
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
September 30, 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):
|
|
|
|
|
|
|
|
|
|
September 30, 2017
|
|
December 31, 2016
|
Prepaid expense
|
$
|
3,062
|
|
|
$
|
2,160
|
|
Deposits
|
596
|
|
|
137
|
|
Inventory, net
|
319
|
|
|
314
|
|
Other current assets
|
851
|
|
|
712
|
|
Total
|
$
|
4,828
|
|
|
$
|
3,323
|
|
|
|
|
|
NOTE 8. PROPERTY AND EQUIPMENT
Property and equipment consist of the following (in thousands, except estimated lives):
|
|
|
|
|
|
|
|
|
|
|
|
Estimated Life
(Years)
|
|
September 30,
2017
|
|
December 31, 2016
|
Vehicles
|
5
|
|
$
|
224
|
|
|
$
|
150
|
|
Computers and equipment
|
2 - 12
|
|
1,590
|
|
|
1,192
|
|
Furniture and fixtures
|
2 - 9
|
|
254
|
|
|
244
|
|
Software
|
3 - 5
|
|
20,609
|
|
|
19,538
|
|
Software development in progress
|
|
|
1,661
|
|
|
839
|
|
Leasehold improvements
|
1
|
|
325
|
|
|
166
|
|
Total property, equipment and software
|
|
|
$
|
24,663
|
|
|
$
|
22,129
|
|
Less accumulated depreciation
|
|
|
(10,627
|
)
|
|
(6,598
|
)
|
Total property, equipment and software, net
|
|
|
$
|
14,036
|
|
|
$
|
15,531
|
|
For the
nine months ended September 30, 2017
and
2016
, depreciation (and amortization of software) expense was
$4.1 million
and
$3.5 million
, respectively.
NOTE 9. GOODWILL AND OTHER INTANGIBLE ASSETS
The following table summarizes intangible assets by category (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2017
|
|
December 31, 2016
|
|
Gross Amount
|
|
Accumulated
Amortization
|
|
Net Amount
|
|
Gross Amount
|
|
Accumulated
Amortization
|
|
Net Amount
|
Finite-lived intangible assets
|
|
|
|
|
|
|
|
|
|
|
|
Domain names
|
$
|
2,591
|
|
|
$
|
(1,748
|
)
|
|
$
|
843
|
|
|
$
|
3,041
|
|
|
$
|
(1,554
|
)
|
|
$
|
1,487
|
|
Customer relationships
|
25,770
|
|
|
(9,493
|
)
|
|
16,277
|
|
|
27,064
|
|
|
(6,513
|
)
|
|
20,551
|
|
Media content and broadcast rights
|
3,006
|
|
|
(885
|
)
|
|
2,121
|
|
|
3,491
|
|
|
(541
|
)
|
|
2,950
|
|
Acquired technology
|
578
|
|
|
(440
|
)
|
|
138
|
|
|
578
|
|
|
(268
|
)
|
|
310
|
|
Other intangible assets
|
68
|
|
|
(68
|
)
|
|
—
|
|
|
68
|
|
|
(61
|
)
|
|
7
|
|
|
$
|
32,013
|
|
|
$
|
(12,634
|
)
|
|
$
|
19,379
|
|
|
$
|
34,242
|
|
|
$
|
(8,937
|
)
|
|
$
|
25,305
|
|
Indefinite-lived intangible assets
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks and trade names
|
$
|
11,628
|
|
|
|
|
$
|
11,628
|
|
|
$
|
12,001
|
|
|
|
|
$
|
12,001
|
|
License to operate in China
|
128
|
|
|
|
|
128
|
|
|
100
|
|
|
|
|
100
|
|
Total intangible assets
|
$
|
43,769
|
|
|
|
|
$
|
31,135
|
|
|
$
|
46,343
|
|
|
|
|
$
|
37,406
|
|
Total amortization expense was
$4.1 million
and
$2.6 million
for the
nine months ended
September 30, 2017
and
2016
, respectively.
The following table summarizes the changes in goodwill during the
nine months ended
September 30, 2017
and the year ended
December 31, 2016
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 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
|
—
|
|
|
2,116
|
|
|
2,116
|
|
|
—
|
|
|
6,426
|
|
|
6,426
|
|
Other
|
—
|
|
|
10
|
|
|
10
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Balance at end of period
|
$
|
18,514
|
|
|
$
|
10,375
|
|
|
$
|
28,889
|
|
|
$
|
18,514
|
|
|
$
|
8,249
|
|
|
$
|
26,763
|
|
NOTE 10. DEBT
Short-Term Debt
On April 12, 2017, we issued a short-term note payable in the principal amount of
$3.0 million
to a private lender in exchange for cash in the same amount. The agreement, which does not have a stated interest rate, required us to repay the note plus a fee of
$115,000
on the maturity date of June 30, 2017. The note is accruing interest at
$500
per day on the unpaid principal until we repay the note in full.
Long-Term Debt
The following table presents long-term debt as of
September 30, 2017
(in thousands):
|
|
|
|
|
|
|
|
|
|
September 30, 2017
|
|
December 31, 2016
|
Loan due September 2018
|
$
|
35,500
|
|
|
$
|
35,500
|
|
Unamortized debt issuance cost
|
(104
|
)
|
|
(175
|
)
|
Carrying value of Loan
|
35,396
|
|
|
35,325
|
|
Exit fee payable in relation to Loan
|
2,500
|
|
|
2,500
|
|
Convertible promissory note payable to an accredited investor
|
—
|
|
|
100
|
|
Total long-term debt
|
$
|
37,896
|
|
|
$
|
37,925
|
|
Less: current portion
|
(37,896
|
)
|
|
(100
|
)
|
Long-term debt, less current portion and net of debt issuance cost
|
$
|
—
|
|
|
$
|
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 mentioned in
Note 1
, 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
September 30, 2017
, the applicable interest rate on the Loan was approximately
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
September 30, 2017
, we were not in compliance with the covenant under the Financing Agreement requiring minimum consolidated EBITDA of Remark and its subsidiaries for the trailing twelve-month period ended
September 30, 2017
of
$(1.5) million
, as our actual consolidated EBITDA for such period was
$(4.4) million
. As explained in
Note 15
, the Lenders waived specified events of default under the Financing Agreement, including with respect to (i) minimum consolidated EBITDA of Remark and its subsidiaries for the trailing twelve-month periods ended June 30, 2017 and September 30, 2017, (ii) minimum value of certain of our assets for the fiscal quarters ended June 30, 2017 and September 30, 2017, and (iii) minimum restricted cash balance through September 19, 2017.
NOTE 11. OTHER LIABILITIES
The following table presents the components of other liabilities (in thousands):
|
|
|
|
|
|
|
|
|
|
September 30, 2017
|
|
December 31, 2016
|
Contingent consideration liability, net of current portion
|
$
|
930
|
|
|
$
|
1,840
|
|
Deferred rent
|
1,884
|
|
|
1,002
|
|
Deferred tax liability, net
|
1,352
|
|
|
749
|
|
Total
|
$
|
4,166
|
|
|
$
|
3,591
|
|
|
|
|
|
NOTE 12. 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, exclusive of the liability for the Earnout Payments related to the VDC Acquisition.
NOTE 13. STOCKHOLDERS' EQUITY AND NET LOSS PER SHARE
Equity Issuances
During the
nine months ended
September 30, 2017
, we issued a total of
3,052,897
shares of our common stock to investors in exchange for approximately
$8.3 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
September 30, 2017
, and changes during the
nine
months then ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Weighted-Average Exercise Price
|
|
Weighted-Average Remaining Contractual Term
(in years)
|
|
Aggregate Intrinsic Value (in thousands)
|
Outstanding at January 1, 2017
|
7,344,140
|
|
|
$
|
5.01
|
|
|
|
|
|
Granted
|
2,927,000
|
|
|
2.07
|
|
|
|
|
|
Exercised
|
(2,500
|
)
|
|
1.99
|
|
|
|
|
|
Forfeited, cancelled or expired
|
(270,337
|
)
|
|
4.46
|
|
|
|
|
|
Outstanding at September 30, 2017
|
9,998,303
|
|
|
$
|
4.16
|
|
|
8.3
|
|
$
|
4,974
|
|
Options exercisable at September 30, 2017
|
7,954,236
|
|
|
$
|
4.60
|
|
|
7.9
|
|
$
|
2,098
|
|
During the three months ended September 30, 2017, we issued a stock award of
18,588
shares with a grant-date fair value of less than
$0.1 million
. The award vested immediately upon grant.
We incurred share-based compensation expense of
$1.6 million
and
$0.6 million
, respectively, during the
three months ended September 30, 2017
and
2016
, and of
$2.2 million
and
$3.0 million
, respectively, during the
nine months ended
September 30, 2017
and
2016
.
Net Income (Loss) per Share
For the three and
nine months ended September 30, 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
2,892,731
shares of our common stock at an exercise price of
$5.08
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
2,998,872
shares of our common stock at an exercise price of
$7.74
per share; and
|
|
|
•
|
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.
|
NOTE 14. 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 and nine
months ended
September 30, 2017
and
2016
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment
|
|
Corporate Entity and Other
|
|
Consolidated
|
Three Months Ended September 30, 2017
|
|
|
|
|
|
GAAP financial measures:
|
|
|
|
|
|
Net revenue
|
$
|
16,284
|
|
|
$
|
3,165
|
|
|
$
|
19,449
|
|
Operating loss
|
$
|
(200
|
)
|
|
$
|
(5,730
|
)
|
|
$
|
(5,930
|
)
|
Non-GAAP financial measure:
|
|
|
|
|
|
Adjusted EBITDA
|
$
|
1,955
|
|
|
$
|
(3,779
|
)
|
|
$
|
(1,824
|
)
|
|
|
|
|
|
|
Nine Months Ended September 30, 2017
|
|
|
|
|
|
GAAP financial measures:
|
|
|
|
|
|
Net revenue
|
$
|
45,765
|
|
|
$
|
6,239
|
|
|
$
|
52,004
|
|
Operating loss
|
$
|
(1,977
|
)
|
|
$
|
(14,010
|
)
|
|
$
|
(15,987
|
)
|
Non-GAAP financial measure:
|
|
|
|
|
|
Adjusted EBITDA
|
$
|
4,322
|
|
|
$
|
(9,884
|
)
|
|
$
|
(5,562
|
)
|
|
|
|
|
|
|
Three Months Ended September 30, 2016
|
|
|
|
|
|
GAAP financial measures:
|
|
|
|
|
|
Net revenue
|
$
|
14,891
|
|
|
$
|
251
|
|
|
$
|
15,142
|
|
Operating loss
|
$
|
(245
|
)
|
|
$
|
(3,953
|
)
|
|
$
|
(4,198
|
)
|
Non-GAAP financial measure:
|
|
|
|
|
|
Adjusted EBITDA
|
$
|
1,788
|
|
|
$
|
(2,881
|
)
|
|
$
|
(1,093
|
)
|
|
|
|
|
|
|
Nine Months Ended September 30, 2016
|
|
|
|
|
|
GAAP financial measures:
|
|
|
|
|
|
Net revenue
|
$
|
42,668
|
|
|
$
|
1,703
|
|
|
$
|
44,371
|
|
Operating loss
|
$
|
(1,223
|
)
|
|
$
|
(11,654
|
)
|
|
$
|
(12,877
|
)
|
Non-GAAP financial measure:
|
|
|
|
|
|
Adjusted EBITDA
|
$
|
4,851
|
|
|
$
|
(7,390
|
)
|
|
$
|
(2,539
|
)
|
|
|
|
|
|
|
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 September 30, 2017
|
|
|
|
|
|
Adjusted EBITDA
|
$
|
1,955
|
|
|
$
|
(3,779
|
)
|
|
$
|
(1,824
|
)
|
Less:
|
|
|
|
|
|
Depreciation, amortization and impairments
|
(2,155
|
)
|
|
(355
|
)
|
|
(2,510
|
)
|
Share-based compensation expense
|
—
|
|
|
(1,629
|
)
|
|
(1,629
|
)
|
Other income, net
|
—
|
|
|
—
|
|
|
—
|
|
Plus:
|
|
|
|
|
|
Other loss
|
—
|
|
|
33
|
|
|
33
|
|
Operating loss
|
$
|
(200
|
)
|
|
$
|
(5,730
|
)
|
|
$
|
(5,930
|
)
|
|
|
|
|
|
|
Nine Months Ended September 30, 2017
|
|
|
|
|
|
Adjusted EBITDA
|
$
|
4,322
|
|
|
$
|
(9,884
|
)
|
|
$
|
(5,562
|
)
|
Less:
|
|
|
|
|
|
Depreciation, amortization and impairments
|
(6,280
|
)
|
|
(1,985
|
)
|
|
(8,265
|
)
|
Share-based compensation expense
|
—
|
|
|
(2,225
|
)
|
|
(2,225
|
)
|
Other income, net
|
(19
|
)
|
|
(1
|
)
|
|
(20
|
)
|
Plus:
|
|
|
|
|
|
Other loss
|
—
|
|
|
85
|
|
|
85
|
|
Operating loss
|
$
|
(1,977
|
)
|
|
$
|
(14,010
|
)
|
|
$
|
(15,987
|
)
|
|
|
|
|
|
|
Three Months Ended September 30, 2016
|
|
|
|
|
|
Adjusted EBITDA
|
$
|
1,788
|
|
|
$
|
(2,881
|
)
|
|
$
|
(1,093
|
)
|
Less:
|
|
|
|
|
|
Depreciation, amortization and impairments
|
(2,033
|
)
|
|
(492
|
)
|
|
(2,525
|
)
|
Share-based compensation expense
|
—
|
|
|
(614
|
)
|
|
(614
|
)
|
Other income, net
|
—
|
|
|
1
|
|
|
1
|
|
Plus:
|
|
|
|
|
|
Other loss
|
—
|
|
|
33
|
|
|
33
|
|
Operating loss
|
$
|
(245
|
)
|
|
$
|
(3,953
|
)
|
|
$
|
(4,198
|
)
|
|
|
|
|
|
|
Nine Months Ended September 30, 2016
|
|
|
|
|
|
Adjusted EBITDA
|
$
|
4,851
|
|
|
$
|
(7,390
|
)
|
|
$
|
(2,539
|
)
|
Less:
|
|
|
|
|
|
Depreciation, amortization and impairments
|
(6,045
|
)
|
|
(1,356
|
)
|
|
(7,401
|
)
|
Share-based compensation expense
|
—
|
|
|
(3,012
|
)
|
|
(3,012
|
)
|
Other income, net
|
(29
|
)
|
|
—
|
|
|
(29
|
)
|
Plus:
|
|
|
|
|
|
Other loss
|
—
|
|
|
104
|
|
|
104
|
|
Operating loss
|
$
|
(1,223
|
)
|
|
$
|
(11,654
|
)
|
|
$
|
(12,877
|
)
|
|
|
|
|
|
|
The following table presents total assets for our travel and entertainment segment (in thousands):
|
|
|
|
|
|
|
|
|
|
September 30,
2017
|
|
December 31, 2016
|
Travel and entertainment segment
|
$
|
77,372
|
|
|
$
|
76,074
|
|
Corporate entity and other business units
|
32,374
|
|
|
29,625
|
|
Consolidated
|
$
|
109,746
|
|
|
$
|
105,699
|
|
|
|
|
|
Capital expenditures for our travel and entertainment segment totaled
$0.7 million
and
$0.5 million
during the three months ended
September 30, 2017
and
2016
, respectively, and
$1.6 million
and
$1.2 million
during the
nine
months ended
September 30, 2017
and
2016
, respectively.
NOTE 15. SUBSEQUENT EVENTS
Sale of Assets
On October 24, 2017, we and Intersearch Tax Solutions, Inc. (“ITS”) entered into a quitclaim agreement (the “ITS Agreement”) under which we sold certain domain names and related rights and property to ITS. Pursuant to the ITS Agreement, in exchange for the assets we sold to ITS, we received
$122,500
in cash,
$200,000
in the form of a promissory note (the “ITS Note”),
25%
of the amount of tax-extension related revenue generated by hyperlinks on our IRS.com website that link to the domain names ITS purchased from us, and
35%
of the amount of gross profit in excess of
$300,000
generated by any of the properties ITS purchased from us.
The ITS Note will accrue interest at a rate of
5%
per annum, compounded annually, with
$100,000
principal plus related accrued and unpaid interest due and payable on each of April 30, 2018 and April 30, 2019.
Because of our advance negotiations with ITS as of September 30, 2017 and our expectation that we would likely complete the sale of assets to ITS within a very short time subsequent to September 30, 2017, we classified the assets we sold to ITS as Assets held for sale in the balance sheet. We do not expect to record a material gain or loss on the sale.
Amendment, Waiver and Consent Related to Financing Agreement
On October 25, 2017, we entered into Amendment No. 2 and Waiver and Consent to Financing Agreement, dated as of October 25, 2017 (the “Second Financing Amendment”), to amend our Financing Agreement with MGG. Pursuant to the Second Financing Amendment, the Lenders waived specified events of default under the Financing Agreement occurring prior to January 1, 2018, including with respect to (i) minimum consolidated EBITDA of Remark and its subsidiaries for the trailing twelve-month periods ended June 30, 2017 and September 30, 2017, (ii) minimum value of certain of our assets for the fiscal quarters ended June 30, 2017 and September 30, 2017, and (iii) minimum restricted cash balance through September 19, 2017. In consideration for the Lenders’ entry into the Second Financing Amendment and pursuant to the terms of the Financing Agreement, among other things, we agreed to increase the exit fee payable to the Lenders upon termination of the Financing Agreement by
$750,000
, and to reimburse the Lenders for fees, costs and expenses related to the Second Financing Amendment.
Stock Issuance
On October 30, 2017, pursuant to the Aspire Purchase Agreement, we issued
1,639,583
shares of our common stock to Aspire Capital in exchange for
$5.3 million
in cash. Except for an amount equal to the par value of the shares issued, we will record the proceeds in additional paid-in capital.
Consolidated Results
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Change
|
|
|
2017
|
|
2016
|
|
Dollars
|
|
Percentage
|
Revenue, net
|
|
$
|
19,449
|
|
|
$
|
15,142
|
|
|
$
|
4,307
|
|
|
28
|
%
|
Cost of revenue
|
|
5,641
|
|
|
2,864
|
|
|
2,777
|
|
|
97
|
%
|
Sales and marketing
|
|
6,326
|
|
|
4,887
|
|
|
1,439
|
|
|
29
|
%
|
General and administrative
|
|
9,971
|
|
|
7,921
|
|
|
2,050
|
|
|
26
|
%
|
Loss on debt extinguishment
|
|
—
|
|
|
(9,157
|
)
|
|
9,157
|
|
|
(100
|
)%
|
Change in FV of warrant liability
|
|
(5,978
|
)
|
|
(647
|
)
|
|
(5,331
|
)
|
|
824
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
Change
|
|
|
2017
|
|
2016
|
|
Dollars
|
|
Percentage
|
Revenue, net
|
|
$
|
52,004
|
|
|
$
|
44,371
|
|
|
$
|
7,633
|
|
|
17
|
%
|
Cost of revenue
|
|
12,270
|
|
|
7,837
|
|
|
4,433
|
|
|
57
|
%
|
Sales and marketing
|
|
17,975
|
|
|
15,349
|
|
|
2,626
|
|
|
17
|
%
|
Technology and development
|
|
2,657
|
|
|
1,904
|
|
|
753
|
|
|
40
|
%
|
General and administrative
|
|
26,656
|
|
|
24,251
|
|
|
2,405
|
|
|
10
|
%
|
Depreciation and amortization
|
|
8,265
|
|
|
7,401
|
|
|
864
|
|
|
12
|
%
|
Loss on debt extinguishment
|
|
—
|
|
|
(9,157
|
)
|
|
9,157
|
|
|
(100
|
)%
|
Provision for income taxes
|
|
(603
|
)
|
|
—
|
|
|
(603
|
)
|
|
|
Consolidated results of operations were primarily impacted by the results of operations of our travel and entertainment segment, as described above. Additionally, the operations of the subsidiaries we acquired in the CBG Acquisition had the following effects during the
three and nine
months ended
September 30, 2017
:
|
|
•
|
increased net revenue by $0.7 million and $1.7 million, respectively
|
|
|
•
|
increased Cost of revenue by $0.6 million and $0.9 million, respectively
|
|
|
•
|
increased General and administrative expense by $0.4 million and $1.6 million, respectively
|
KanKan’s new products also began earning revenue during the three and
nine
months ended
September 30, 2017
, causing increases in net revenue of $2.2 million and $3.2 million, respectively. Cost of revenue related to the launch of the new products caused increases of $2.0 million and $3.0 million, respectively, but we expect that cost of revenue will be significantly lower in the future because of the one-time nature of certain data-related costs we incurred in connection with the launch of one product on an accelerated time frame, and also as volume increases and as we build internal infrastructure.
Our share-based compensation expense, which we include in General and administrative expense, increased by $1.0 million during the three months ended
September 30, 2017
. The increase resulted from significantly more stock options in the current year with early vesting.
Excluding the operations of the travel and entertainment segment and of the subsidiaries we acquired in the CBG Acquisition, the following also affected General and administrative expense:
|
|
•
|
Payroll and related cost, exclusive of share-based compensation expense, increased by $0.7 million and $1.3 million, respectively, during the three and
nine
months ended
September 30, 2017
. The $0.5 million increase primarily resulted from acceleration of product development in our KanKan operations, which also accounted for approximately half of the year-to-date increase compared to the same period of 2016. The remaining year-to-date increase primarily relates to the hiring of two senior management positions in the fourth quarter of 2016 and early second quarter of 2017, plus routine salary increases.
|
|
|
•
|
Rent expense increased by $0.4 million during the
nine
months ended
September 30, 2017
.
|
During September of 2016, we amended the financing agreement with our lenders in conjunction with the CBG Acquisition, which resulted in a loss on debt extinguishment.
The increase in our provision for taxes arises from differences between the amortization of certain goodwill and intangible assets for tax purposes compared to book.
LIQUIDITY AND CAPITAL RESOURCES
Overview
During the
nine months ended
September 30, 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
$210.7 million
and a cash and cash equivalents balance of
$16.0 million
, both amounts as of
September 30, 2017
. Our net revenue during the
nine months ended
September 30, 2017
was
$52.0 million
.
During the
nine months ended
September 30, 2017
, we issued a total of
3,052,897
shares of our common stock to investors in exchange for approximately
$8.3 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 $3.25 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
September 30, 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 Lenders 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
September 30, 2017
, we were not in compliance with the covenant under the Financing Agreement requiring minimum consolidated EBITDA of Remark and its subsidiaries for the trailing twelve-month period ended
September 30, 2017
of
$(1.5) million
, as our actual consolidated EBITDA for such period was
$(4.4) million
. On October 25, 2017, we entered into the Second Financing Amendment, pursuant to which the Lenders waived specified events of default under the Financing Agreement, including with respect to (i) minimum consolidated EBITDA of Remark and its subsidiaries for the trailing twelve-month periods ended June 30, 2017 and September 30, 2017, (ii) minimum value of certain of our assets for the fiscal quarters ended June 30, 2017 and September 30, 2017 and (iii) minimum restricted cash balance through September 19, 2017. Our available cash and other liquid assets are not sufficient to pay our obligations under the Financing Agreement in full.
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, 2018 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.
On April 12, 2017, we issued a short-term note payable in the principal amount of
$3.0 million
to a private lender in exchange for cash in the same amount. The agreement, which does not have a stated interest rate, required us to repay the note plus a fee of
$115,000
on the maturity date of June 30, 2017. The note is accruing interest at
$500
per day on the unpaid principal until we repay the note in full.
In the second quarter of each year following a performance period, 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. We expect that the performance of Vegas.com during the year ended December 31, 2017 will exceed the threshold triggering the maximum payment of $1.0 million. We have not yet paid the portion of the cash payments related to the year ended December 31, 2016, which was due on April 30, 2017.
On November 9, 2016, we entered into the Aspire Purchase Agreement with 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. On September 18, 2017, we entered into a First Amendment to the Aspire Purchase Agreement, which provides that the parties may mutually agree to increase the number of shares of our common stock that may be purchased per business day pursuant to the terms of the Aspire Purchase Agreement to 2,000,000 shares. Pursuant to the Aspire Purchase Agreement, we issued 1,879,699 shares of our common stock to Aspire Capital in exchange for $5.0 million in cash during the nine months ended September 30, 2017. On October 30, 2017, we issued an additional 1,639,583 shares of our common stock to Aspire Capital in exchange for $5.3 million in cash pursuant to the Aspire Purchase Agreement. As of
November 10, 2017
, Aspire Capital has purchased a total of $12.8 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 additional capital.
A variety of factors, many of which are outside of our control, affect our cash flow; those factors include regulatory issues, competition, financial markets and other general business conditions. Based on our historical track record and projections, we believe that we will be able to meet our ongoing requirements through
September 30,
2018
, (including repayment of our existing debt as it matures) with existing cash, cash equivalents and cash resources, and based on the probable success of one or more of the following plans:
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monetize existing assets
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work with our creditors to modify existing arrangements or refinance our debt
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obtain additional capital through equity issuances, including but not limited to under the Aspire Purchase Agreement (which issuances may dilute existing stockholders)
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However, projections are inherently uncertain and 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
$2.6 million
more cash from operating activities during the
nine months ended
September 30, 2017
than we did during the
nine months ended
September 30, 2016
. The increase 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 nine months ended September 30, 2016, we paid approximately $7.3 million for the CBG Acquisition, while we made no business acquisitions during the
nine months ended
September 30, 2017
. Our expenditure of
$0.2 million
more to purchase property and equipment than we did during the same period of 2016 partially offset the decrease resulting from the lack of business acquisitions in 2017.
Cash Flows - Financing Activities
During the
nine months ended
September 30, 2017
, we obtained approximately the same amount of cash from financing activities as we did during the same period of 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.