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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended June 30, 2020

MARK-20200630_G1.JPG
Commission File Number 001-33720
Remark Holdings, Inc.
Delaware 33-1135689
State of Incorporation IRS Employer Identification Number

800 S. Commerce St.
Las Vegas, NV 89106

Address, including zip code, of principal executive offices

702-701-9514

Registrant’s telephone number, including area code


Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading Symbol Name of each exchange on which registered
Common Stock, $0.001 par value per share MARK The NASDAQ Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

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

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

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

As of August 11, 2020, a total of 99,408,916 shares of our common stock were outstanding.



TABLE OF CONTENTS



SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

The matters discussed in this Quarterly Report on Form 10-Q include “forward-looking statements” about the plans, strategies, objectives, goals or expectations of Remark Holdings, Inc. and subsidiaries (“Remark”, “we”, “us”, “our”). You will find forward-looking statements principally in the sections entitled Risk Factors and Management’s Discussion and Analysis of Financial Condition and Results of Operations. Such forward-looking statements are identifiable by words or phrases indicating that Remark or management “expects,” “anticipates,” “plans,” “believes,” or “estimates,” or that a particular occurrence or event “will,” “may,” “could,” “should,” or “will likely” result, occur or be pursued or “continue” in the future, that the “outlook” or “trend” is toward a particular result or occurrence, that a development is an “opportunity,” “priority,” “strategy,” “focus,” that we are “positioned” for a particular result, or similarly-stated expectations. You should not place undue reliance on these forward-looking statements, which speak only as of the date of this report or such other report, release, presentation, or statement.

In addition to other risks and uncertainties described in connection with the forward-looking statements contained in this report and other periodic reports filed with the Securities and Exchange Commission (“SEC”), there are many important factors that could cause actual results to differ materially. Such risks and uncertainties include general business conditions, changes in overall economic conditions, our ability to integrate acquired assets, the impact of competition and other factors which are often beyond our control.

This should not be construed as a complete list of all of the economic, competitive, governmental, technological and other factors that could adversely affect our expected consolidated financial position, results of operations or liquidity. Additional risks and uncertainties not currently known to us or that we currently believe are immaterial also may impair our business, operations, liquidity, financial condition and prospects. We undertake no obligation to update or revise our forward-looking statements to reflect developments that occur or information that we obtain after the date of this report.




PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
REMARK HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(dollars in thousands, except share and per share amounts)
June 30, 2020 December 31, 2019
(Unaudited)
Assets
Cash and cash equivalents $ 10,233    $ 272   
Trade accounts receivable, net 2,235    1,964   
Receivable from related parties 531    —   
Prepaid expense and other current assets 5,803    4,623   
Total current assets 18,802    6,859   
Property and equipment, net 156    341   
Operating lease assets 470    4,359   
Investment in unconsolidated affiliates 1,922    1,935   
Intangibles, net 472    509   
Other long-term assets 1,254    824   
Total assets $ 23,076    $ 14,827   
Liabilities and Stockholders’ Deficit
Accounts payable $ 7,709    $ 8,126   
Accrued expense and other current liabilities 13,295    14,326   
Contract liability 566    313   
Note payable 2,000    3,000   
Loans payable, current —    12,025   
Total current liabilities 23,570    37,790   
Loans payable, long-term 425    —   
Operating lease liabilities, long-term 202    4,650   
Warrant liability 6,318    115   
Total liabilities 30,515    42,555   
Commitments and contingencies (Note 13)
Preferred stock,$0.001 par value; 1,000,000 shares authorized; none issued
—    —   
Common stock, $0.001 par value; 100,000,000 shares authorized; 99,408,916 and 51,055,159 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively
99    51   
Additional paid-in-capital 351,417    319,275   
Accumulated other comprehensive income 111    (227)  
Accumulated deficit (359,066)   (346,827)  
Total stockholders’ deficit (7,439)   (27,728)  
Total liabilities and stockholders’ deficit $ 23,076    $ 14,827   
See Notes to Unaudited Condensed Consolidated Financial Statements
1
Financial Statement Index

REMARK HOLDINGS, INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss
(dollars in thousands, except per share amounts)
Three Months Ended June 30, Six Months Ended June 30,
2020 2019 2020 2019
Revenue $ 2,299    $ 2,865    $ 2,730    $ 4,074   
Cost and expense
Cost of revenue (excluding depreciation and amortization) 1,210    1,541    1,231    3,134   
Sales and marketing 486    687    902    1,546   
Technology and development 1,477    854    2,125    2,158   
General and administrative 1,898    2,454    4,638    5,431   
Depreciation and amortization 66    260    156    585   
Other operating expense —    —    —     
Total cost and expense 5,137    5,796    9,052    12,860   
Operating loss (2,838)   (2,931)   (6,322)   (8,786)  
Other income (expense)
Interest expense (775)   (553)   (1,236)   (940)  
Other income, net 57    92    57    47   
Change in fair value of warrant liability (6,260)   2,078    (6,203)   662   
Gain on lease termination —    —    1,538    —   
Other loss, net —    27    (73)    
Total other income (expense), net (6,978)   1,644    (5,917)   (230)  
Loss from continuing operations before income taxes (9,816)   (1,287)   (12,239)   (9,016)  
Benefit from income taxes —    —    —    —   
Loss from continuing operations (9,816)   (1,287)   (12,239)   (9,016)  
Loss from discontinued operations, net of tax (Note 17)
—    (1,487)   —    (2,610)  
Net loss $ (9,816)   $ (2,774)   $ (12,239)   $ (11,626)  
Other comprehensive income (loss)
Foreign currency translation adjustments 156    127    338    33   
Comprehensive loss $ (9,660)   $ (2,647)   $ (11,901)   $ (11,593)  
Weighted-average shares outstanding, basic and diluted 89,264    43,335    71,527    39,994   
Net loss per share, basic and diluted
Continuing operations $ (0.11)   $ (0.03)   $ (0.17)   $ (0.23)  
Discontinued operations —    (0.03)   —    (0.07)  
Consolidated $ (0.11)   $ (0.06)   $ (0.17)   $ (0.30)  
See Notes to Unaudited Condensed Consolidated Financial Statements
2
Financial Statement Index

REMARK HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Stockholders’ Deficit
(in thousands, except number of shares)
Three Months Ended June 30, 2020
Common Stock Shares Common Stock Par Value Additional Paid-In Capital Accumulated Other Comprehensive Income (Loss) Accumulated Deficit Total
Balance at March 31, 2020 66,133,888    $ 66    $ 323,958    $ (45)   $ (349,250)   (25,271)  
Net loss —    —    —    —    (9,816)   (9,816)  
Share-based compensation —    —    47    —    —    47   
Common stock issued 33,220,164    33    27,345    —    —    27,378   
Equity instrument exercises 54,864    —    67    —    —    67   
Other —    —    —    156    —    156   
Balance at June 30, 2020 99,408,916    $ 99    $ 351,417    $ 111    $ (359,066)   $ (7,439)  
Three Months Ended June 30, 2019
Common Stock Shares Common Stock Par Value Additional Paid-In Capital Accumulated Other Comprehensive Income (Loss) Accumulated Deficit Total
Balance at March 31, 2019 40,722,229    $ 41    $ 310,618    $ (62)   $ (330,065)   $ (19,468)  
Net loss —    —    —    —    (2,774)   (2,774)  
Share-based compensation —    —    216    —    —    216   
Common stock issued 5,407,930      4,995    —    —    5,000   
Other —    —    —    127    —    127   
Balance at June 30, 2019 46,130,159    $ 46    $ 315,829    $ 65    $ (332,839)   $ (16,899)  
Six Months Ended June 30, 2020
Common Stock Shares Common Stock Par Value Additional Paid-In Capital Accumulated Other Comprehensive Income (Loss) Accumulated Deficit Total
Balance at December 31, 2019 51,055,159    $ 51    $ 319,275    $ (227)   $ (346,827)   $ (27,728)  
Net loss —    —    —    —    (12,239)   (12,239)  
Share-based compensation —    —    93    —    —    93   
Common stock issued 48,298,893    48    31,982    —    —    32,030   
Equity instrument exercises 54,864    —    67    —    —    67   
Other —    —    —    338    —    338   
Balance at June 30, 2020 99,408,916    $ 99    $ 351,417    $ 111    $ (359,066)   $ (7,439)  
Six Months Ended June 30, 2019
Common Stock Shares Common Stock Par Value Additional Paid-In Capital Accumulated Other Comprehensive Income (Loss) Accumulated Deficit Total
Balance at December 31, 2018 39,053,312    $ 39    $ 308,018    $ 32    $ (321,213)   $ (13,124)  
Net loss —    —    —    —    (11,626)   (11,626)  
Share-based compensation —    —    314    —    —    314   
Common stock issued 7,074,597      7,493    —    —    7,500   
Equity instrument exercises 2,250    —      —    —     
Other —    —    —    33    —    33   
Balance at June 30, 2019 46,130,159    $ 46    $ 315,829    $ 65    $ (332,839)   $ (16,899)  



3
Financial Statement Index

REMARK HOLDINGS, INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Cash Flows
(dollars in thousands)
Six Months Ended June 30,
2020 2019
Net cash used in continuing operating activities
$ (9,247)   $ (7,496)  
Net cash provided in discontinued operating activities
—    (7,159)  
Net cash used in operating activities
(9,247)   (14,655)  
Cash flows from investing activities:
Proceeds from sale of business
—    30,000   
Purchases of property, equipment and software
(9)   (2)  
Payment of payroll costs capitalized to software in progress
—    (127)  
Net cash provided by (used in) continuing investing activities
(9)   29,871   
Net cash used in discontinued investing activities
—    (18,396)  
Net cash used in investing activities
(9)   11,475   
Cash flows from financing activities:
Proceeds from issuance of common stock, net
32,073    7,504   
Proceeds from debt issuance
425    —   
Payment of loan fees and debt issuance cost
—    (2,275)  
Repayments of debt
(13,281)   (25,526)  
Net cash provided by financing activities
19,217    (20,297)  
Net change in cash, cash equivalents and restricted cash
9,961    (23,477)  
Cash, cash equivalents and restricted cash:
Beginning of period, including cash in disposal group
272    25,548   
End of period
$ 10,233    $ 2,071   
Supplemental cash flow information:
Cash paid for interest
$ 833    $ 2,211   
Supplemental schedule of non-cash investing and financing activities:
Capitalization of interest to debt principal
$ 256    $ 171   
Increase in loan payable
$ —    $ 1,103   
See Notes to Unaudited Condensed Consolidated Financial Statements
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Financial Statement Index

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

NOTE 1. ORGANIZATION AND BUSINESS

Organization and Business

Remark Holdings, Inc. and subsidiaries (“Remark”, “we”, “us”, or “our”), which include its consolidated variable-interest entities (“VIEs”), are primarily technology-focused. Our KanKan data intelligence platform serves as the basis for our development and deployment of artificial-intelligence-based (“AI-based”) solutions for businesses in many industries and geographies. We also own and operate an e-commerce digital media property focused on a luxury beach lifestyle. Our common stock is listed on the Nasdaq Capital Market under the ticker symbol MARK.

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


COVID-19

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

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

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

 
Going Concern
 
During the six months ended June 30, 2020, and in each fiscal year since our inception, we have incurred net losses which have resulted in an accumulated deficit of $359.1 million as of June 30, 2020. Additionally, our operations have historically used more cash than they have provided. Net cash used in continuing operating activities was $9.2 million during the six months ended June 30, 2020. As of June 30, 2020, our cash and cash equivalents balance was $10.2 million, and we had a negative working capital balance of $4.8 million.

On March 3, 2020, we entered into a common stock purchase agreement, later amended on April 9, 2020 (as amended, the “2020 Aspire Purchase Agreement”), with Aspire Capital Fund, LLC (“Aspire Capital”) under which Aspire Capital purchased $30.0 million of shares of our common stock. The 2020 Aspire Purchase Agreement, which we describe in more detail in Note 14, terminated and replaced the common stock purchase agreement we had entered into with Aspire Capital on March 29, 2019 (the “2019 Aspire Purchase Agreement”).

Concurrently with entering into the 2020 Aspire Purchase Agreement, we also entered into a registration rights agreement with Aspire Capital, in which we agreed to file with the Securities and Exchange Commission (the “SEC”) one or more registration statements, as necessary, and to the extent permissible and subject to certain exceptions, to register under the
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Financial Statement Index


Securities Act of 1933, as amended, the sale of the shares of our common stock that may be issued to Aspire Capital under the 2020 Aspire Purchase Agreement. We have filed with the SEC a prospectus supplement to our effective shelf Registration Statement on Form S-3 (File No. 333-225448) registering all of the shares of common stock that may be offered to Aspire Capital from time to time under the 2020 Aspire Purchase Agreement.

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

Our history of recurring operating losses, working capital deficiencies and negative cash flows from operating activities give rise to substantial doubt regarding our ability to continue as a going concern.

We intend to fund our future operations and meet our financial obligations through revenue growth in our Technology and Data Intelligence segment, as well as through sales of our thermal-imaging products. We cannot, however, provide assurance that revenue, income and cash flows generated from our businesses will be sufficient to sustain our operations in the twelve months following the filing of this Form 10-Q. As a result, we are actively evaluating strategic alternatives including debt and equity financings and potential sales of investment assets or operating businesses.

Conditions in the debt and equity markets, as well as the volatility of investor sentiment regarding macroeconomic and microeconomic conditions (in particular, in response to the COVID-19 pandemic), will play primary roles in determining whether we can successfully obtain additional capital. We cannot be certain that we will be successful at raising additional capital.

A variety of factors, many of which are outside of our control, affect our cash flow; those factors include the effects of the COVID-19 pandemic, regulatory issues, competition, financial markets and other general business conditions. Based on financial projections, we believe that we will be able to meet our ongoing requirements for at least the next 12 months with existing cash, cash equivalents and cash resources, and based on the probable success of one or more of the following plans:

develop and grow new product line(s)

monetize existing assets

obtain additional capital through debt and/or equity issuances.

However, projections are inherently uncertain and the success of our plans is largely outside of our control. As a result, there is substantial doubt regarding our ability to continue as a going concern, and we may fully utilize our cash resources prior to August 14, 2021.


NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

We prepared the accompanying unaudited Condensed Consolidated Balance Sheet as of June 30, 2020, with the audited Consolidated Balance Sheet amounts as of December 31, 2019 presented for comparative purposes, and the related unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss, the Condensed Consolidated Statements of Cash Flows and the Condensed Consolidated Statements of Stockholders’ Deficit in accordance with the instructions for Form 10-Q. In compliance with those instructions, we have omitted certain information and footnote disclosures normally included in annual consolidated financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”), though management believes the disclosures made herein are sufficient to ensure that the information presented is not misleading.

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

Management believes that we have included all adjustments (including those of a normal, recurring nature) considered necessary to fairly present our unaudited Condensed Consolidated Balance Sheet and our unaudited Condensed Consolidated Statement of Stockholders’ Deficit, each as of June 30, 2020, as well as our unaudited Condensed Consolidated Statements of
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Financial Statement Index


Operations and Comprehensive Loss and Condensed Consolidated Statements of Cash Flows for all periods presented. You should read our unaudited condensed consolidated interim financial statements and footnotes in conjunction with our consolidated financial statements and footnotes included within the Annual Report on Form 10-K (the “2019 Form 10-K”).


Consolidation

We include all of our subsidiaries, which include the variable-interest entities (“VIEs”) for which we are the primary beneficiary, in our condensed consolidated financial statements, eliminating all significant intercompany balances and transactions during consolidation.

To comply with China’s laws which restrict foreign ownership of entities that operate within industries deemed sensitive by the Chinese government, we employ what we believe is a commonly-used organizational structure consisting of a wholly-foreign owned enterprise (“WFOE”) and the VIEs to operate our KanKan business. We own 100% of the equity of the WFOE, while the VIEs are companies formed in China under local laws which are owned by members of our management team. We funded the registered capital and operating expenses of the VIEs by extending loans to the VIEs’ owners. We are the primary beneficiary of the VIEs because the relationships between the VIEs and our WFOE are governed by contractual agreements, including in each case an Exclusive Call Option Agreement, an Exclusive Business Cooperation Agreement, a Proxy Agreement and an Equity Pledge Agreement, which give us control over the operations of the VIEs.

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

Use of Estimates
 
We prepare our consolidated financial statements in conformity with GAAP. While preparing our financial statements, we make estimates and assumptions that affect amounts reported and disclosed in the consolidated financial statements and accompanying notes. Accordingly, actual results could differ from those estimates. On an ongoing basis, we evaluate our estimates, including those related to accounts receivable, intangible assets, the useful lives of property and equipment, share-based compensation, the fair value of the warrant liability, income taxes, inventory reserve and purchase price allocation, among other items.

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


Recently Issued Accounting Pronouncements

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, 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. REVENUE

During the three months ended June 30, 2020, we began selling our thermal imaging products, primarily in the U.S., under our bio-safety business.

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Financial Statement Index


We sell our Remark AI Thermal Kits to customers needing the ability to scan crowds and areas of high foot traffic for indications that certain persons with elevated temperatures may require secondary screening. Though the kits are semi-customizable, they generally consist primarily of a thermal imaging camera, a calibrating device, a computer to monitor the video feed, supporting equipment and our AI software. Once set up and calibrated, the kits scan a large number of people each minute, providing both thermally enhanced and standard video feeds that allow our customers to evaluate high volumes of people at large gatherings.

Our Remark AI rPad thermal imaging devices, usually mounted on a wall or a single-post stand, are designed for customers needing the ability to scan individuals on a one-by-one basis in situations where rapid, high-volume scanning is not necessary, such as at a customer’s office entrances where employees can be scanned as they enter for indications of an elevated temperature that may require secondary screening. In addition to thermal scanning, we can customize our AI software embedded in the rPad to perform additional safety and security functions including identifying persons for authorized entry.

We have also developed the Remark AI Thermal Helmet which can, for example, be worn by security personnel at large gatherings allowing for a mobile thermal scanning ability.

In addition to our kits, pads and helmets, we sell extended warranties and also maintenance and support plans. Under our warranties and our maintenance and support plans, we stand-ready over the period specified in the contract to repair the hardware sold to the customer or provide support for or upgrade the software as new versions are released.

For our kits, pads and helmets, we recognize the associated revenue at the point in time that the customer takes control of the product, while we recognize revenue related to our warranties and our maintenance and support plans over the period of time we have agreed to stand ready to perform the obligations related to such warranties or plans.

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


Disaggregation of Revenue

The following table presents a disaggregation of our revenue by major category (in thousands):
Three Months Ended June 30, Six Months Ended June 30,
2020 2019 2020 2019
AI-based products and services $ 2,053    $ 2,466    $ 2,377    $ 2,890   
Advertising and other 246    399    353    1,184   
Revenue $ 2,299    $ 2,865    $ 2,730    $ 4,074   


Significant Judgments

When accounting for revenue we make certain judgments, such as whether we act as a principal or as an agent in transactions or whether our contracts with customers fall within the scope of current GAAP regarding revenue, that affect the determination of the amount and timing of our revenue from contracts with customers. Based on the current facts and circumstances related to our contracts with customers, none of the judgments we make involve an elevated degree of qualitative significance or complexity such that further disclosure is warranted in terms of their potential impact on the amount and timing of our revenue.


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Financial Statement Index


Contract Assets and Contract Liabilities

We do not currently generate material contract assets. During the six months ended June 30, 2020, our contract liability changed only as a result of routine business activity.

During the six months ended June 30, 2020 and 2019, we did not recognize material amounts of revenue which were included in the beginning balance of Contract liability at January 1, 2020 and 2019, respectively.

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


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 common stock. As of June 30, 2020, our outstanding liability-classified warrants include the warrants we issued or that we are obligated to issue as part of the consideration for our acquisition (the “CBG Acquisition”) of assets of China Branding Group Limited (“CBG”) in September 2016 (the “CBG Acquisition Warrants”) and warrants we issued as a result of an amendment to the Financing Agreement (as defined in Note 12) related to the acquisition (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:
June 30, December 31,
2020 2019
CBG Financing Warrants
Expected volatility 85.00  % 85.00  %
Risk-free interest rate 0.18  % 1.60  %
Expected remaining term (years) 0.23 0.73
CBG Acquisition Warrants
Expected volatility 75.00  % 75.00  %
Risk-free interest rate 0.23  % 1.65  %
Expected remaining term (years) 3.23 3.72


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 June 30, 2020, we estimated that no equity financing events would potentially occur within the subsequent twelve months.

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Financial Statement Index


Our estimate of expected volatility and our stock price tend to have the most significant impact on the estimated fair value of the CBG Financing Warrants and the CBG Acquisition Warrants. We determined that, for the three months ended June 30, 2020, adding or subtracting five percentage points with regard to our estimate of expected volatility, or increases or decreases in our stock price of five percent, would not have resulted in changes to our estimates of fair value, except as follows:
Increase Decrease
Change in volatility
CBG Financing Warrants $ 130    $ 130   
CBG Acquisition Warrants 460    405   
Change in stock price
CBG Financing Warrants $ 660    $ 595   
CBG Acquisition Warrants 290    230   


The following table presents the change in the liability balance associated with our liability-classified warrants (in thousands):
Six Months Ended June 30,
Year Ended December 31,
2020 2019
Balance at beginning of period
$ 115    $ 1,383   
Increase (decrease) in fair value
6,203    (1,268)  
Balance at end of period
$ 6,318    $ 115   


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 our acquisition of Vegas.com, LLC (“Vegas.com”) in September 2015 that were contingent upon the performance of Vegas.com in the years ended December 31, 2016, 2017, and 2018 (the “Earnout Payments”). The significant unobservable inputs that we used, which we classify in Level 3 of the fair value hierarchy, were projected earnings before interest, taxes, depreciation and amortization (“EBITDA”), the probability of achieving certain amounts of EBITDA, and the rate used to discount the liability.

The following table presents the change during the six months ended June 30, 2020 in the balance of the liability associated with the Earnout Payments (in thousands):
Balance at beginning of period
$ 1,086   
Interest accrued on unpaid balance
34   
Balance at end of period
$ 1,120   


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


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Financial Statement Index


NOTE 5. TRADE ACCOUNTS RECEIVABLE
June 30, 2020 December 31, 2019
Gross accounts receivable balance $ 4,465    $ 4,171   
Allowance for bad debt (2,230)   (2,207)  
Accounts receivable, net $ 2,235    $ 1,964   


Generally, it is not unusual for Chinese entities to pay their vendors on longer timelines than the timelines typically observed in U.S. commerce. Trade receivables related to our China-based AI projects (exclusive of certain financial technology (“FinTech”) services we provided) represent 55% of our gross trade receivables. Most of our remaining gross trade receivables balance resulted from the FinTech service, which we have discontinued.


NOTE 6. INVESTMENT IN UNCONSOLIDATED AFFILIATES

In 2009, we co-founded a U.S.-based venture, Sharecare, to build a web-based platform that simplifies the search for health and wellness information. The other co-founders of Sharecare were Dr. Mehmet Oz, HARPO Productions, Discovery Communications, Jeff Arnold and Sony Pictures Television. As of June 30, 2020, we owned approximately 4.5% of Sharecare’s issued stock and maintained representation on its Board of Directors.

During June 2018, one of our consolidated VIEs acquired a 20% interest in AIO, a Chinese technology company which provides consulting and data services to the Chinese film industry, in exchange for $1.0 million, a portion of which was paid as of June 30, 2020, and a license to use our proprietary KanKan data intelligence platform in China. Based on our evaluation of the facts and circumstances related to the transaction, we determined that we will account for such transaction using the equity method of accounting. We recognize our equity in the net earnings or losses relating to AIO on a one-quarter reporting lag in our Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss. For the three months ended June 30, 2020, the amount of our equity in AIO’s net earnings for their quarter ended March 31, 2020 was not material.


NOTE 7. PREPAID EXPENSE AND OTHER CURRENT ASSETS

The following table presents the components of prepaid expense and other current assets (in thousands):
June 30, 2020 December 31, 2019
Other receivables
$ 3,608    $ 3,712   
Prepaid expense
448    633   
Deposits
10     
Inventory, net
1,355    —   
Other current assets
382    271   
Total
$ 5,803    $ 4,623   


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Financial Statement Index


NOTE 8. PROPERTY AND EQUIPMENT
Property and equipment consist of the following (in thousands, except estimated lives):
Estimated Life
(Years)
June 30, 2020 December 31, 2019
Computers and equipment 3 987    989   
Furniture and fixtures 3 47    23   
Software 3 4,872    4,896   
Leasehold improvements 10 11    114   
Total property, equipment and software $ 5,917    $ 6,022   
Less accumulated depreciation (5,761)   (5,681)  
Total property, equipment and software, net $ 156    $ 341   


For the six months ended June 30, 2020 and 2019, depreciation (and amortization of software) expense was $0.1 million and $0.4 million, respectively.



NOTE 9. LEASES

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

The following table presents the detail of our lease expense, net of sublease income, which is reported in General and administrative expense (in thousands):
Three Months Ended June 30, Six Months Ended June 30,
2020 2019 2020 2019
Operating lease expense
$ 83    $ 385    $ 471    $ 703   
Short-term lease expense
47    98    122    164   
Less: Sublease income
—    (78)   —    (78)  
Lease expense
$ 130    $ 405    $ 593    $ 789   


We reported within continuing operating cash flows for the six months ended June 30, 2020 and 2019, $0.1 million and $0.9 million, respectively, of cash paid for amounts included in the measurement of operating lease liabilities.

As of June 30, 2020, our operating leases had a weighted-average remaining lease term of approximately 14 months, and we used a weighted-average discount rate of approximately 13% to measure our operating lease liabilities.
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Financial Statement Index




Maturity of Lease Liabilities

The following table presents information regarding the maturities of our undiscounted remaining operating lease payments, with a reconciliation to the amount of the liabilities representing such payments as presented in our June 30, 2020 unaudited Condensed Consolidated Balance Sheet (in thousands):
Operating lease liabilities maturing during the next:
One year $ 387   
Two years 149   
Three years 76   
Total undiscounted cash flows $ 612   
Present value of cash flows $ 548   
Lease liabilities on balance sheet:
Short-term $ 346   
Long-term 202   
Total lease liabilities $ 548   


The current portion of our operating lease liability, which we report in Accrued expense and other current liabilities on our unaudited Condensed Consolidated Balance Sheet, also includes approximately $1.5 million of estimated damages from the early termination of the lease on our former office located at 3960 Howard Hughes Parkway in Las Vegas. See Note 13 and Note 18 for more information.


Significant Judgments

When accounting for our leases, we make certain judgments, such as whether a contract contains a lease or what discount rate to use, that affect the determination of the amount of our lease assets and liabilities. Based on the current facts and circumstances related to our contracts, none of the judgments we make involve an elevated degree of qualitative significance or complexity such that further disclosure is warranted.


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Financial Statement Index


NOTE 10. INTANGIBLE ASSETS

The following table summarizes intangible assets by category (in thousands):
June 30, 2020 December 31, 2019
Gross Amount Accumulated
Amortization
Net Amount Gross Amount Accumulated
Amortization
Net Amount
Finite-lived intangible assets
Domain names $ 1,256    $ (911)   $ 345    $ 1,256    $ (874)   $ 382   
Other intangible assets 68    (68)   —    68    (68)   —   
$ 1,324    $ (979)   $ 345    $ 1,324    $ (942)   $ 382   
Indefinite-lived intangible assets
License to operate in China 127    127    127    127   
Total intangible assets $ 1,451    $ 472    $ 1,451    $ 509   


Total amortization expense was de minimis and $0.2 million for the six months ended June 30, 2020 and 2019, respectively.


NOTE 11. INCOME TAX

Our effective tax rate (“ETR”) from continuing operations was 0.0% for the six months ended June 30, 2020. The quarterly ETR has not significantly differed from our historical annual ETR because we continue to maintain a full valuation allowance against our existing deferred tax assets.

In response to the COVID-19 pandemic, many governments have enacted or are contemplating measures to provide aid and economic stimulus. The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), which was enacted on March 27, 2020 in the U.S., includes measures to assist companies, including temporary change to income and non-income-based tax laws. As of June 30, 2020, we do not currently expect the provisions of the CARES Act to have a material effect on current income tax expense or the realizability of deferred income tax assets. We will monitor additional guidance and impact that the CARES Act and other potential legislation may have on our income taxes.


NOTE 12. DEBT

Short-Term Debt

On April 12, 2017, we issued a short-term note payable in the principal amount of $3.0 million to a private lender in exchange for cash in the same amount. The agreement, which does not have a stated interest rate, required us to repay the note plus a fee of $115 thousand on the maturity date of June 30, 2017. The note is accruing interest at $500 per day on the unpaid principal until we repay the note in full. As of June 30, 2020, we owe $2.4 million in principal and accrued interest.


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Financial Statement Index


Other Debt

The following table presents debt (in thousands) as of:
June 30, 2020 December 31, 2019
MGG loan due May 2020 $ —    $ 12,025   
Loans payable, current —    12,025   
PPP loan due April 2022 425    —   
Loans payable, long-term $ 425    $ —   


Loan due May 2020

We were a party to a financing agreement dated as of September 24, 2015 (as amended, the “Financing Agreement”) with certain of our subsidiaries as borrowers (together with Remark, the “Borrowers”), certain of our subsidiaries as guarantors, the lenders from time to time party thereto (the “Lenders”) and MGG Investment Group LP, in its capacity as collateral agent and administrative agent for the Lenders (“MGG”), pursuant to which the Lenders extended credit to the Borrowers consisting of a term loan in the aggregate principal amount of $35.5 million (the “MGG Loan”).

On May 15, 2019, we completed the sale of all of the issued and outstanding membership interests of Vegas.com (the “VDC Transaction”) and used the cash proceeds of $30 million to pay amounts due under the Financing Agreement, of which approximately $10 million remained outstanding after giving effect to the application of such cash proceeds.

On May 28, 2020, we repaid in full all outstanding obligations under, and terminated, the Financing Agreement. See Note 13 for further discussion of Lender actions.


Loan due April 2022

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


NOTE 13. COMMITMENTS AND CONTINGENCIES

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


Contingencies

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


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Financial Statement Index


Earnout Payment

As of June 30, 2020 and December 31, 2019, we have accrued approximately $1.1 million related to the Earnout Payment related to our acquisition of Vegas.com. See Note 4 for more information regarding the Earnout Payment.


Termination of Lease and Related Landlord Actions

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

On April 9, 2020, the Hughes Center Landlord filed suit against us in Nevada to recover the approximately $1.1 million of rent owed through March 5, 2020, plus damages resulting from the early termination of the lease. Based on calculations stipulated by the lease, we estimated the increase to rent expense and to the current portion of our operating lease liability, net of security deposit of $0.3 million, was approximately $1.5 million as of June 30, 2020.

On August 3, 2020, we entered into a Settlement Agreement and Release (the “Hughes Center Lease Settlement”) with the Hughes Center Landlord under which we will pay $0.6 million to the Hughes Center Landlord in exchange for a full release of all obligations and claims against us in relation to our lease agreement with the Hughes Center Landlord. See Note 18 for more information regarding the Hughes Center Lease Settlement.

We have leased new office space under a lease that is not material to our consolidated financial statements.


Lender Actions and Repayment of Debt

On January 8, 2020, we received a notice from MGG that, as a result of certain continuing defaults under the Financing Agreement, the Lenders had exercised their right under the Financing Agreement to replace the single-member board of directors of our wholly-owned subsidiary that holds our investment (described in Note 6) in Sharecare with a person of their choosing.

On March 16, 2020, we received a notice of acceleration from MGG, in which MGG declared that the entire unpaid principal of and any accrued and unpaid interest on the MGG Loan, and all fees and other amounts payable under the Financing Agreement, were immediately due and payable and demanded that all such amounts be paid immediately to MGG.

On March 16, 2020, MGG filed a Summons with Notice against us in the Supreme Court of the State of New York, County of New York, alleging a claim for breach of contract under the Financing Agreement.

On May 28, 2020, we repaid in full all outstanding obligations under, and terminated, the Financing Agreement. On the same date, and concurrently with repaying all outstanding obligations under the Financing Agreement, we agreed to reduce by $0.30 per share the exercise price of the CBG Financing Warrants to purchase 6,601,558 shares of our common stock.

On June 23, 2020, MGG voluntarily discontinued the legal action against us in the Supreme Court of the State of New York, County of New York.


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Financial Statement Index


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

Common Shares Authorized
Our Amended and Restated Certificate of Incorporation authorizes us to issue up to 100,000,000 shares of our common stock, of which 99,408,916 shares were outstanding as of August 11, 2020. In addition, as of August 11, 2020, we had outstanding stock options allowing for the purchase of as many as approximately 15.9 million shares of common stock and we had outstanding warrants to purchase 6,641,558 shares of common stock. If all of our outstanding stock options and warrants were exercised, the total number of shares of our common stock that we would be required to issue would greatly exceed the number of our remaining authorized but unissued shares of common stock.

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

Equity Issuances

On March 3, 2020, we entered into the 2020 Aspire Purchase Agreement with Aspire Capital which provided that, upon the terms and subject to the conditions and limitations set forth therein, we had the right to direct Aspire Capital to purchase up to an aggregate of $30.0 million of shares of our common stock over the 30-month term of the 2020 Aspire Purchase Agreement. The 2020 Aspire Purchase Agreement replaced the 2019 Aspire Purchase Agreement, which terminated under the terms of the 2020 Aspire Purchase Agreement. In consideration for entering into the 2020 Aspire Purchase Agreement, we have issued to Aspire Capital 2,374,545 shares of our common stock.

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

On July 20, 2020, we filed a registration statement on Form S-1 (Registration No. 333-239944) with the SEC (as amended, the “Registration Statement”). The Registration Statement, which has not yet been declared effective by the SEC, relates to an offer (the “Offering”) to sell up to a total of 150,000 units (the “Units”) consisting of 600,000 shares of 9.5% Series A Cumulative Redeemable Perpetual Preferred Stock, par value $0.001 per share (the “Series A Preferred”) and 150,000 warrants to purchase common stock (the “Warrants”, together with the Units and the Series A Preferred, the “Securities”), plus the grant of an over-allotment option for the issuance, sale and delivery of up to 90,000 additional Series A Preferred and/or 22,500 additional Warrants. Each Unit consists of (i) four shares of Series A Preferred and (ii) one Warrant which may become exercisable to purchase one share of our common stock. The Securities are to be offered and sold in the manner described in the Registration Statement and the related prospectus included therein. We estimate that the net proceeds to us from the sale of the Units in the Offering will be approximately $13.8 million (assuming the over-allotment option is not exercised), based on the public offering price of $100.00 per Unit, after deducting the total underwriting discounts and commissions payable, excluding estimated offering expenses. This amount does not include the proceeds that we may receive in connection with any exercise of the Warrants issued pursuant to the Offering.


Share-Based Compensation 

We are authorized to issue equity-based awards under our 2010 Equity Incentive Plan, our 2014 Incentive Plan, and our 2017 Incentive Plan, each of which our stockholders have approved. We also award cash bonuses (“China Cash Bonuses”) to our employees in China, which grants are not subject to a formal incentive plan and which can only be settled in cash. We grant such awards to attract, retain and motivate eligible officers, directors, employees and consultants. Under each of the plans, we have granted shares of restricted stock and options to purchase common stock to our officers and employees with exercise prices equal to or greater than the fair value of the underlying shares on the grant date.

Stock options and China Cash Bonuses generally expire 10 years from the grant date. All forms of equity awards and China Cash Bonuses vest upon the passage of time, the attainment of performance criteria, or both. When participants exercise stock
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options, we issue any shares of our common stock resulting from such exercise from new authorized and unallocated shares available at the time of exercise.

The following table summarizes activity under our equity incentive plans related to equity-classified stock option grants as of June 30, 2020, and changes during the six months then ended:
Shares Weighted-Average Exercise Price Weighted-Average Remaining Contractual Term
(in years)
Aggregate Intrinsic Value (in thousands)
Outstanding at January 1, 2020 10,359,079    $ 4.20   
Granted —    —   
Exercised (54,864)   1.23   
Forfeited, cancelled or expired (87,375)   2.63   
Outstanding at June 30, 2020 10,216,840    $ 4.23    6.2 $ —   
Options exercisable at June 30, 2020 9,876,966    $ 4.35    6.1 $ —   


The following table summarizes activity under our equity incentive plans related to the China Cash Bonuses as of June 30, 2020, and changes during the six months then ended:
Shares Weighted-Average Exercise Price Weighted-Average Remaining Contractual Term
(in years)
Aggregate Intrinsic Value (in thousands)
Outstanding at January 1, 2020 1,087,500    $ 5.20   
Forfeited, cancelled or expired (183,000)   5.42   
Outstanding at June 30, 2020 904,500    $ 5.16    5.0 $ —   
Options exercisable at June 30, 2020 882,750    $ 5.25    4.9 $ —   


During the six months ended June 30, 2020, we did not award restricted stock under our equity incentive plans.

During the three months ended June 30, 2020 and 2019, we incurred share-based compensation expense (benefit) of $0.6 million and $(0.1) million, respectively. During the six months ended June 30, 2020 and 2019, we incurred share-based compensation expense of $0.7 million and $0.2 million, respectively.


Net Loss per Share 
 
For the three and six months ended June 30, 2020 and 2019, 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 for the three and six months ended June 30, 2020 and 2019 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 6,601,558 shares of our common stock at an exercise price of $1.93 per share.

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NOTE 15. RELATED PARTY TRANSACTIONS

As of June 30, 2020, we had outstanding approximately $0.5 million of receivables from related parties. The receivables represent cash advances in excess of expense reimbursements to senior management. The cash to be received from these receivables was subsequently injected as additional capital into our VIEs in China. See Note 18 for more information regarding subsequent payment of these amounts to our VIEs.


NOTE 16. SEGMENT INFORMATION

As a result of our disposal of the previously-reported Travel and Entertainment segment, we currently report one segment: our Technology & Data Intelligence segment, which provides services to our customers based upon the data collected and processed by our proprietary data intelligence software.

Our chief operating decision maker uses Adjusted EBITDA as the primary measure of profitability for evaluating 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. We do not allocate certain types of shared expense, such as legal and accounting, to our reportable segment; such costs are included in Corporate Entity and Other.

The following table presents certain financial information regarding our reportable segment and other entities for the three and six months ended June 30, 2020 and 2019 (in thousands):
Technology & Data Intelligence
Corporate Entity and Other
Consolidated
Three Months Ended June 30, 2020
Revenue
$ 987    $ 1,312    $ 2,299   
Adjusted EBITDA
$ (782)   $ (1,286)   $ (2,068)  
Three Months Ended June 30, 2019
Revenue
$ 2,465    $ 400    $ 2,865   
Adjusted EBITDA
$ (344)   $ (2,310)   $ (2,654)  
Six Months Ended June 30, 2020
Revenue
$ 1,311    $ 1,419    $ 2,730   
Adjusted EBITDA
$ (1,472)   $ (2,491)   $ (3,963)  
Six Months Ended June 30, 2019
Revenue
$ 2,890    $ 1,184    $ 4,074   
Adjusted EBITDA
$ (3,003)   $ (4,927)   $ (7,930)  


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The following table reconciles Adjusted EBITDA to Loss before income taxes (in thousands):
Three Months Ended June 30, Six Months Ended June 30,
2020 2019 2020 2019
Adjusted EBITDA
$ (2,068)   $ (2,654)   $ (3,963)   $ (7,930)  
Depreciation and amortization
(66)   (260)   (156)   (585)  
Share-based compensation expense
(646)   102    (681)   (223)  
Other expense (income), net
(58)   (92)   (57)   (47)  
Other loss (gain)
—    (27)   (1,465)   (1)  
Operating loss
$ (2,838)   $ (2,931)   $ (6,322)   $ (8,786)  
Other income (expense)
Interest expense
(775)   (553)   (1,236)   (940)  
Other income (expense), net
57    92    57    47   
Gain on lease termination
—    —    1,538    —   
Change in fair value of warrant liability
(6,260)   2,078    (6,203)   662   
Other gain (loss), net
—    27    (73)    
Total other income (expense), net
$ (6,978)   $ 1,644    $ (5,917)   $ (230)  
Income (Loss) from continuing operations before income taxes
$ (9,816)   $ (1,287)   $ (12,239)   $ (9,016)  


The following table presents total assets for our reportable segment and the corporate and other entities (in thousands):
June 30, 2020 December 31, 2019
Technology & Data Intelligence segment
$ 8,468    $ 7,450   
Corporate entity and other business units
14,608    7,377   
Consolidated
$ 23,076    $ 14,827   


Capital expenditures for our Technology & Data Intelligence segment were de minimis during the three and six months ended June 30, 2020, respectively, and were de minimis and $0.1 million during the three and six months ended June 30, 2019, respectively.


NOTE 17. DISCONTINUED OPERATIONS

On May 15, 2019, we completed the VDC Transaction for an aggregate purchase price of $30.0 million. The business we sold in the VDC Transaction formerly comprised our Travel and Entertainment segment.

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The following table presents the major classes of line items constituting the pretax profit or loss of the disposed Travel and Entertainment segment (in thousands):
Three Months Ended Six Months Ended
June 30, 2019 June 30, 2019
Revenue $ 9,178    $ 27,432   
Cost of revenue (excluding depreciation and amortization) 1,240    4,016   
Selling, general and administrative 7,506    18,383   
Technology and development 1,082    3,280   
Depreciation, amortization and impairments 5,860    8,007   
Other operating expense 139    384   
Other expense (income) and loss (gain), net (4,948)   (3,814)  
Loss from discontinued operations before income taxes (1,701)   (2,824)  
Benefit from income taxes 214    214   
Loss from discontinued operations $ (1,487)   $ (2,610)  


NOTE 18. SUBSEQUENT EVENTS

On July 27, 2020, senior management personnel described in Note 15 injected approximately $0.5 million into our VIEs, thereby reducing our receivable from them to zero.

Also on July 27, 2020, we granted to employees and directors, excluding our CEO, options to purchase approximately 5.6 million shares of our common stock. The option agreements governing the grants contain a stipulation that, regardless of vesting, such options do not become exercisable until stockholders approve an increase in the number of shares of our common stock authorized for issuance.

On August 3, 2020, we entered into the Hughes Center Lease Settlement with the Hughes Center Landlord. Under the Hughes Center Lease Settlement, we paid $0.45 million to the Hughes Center Landlord and agreed to pay another $0.15 million in three equal installments on each of September 1, 2020, October 1, 2020 and November 1, 2020, in full settlement of the obligations we incurred in relation to the office lease. If we do not make the installment payments on or before the specified dates, we will be required to pay an additional amount of approximately $0.2 million to the Hughes Center Landlord, which would increase the total aggregate settlement payments to approximately $0.8 million. The plaintiff has begun the process of discontinuing legal action against us.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read our discussion and analysis of our financial condition and results of operations for the three and six months ended June 30, 2020 in conjunction with our unaudited condensed consolidated financial statements and notes thereto set forth in Part I, Item 1 of this Quarterly Report on Form 10-Q.  Such discussion and analysis includes forward-looking statements that involve risks and uncertainties and that are not historical facts, including statements about our beliefs and expectations. You should also read “Special Note Regarding Forward-Looking Statements” in the section following the table of contents of this report.


OVERVIEW

We are a diversified global technology company with leading artificial intelligence (“AI”) and data-analytics solutions, as well as a portfolio of digital media properties.


Our AI Business

Through our proprietary data and AI platform, our Remark AI business (currently known in the Asia-Pacific region as KanKan, and which we report as our Technology & Data Intelligence segment) generates revenue by delivering AI-based vision products, computing devices and software-as-a-service solutions for businesses in many industries. In addition to the other work that we have ramped up, we continue partnering with top universities on research projects targeting algorithm, artificial neural network and computing architectures which we believe keeps us among the leaders in technology development. During 2019, our research team participated in a series of computer vision competitions at the Conference on Computer Vision and Pattern Recognition and the International Conference on Computer Vision (considered the top two computer vision conferences in the world) and was ranked first or second in many of such competitions.

We continue to market Remark AI’s innovative AI-based solutions to customers in the retail, urban life cycle and workplace and food safety markets.

Retail Solutions. Utilizing a client’s existing cameras and strategic sensors placed throughout the store, Remark AI’s retail solutions swiftly analyze real-time customer shopping behavior, such as time of store entry and shelf-browsing habits, and provide managers with a customer heatmap that reflects traffic patterns. Purchase history is also analyzed, leading to relevant offers for future purchase conversions, and customers for their continued loyalty through a special VIP status that brings customized promotions and coupons along with attentive customer service. Remark AI’s retail solutions allow retailers and store managers to make better data-driven decisions regarding store layout, item placement, and pricing strategy, all while anonymizing customers’ identities to protect their privacy.

Urban Life Cycle Solutions. We offer and have installed several solutions in what we call the urban life cycle category. Our urban life cycle solutions include our AI community system which assists in building “smart” communities by enhancing community security and safety. We also have AI solutions that help to make schools “smart” by (i) providing an accurate and convenient method for student check-in and check-out, (ii) providing an autonomous method of campus monitoring that enhances students’ safety by, for example, monitoring students for elevated body temperatures that could indicate viral infections such as influenza or COVID-19, detecting trespassers, detecting dangerous behaviors or physical accidents that could result in injury, and (iii) monitoring the school kitchen for safety violations.

In traffic management, our solutions assist in monitoring traffic for various violations by automatically detecting, capturing, and obtaining evidence regarding violations such as speeding, running red lights, driving against the flow of traffic and even using counterfeit registration plates. Additionally, our solutions provide constant road-condition monitoring, providing control centers with real-time information on traffic conditions such as areas of congestion or other traffic anomalies.

Workplace and Food Safety Solutions. The monitoring and detection capabilities of our solutions ensure that workers are practicing established food safety protocols, wearing the proper personal protective equipment, and complying with local health
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codes. From commercial kitchens to factories to construction work zones, our safety-compliance algorithms manage regulatory functions, review hygienic and equipment status while checking and alerting management regarding violations.


Our Bio-Safety Business

The first half of 2020 was one of renewed focus for us as we repurposed and improved our existing urban life cycle solution that we were selling to make schools in China “smart” schools to build a new product line of high-quality, highly-effective thermal imaging solutions that leverage our innovative software. We currently focus our efforts predominantly in the U.S. market.

Remark AI Thermal Kits. We sell our Remark AI Thermal Kits to customers needing the ability to scan crowds and areas of high foot traffic for indications that certain persons with elevated temperatures may require secondary screening. Though the kits are semi-customizable, they generally consist primarily of a thermal imaging camera, a calibrating device, a computer to monitor the video feed, supporting equipment and our AI software. Once set up and calibrated, the kits scan a large number of people each minute, providing both thermally enhanced and standard video feeds that allow our customers to evaluate high volumes of people at large gatherings.

Remark AI Thermal Pads. Our Remark AI rPad thermal imaging devices, usually mounted on a wall or a single-post stand, are designed for customers needing the ability to scan individuals on a one-by-one basis in situations where rapid, high-volume scanning is not necessary, such as at a customer’s office entrances where employees can be scanned as they enter for indications of an elevated temperature that may require secondary screening. In addition to thermal scanning, we can customize our AI software embedded in the rPad to perform additional safety and security functions including identifying persons for authorized entry.

We have also developed the Remark AI Thermal Helmet which can, for example, be worn by security personnel at large gatherings allowing for a mobile thermal scanning ability.


Other Businesses

We also maintain a digital media portfolio which, in addition to operating businesses, includes an approximately 4.5% ownership in the issued stock of Sharecare, Inc., an established health and wellness platform with more than 100 million users, which has now raised in excess of $425 million of total capital. We continue to evaluate opportunities to monetize and maximize the value of this asset for our shareholders. In addition to Data Platform Services revenue from our Remark AI business, activities such as online merchandise sales generated from Bikini.com, our e-commerce website selling swimwear and accessories in the latest styles, also contributed to our consolidated revenue in the current-year and prior-year periods, while advertising also contributed to revenue in prior-year periods.


Overall Business Outlook
 
Our innovative AI and data analytics solutions continue to gain worldwide awareness and recognition through media exposure, comparative testing, product demonstrations and word of mouth resulting from positive responses and increased acceptance. We intend to expand our business not only in the Asia-Pacific region, where we believe there still are fast-growth AI market opportunities for our solutions, but also in the United States and other countries where we see a tremendous number of requests for AI products and solutions in the workplace and public safety markets, especially in response to the COVID-19 pandemic. However, the COVID-19 pandemic may also continue to present challenges to our business, as could economic and geopolitical conditions in some international regions, and we do not yet know what will be the ultimate effects on our business. We continue to pursue large business opportunities, but anticipating when, or if, we can close these opportunities is difficult. Quickly deploying our software solutions in the market segments we have identified, in which we may face a number of large, well-known competitors, is also difficult.


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Business Developments During 2020

After spending most of the first quarter of 2020 on product development and relationship building, we were able to launch our bio-safety business in the second quarter of 2020 and begin recognizing revenue from sales of the new products. Our expectation is that the U.S. will be the primary market for this new product line, though we will continue to work to develop other markets as well.

Though Chinese New Year celebrations, working capital constraints and the U.S.-China trade war had some adverse impact, our business has also been significantly impacted by the COVID-19 pandemic, which has resulted in national and local governmental authorities across the world implementing numerous preventative measures in an effort to control the spread of the virus, including travel restrictions, shelter-in-place orders, school closings, closure of non-essential businesses and other quarantine measures. The pandemic and the related preventative measures have limited our operational capabilities by preventing our employees from working for long periods of time and causing many of our customers to delay implementation of contracts we already signed with them, all of which has adversely impacted our business and results of operations. Our business and financial results may be materially and adversely impacted by the COVID-19 pandemic for the duration of 2020 or longer, and we are unable to predict the duration or degree of such impact with any certainty.

The following table presents our revenue categories as a percentage of total consolidated revenue during the six months ended June 30, 2020.
Three Months Ended June 30, Six Months Ended June 30,
2020 2019 2020 2019
AI-based products and services 89  % 86  % 87  % 71  %
Advertising and other 11  % 14  % 13  % 29  %


Matters Affecting Comparability of Results

Unless otherwise noted therein, the Results of Operations section below only discusses our continuing operations.


CRITICAL ACCOUNTING POLICIES

During the three and six months ended June 30, 2020, we made no material changes to our critical accounting policies as we disclosed them in Part II, Item 7 of our 2019 Form 10-K.


RESULTS OF OPERATIONS

The following discussion summarizes our operating results for the three and six months ended June 30, 2020 compared to the three and six months ended June 30, 2019.


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Reportable Segment Results

Technology & Data Intelligence
(dollars in thousands) Three Months Ended June 30, Change
2020 2019 Dollars Percentage
Revenue $ 987    $ 2,465    $ (1,478)   (60) %
Cost of revenue 540    1,311    (771)   (59) %
Sales and marketing 124    119      %
Technology and development 1,420    776    644    83  %
General and administrative 253    402    (149)   (37) %
Depreciation and amortization 34    135    (101)   (75) %
(dollars in thousands) Six Months Ended June 30, Change
2020 2019 Dollars Percentage
Revenue $ 1,311    $ 2,890    $ (1,579)   (55) %
Cost of revenue 555    2,604    (2,049)   (79) %
Sales and marketing 219    445    (226)   (51) %
Technology and development 1,999    2,002    (3)   —  %
General and administrative 529