[PART I - FINANCIAL INFORMATION](index=4&type=section&id=PART%20I) [Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) Remark Holdings reported a net loss of **$14.0 million** for the six months ended June 30, 2023, an improvement from **$38.0 million** in 2022, despite a **45%** revenue decrease to **$4.0 million**, ending with **$0.2 million** cash and a **$28.4 million** stockholders' deficit, raising substantial doubt about its ability to continue as a going concern [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) As of June 30, 2023, Remark Holdings had total assets of **$12.9 million** and total liabilities of **$41.3 million**, resulting in a total stockholders' deficit of **$28.4 million**, with cash critically low at **$0.2 million** and notes payable increasing to **$16.5 million** Condensed Consolidated Balance Sheet Data (in thousands) | Balance Sheet Item | June 30, 2023 (Unaudited) | December 31, 2022 | | :--- | :--- | :--- | | Cash | $208 | $52 | | Total current assets | $10,466 | $12,288 | | **Total assets** | **$12,858** | **$14,436** | | Total current liabilities | $40,889 | $34,805 | | **Total liabilities** | **$41,287** | **$34,861** | | **Total stockholders' deficit** | **($28,429)** | **($20,425)** | [Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss](index=5&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Loss) For the six months ended June 30, 2023, revenue decreased **45%** year-over-year to **$4.0 million**, with a net loss of **$14.0 million**, significantly improved from **$38.0 million** in 2022 due to the absence of a **$26.0 million** investment loss, offset by a new **$4.6 million** finance cost Statement of Operations Highlights (in thousands, except per share amounts) | Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Revenue | $3,167 | $2,558 | $3,993 | $7,225 | | Operating Loss | ($3,959) | ($3,955) | ($7,002) | ($8,141) | | Finance cost related to obligations to issue common stock | ($1,050) | $0 | ($4,626) | $0 | | Loss on investment | $0 | ($6,952) | $0 | ($26,008) | | **Net Loss** | **($5,874)** | **($12,529)** | **($14,036)** | **($37,958)** | | Net Loss Per Share | ($0.42) | ($1.19) | ($1.02) | ($3.61) | [Unaudited Condensed Consolidated Statements of Cash Flows](index=7&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) For the six months ended June 30, 2023, net cash used in operating activities was **$5.2 million**, an improvement from **$11.1 million** in the prior-year period, with net cash provided by financing activities at **$5.4 million**, ending with a cash balance of only **$0.2 million** Cash Flow Summary (in thousands) | Cash Flow Activity | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--- | :--- | :--- | | Net cash used in operating activities | ($5,227) | ($11,082) | | Net cash provided by (used in) investing activities | ($6) | $2,644 | | Net cash provided by (used in) financing activities | $5,389 | ($4,686) | | **Net change in cash** | **$156** | **($13,124)** | | Cash at end of period | $208 | $1,063 | [Notes to Unaudited Condensed Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) The notes detail the company's business structure, accounting policies, and critical financial situations, including a going concern warning, default on senior secured debt with Mudrick Capital, significant financing from Ionic Ventures, customer concentration risk, and a Nasdaq delisting notice - The company has a history of recurring operating losses, a stockholders' deficit of **$28.4 million**, and a cash balance of **$0.2 million** as of June 30, 2023, which raises substantial doubt about its ability to continue as a going concern[36](index=36&type=chunk)[37](index=37&type=chunk) - The company defaulted on its loan agreement with Mudrick Capital. A new agreement was reached on March 14, 2023, converting the outstanding balance into new notes totaling **$16.3 million** at a **20.5%** interest rate. A subsequent repayment was missed on June 30, 2023, constituting another event of default[85](index=85&type=chunk)[88](index=88&type=chunk)[91](index=91&type=chunk) - The company entered into multiple financing agreements with Ionic Ventures, LLC, including convertible debentures and an Equity Line of Credit (ELOC), resulting in proceeds of **$5.5 million** in the first half of 2023 but also creating significant obligations to issue a variable number of common shares, valued at **$5.6 million** as of June 30, 2023[93](index=93&type=chunk)[94](index=94&type=chunk)[105](index=105&type=chunk) - On July 24, 2023, Nasdaq granted the company an extension until October 24, 2023, to regain compliance with continued listing standards after failing to meet the minimum net income, stockholders' equity, or market value requirements[130](index=130&type=chunk) - For the six months ended June 30, 2023, three customers accounted for approximately **40%**, **35%**, and **11%** of total revenue, indicating significant customer concentration risk[64](index=64&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A)](index=30&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the company's financial performance, highlighting a **45%** revenue decrease for the first six months of 2023 due to slow China recovery, an improved net loss due to non-recurring investment loss, and reiterates substantial doubt about going concern, with future funding reliant on revenue growth and ELOC [Results of Operations](index=35&type=section&id=Results%20of%20Operations) Revenue for the six months ended June 30, 2023, fell by **$3.2 million (45%)** to **$4.0 million** due to slow China recovery, while general and administrative expenses decreased by **$1.8 million**, and a new finance cost of **$4.6 million** was incurred, narrowing the net loss to **$14.0 million** from **$38.0 million** Comparison of Operating Results (in thousands) | Item | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Revenue | $3,993 | $7,225 | ($3,232) | (45)% | | Cost of revenue | $2,966 | $6,117 | ($3,151) | (52)% | | General and administrative | $6,077 | $7,872 | ($1,795) | (23)% | | Finance cost related to obligations to issue common stock | ($4,626) | $0 | ($4,626) | N/A | | Loss on investment | $0 | ($26,008) | $26,008 | (100)% | | **Net loss** | **($14,036)** | **($37,958)** | **$23,922** | **(63)%** | - The decrease in revenue for the six-month period was primarily due to the slow and methodical business and economic recovery in China after the lifting of COVID-19 restrictions[160](index=160&type=chunk) - General and administrative expenses decreased by **$1.8 million**, driven by a **$1.0 million** reduction in business development expenses and a **$0.8 million** decrease in share-based compensation expense[161](index=161&type=chunk) - A new finance cost of **$4.6 million** was incurred in the first six months of 2023, resulting from the establishment and remeasurement of obligations to issue common stock under agreements with Ionic[164](index=164&type=chunk) [Liquidity and Capital Resources](index=37&type=section&id=Liquidity%20and%20Capital%20Resources) The company's liquidity is severely constrained with **$0.2 million** cash as of June 30, 2023, raising substantial doubt about its going concern ability, as it is in default on **$16.3 million** senior secured notes due October 31, 2023, relying on **$5.5 million** financing from Ionic for operations - The company's history of recurring operating losses, working capital deficiencies, and negative cash flows from operations give rise to substantial doubt about its ability to continue as a going concern[166](index=166&type=chunk)[180](index=180&type=chunk) - The company is in default on its New Mudrick Notes, with an outstanding balance of **$16.6 million** as of the filing date, and does not have sufficient cash to repay the obligation due October 31, 2023[168](index=168&type=chunk)[169](index=169&type=chunk)[171](index=171&type=chunk) - During the first six months of 2023, the company received **$2.5 million** from Ionic in exchange for convertible debentures and an aggregate of **$3.0 million** under the ELOC Purchase Agreement[185](index=185&type=chunk) - Management's plans to meet ongoing requirements for the next 12 months include growing new product lines and obtaining additional capital through equity issuances, but projections are inherently uncertain[181](index=181&type=chunk)[182](index=182&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=40&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section is not applicable - Not applicable[188](index=188&type=chunk) [Controls and Procedures](index=40&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were not effective as of June 30, 2023, due to previously identified material weaknesses in internal control over financial reporting, with remediation efforts ongoing but slow - Management concluded that disclosure controls and procedures were not effective as of June 30, 2023[190](index=190&type=chunk) - The ineffectiveness is due to previously disclosed material weaknesses in internal control over financial reporting, including issues with journal entries, revenue recognition in China, monitoring controls, and inventory valuation[190](index=190&type=chunk) - No material changes were made to internal controls during the quarter, and the implementation of the remediation plan continues to be slow[191](index=191&type=chunk) [PART II - OTHER INFORMATION](index=41&type=section&id=PART%20II) [Legal Proceedings](index=41&type=section&id=Item%201.%20Legal%20Proceedings) The company reports no material pending legal proceedings - None[192](index=192&type=chunk) [Risk Factors](index=41&type=section&id=Item%201A.%20Risk%20Factors) The company highlights significant risks including a history of operating losses, potential inability to generate sufficient revenue, critical risk of not repaying **$16.3 million** senior secured debt due October 31, 2023, and high dependence on a small number of customers - The company has a history of operating losses, an accumulated deficit of **$402.6 million** as of June 30, 2023, and may not generate sufficient revenue to sustain operations[193](index=193&type=chunk) - The company may not have sufficient cash to repay its **$16.3 million** in outstanding senior secured debt due October 31, 2023, and is currently in default, which could lead to foreclosure on all company assets[195](index=195&type=chunk)[196](index=196&type=chunk) - The company is dependent on a small number of customers. During the six months ended June 30, 2023, three customers represented about **40%**, **35%**, and **11%** of revenue, respectively[197](index=197&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=42&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) On April 12, 2023, the company issued a convertible subordinated debenture to Ionic Ventures, LLC for a purchase price of **$1,000,000** in a private placement - On April 12, 2023, the company issued a convertible subordinated debenture to Ionic Ventures, LLC for a purchase price of **$1,000,000** in a private placement[198](index=198&type=chunk) [Defaults Upon Senior Securities](index=42&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) The company confirms it is in default on its senior securities, having missed a required repayment under the New Mudrick Loan Agreement on June 30, 2023, with an outstanding balance of approximately **$16.6 million** - The company defaulted on the New Mudrick Loan Agreement by failing to make a required repayment by June 30, 2023[199](index=199&type=chunk) - As of the filing date, the company has not received a waiver for the default and is in discussions with the lender. The outstanding balance is approximately **$16.6 million**[199](index=199&type=chunk) [Other Information](index=42&type=section&id=Item%205.%20Other%20Information) The company reports no other information - None[200](index=200&type=chunk) [Exhibits](index=43&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including certifications by the Principal Executive Officer and Principal Financial Officer, and XBRL data files

Financial Data and Key Metrics Changes - Revenue for Q1 2023 totaled $0.8 million, representing an 82% decrease from $4.7 million in Q1 2022 [18] - Gross profit remained unchanged at approximately $0.4 million, with a significant decline in operating expenses leading to an operating loss of $3.0 million, a 27% improvement from the $4.2 million loss in Q1 2022 [19] - Net loss for Q1 2023 was $8.2 million or $0.63 per share, compared to a net loss of $25.4 million or $2.42 per share in Q1 2022 [20] Business Line Data and Key Metrics Changes - The Smart Schools business has deployed to over 650 city schools in China, serving over 1 million students, with plans to expand to over 1,000 schools by the end of 2023 [6] - In the Smart Communities segment, over 100 smart community deployments were completed in Q1 2023, with a significant market opportunity estimated in the multibillion-dollar range [7] - The U.S. public and venue safety initiatives are progressing, with pilot tests ongoing and a focus on addressing safety concerns in schools [9][10] Market Data and Key Metrics Changes - The lingering effects of COVID-19 in China have impacted project completions, but a recovery is anticipated in the latter half of 2023 as projects resume [18] - The company is expanding into the U.S. retail market with a visual checkout AI platform, targeting convenience stores and pharmacies [14] - Expansion efforts in Latin America and the Middle East are underway, with significant opportunities in police force technology [15] Company Strategy and Development Direction - The company's strategy focuses on a "land and expand" approach, leveraging AI and cloud technology to capture new market opportunities [5] - The Remark AI platform aims to address various public safety issues, including weapons detection and emergency response efficiency [10][12] - A SaaS initiative with a top cloud provider is expected to enhance the company's AI-powered analytics solutions [16] Management's Comments on Operating Environment and Future Outlook - Management noted that the recovery in China is slow but expected to accelerate as clients restart projects [17] - The demand for the company's AI solutions is described as unprecedented, with a focus on executing and capturing market opportunities [10] - The company is optimistic about future growth prospects, particularly in the U.S. and international markets [15][16] Other Important Information - The company reported a cash balance of $0.4 million at the end of Q1 2023, an increase from $0.1 million at the end of 2022 [22] - A refundable tax credit of approximately $0.5 million from the UK government positively impacted operating expenses [19] Q&A Session Summary - No questions were raised during the Q&A session, concluding the call without further inquiries [24]

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended March 31, 2023 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 ...

Financial Data and Key Metrics Changes - Revenue for 2022 totaled $11.7 million, reflecting a 27% decrease from $16 million in 2021 [22] - Operating loss increased to $21.3 million in 2022 from $13.9 million in 2021, driven by several factors including a lack of recovery of marketing costs and increased provisions for bad debt [24] - Net loss totaled $55.5 million or $5.22 per diluted share in 2022, compared to net income of $27.5 million or $2.70 per diluted share in 2021 [25] - Cash at December 31, 2022, was approximately $500,000, down from $14.2 million at the end of 2021 [25] Business Line Data and Key Metrics Changes - The company deployed smart campus products to over 600 schools, serving 1.2 million students daily [8] - Completed 11 smart construction projects in Q4 2022, totaling 97 projects for the year, with expectations for another 100 projects in 2023 [8] - Revenue from initial construction projects generates approximately $100,000 each [8] Market Data and Key Metrics Changes - U.S. revenue declined primarily due to the absence of a $2.8 million project from 2021 and a decrease in demand for thermal imaging products [22] - Revenue from China decreased to $11.4 million in 2022 from $12.12 million in 2021, largely due to COVID restrictions [23] Company Strategy and Development Direction - The company aims to achieve profitability by the end of 2023, focusing on recurring revenue streams from AI-powered solutions [5][19] - Expansion plans include entering the Middle East and Latin America markets [5] - The company differentiates itself by offering a comprehensive platform rather than point solutions, enhancing customer retention [9] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about resuming operations in China following the end of COVID restrictions, anticipating a recovery in project deployments [21] - The company sees unprecedented demand for its AI platform across various industries as businesses recover from the pandemic [10] - Management highlighted the potential for significant revenue growth from new projects, particularly in the public sector and transportation markets [19] Other Important Information - The company has launched its own ChatGPT service to augment its offerings [6] - A reverse stock split was executed on December 21, 2022, to improve share price [26] Q&A Session Summary Question: Can you provide more details about the ChatGPT product and how it differs from computer vision AI? - Management explained that the company has been developing large language models since 2017 and is now able to upsell businesses on design services using generative AI [30] Question: Can you elaborate on the revenue generated from smart construction projects? - Management clarified that the $100,000 revenue is generated during the life of the project, with potential for increased revenue as customers become more comfortable with AI [34] Question: How does the company plan to regain investor interest and coverage? - Management indicated that they are working on announcing partnerships and customer collaborations to enhance credibility and attract institutional investors [44]

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended December 31, 2022 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 Secu ...

Financial Data and Key Metrics Changes - Total revenue for Q3 2022 was $2.8 million, a 130% increase from $1.2 million in Q3 2021 [25] - Gross profit remained unchanged at $0.4 million, representing a gross profit percentage of 12.6% compared to 30.8% in the prior year [26] - Net loss was $8.9 million or $0.08 per diluted share, compared to a net income of $72.7 million in the same quarter last year [27][28] Business Line Data and Key Metrics Changes - Revenue from U.S. operations decreased, primarily due to a $0.2 million decrease in advertising business related to a daily fantasy sports project [25] - Revenue from China operations grew by nearly 230% to $2.7 million, with construction project completions contributing about $1.9 million [25] Market Data and Key Metrics Changes - Remark AI Smart Campus solutions were deployed at over 530 campuses in China, covering more than 1 million students [8] - The company completed 86 site installations in the Smart Construction industry, with each project generating $100,000 in initial revenue [9] Company Strategy and Development Direction - The company aims to scale its Remark AI platform globally, leveraging partnerships with video management system providers [6] - The strategic focus includes expanding into large-scale infrastructure projects in the U.S. and Europe, particularly in security solutions for transportation and entertainment venues [10][11] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the loosening of COVID policies in China, which could accelerate business operations [7][24] - The company is targeting profitability by the end of 2023, contingent on the approval of shareholder proposals and successful execution of contracts [32] Other Important Information - The company is seeking shareholder approval for a reverse stock split to preserve its NASDAQ listing and facilitate capital raising [13][28] - A $50 million equity line of credit has been established to support hardware and software development for upcoming projects [28] Q&A Session Summary Question: Timeline for profitability - Management targets profitability by the end of 2023, contingent on business execution and market conditions [32] Question: Breakdown of revenue sources - The majority of revenue in Q3 came from China, with significant growth compared to the previous year [34] Question: Update on theft detection technology - The technology is applicable across various industries, with ongoing bids for contracts in major cities [39] Question: Confidence in shareholder support for proposals - Management is optimistic about gaining shareholder approval, citing a strong long-term shareholder base [44] Question: Duration of financing from recent contracts - The $50 million equity credit line is expected to support operations as business prospects materialize in the near term [46] Question: Impact of reverse stock split - Management emphasized that the reverse split is backed by strong operational fundamentals and upcoming positive news [48]

Financial Data and Key Metrics Changes - Total revenue for Q2 2022 was $2.6 million, down from $4.4 million in Q2 2021, with a decrease of approximately $2.5 million in U.S. revenue due to a slowdown in the daily fantasy sports industry [37][38] - Gross profit decreased by approximately $1.1 million Q-over-Q to $0.7 million, resulting in a gross margin of 27.8%, compared to 43.9% in the same period in 2021 [38] - The net loss totaled $12.5 million or $0.12 per diluted share in Q2 2022, compared to a net loss of $1.6 million or $0.02 per diluted share in Q2 2021 [39] Business Line Data and Key Metrics Changes - The AI business in educational systems grew, with installations in over 60 new schools, totaling approximately 500 campuses [6][7] - Smart community deployments reached close to 900 communities, impacting over 3.5 million people daily, with expectations for further growth as lockdowns lift [7][8] - Smart construction solutions completed installations at 14 sites, bringing the total to 67, with increasing demand for additional solutions from customers [8][9] Market Data and Key Metrics Changes - The company faced challenges in the U.S. market due to lockdowns affecting branch operations, but anticipates a rapid recovery as restrictions ease [9] - The U.S. market is expected to benefit from the Biden infrastructure bill, which will begin disbursements for infrastructure improvements [11][12] - The UK market is addressing issues like fly-tipping, with the company involved in projects to help municipalities detect and prevent illegal dumping [21][22] Company Strategy and Development Direction - The company is focusing on expanding its AI solutions in the U.S. and UK, targeting the safety and security market with its Smart Safety Platform [15][28] - A monthly licensing-based recurring revenue model is being implemented for the Smart Safety Platform, allowing for predictable revenue streams [17] - The company aims to leverage its technology to enhance safety and security across various sectors, including transportation and public safety [34] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the impact of COVID-19 lockdowns on business operations but expressed optimism about future growth as markets reopen [6][36] - The company is confident in its revenue model and is finalizing paid pilot projects with several potential customers in the U.S. [12][13] - Management highlighted the importance of AI in addressing operational challenges and improving efficiency in various industries [11][34] Other Important Information - The company is evaluating refinancing options following a modification of its debt agreement, extending the maturity date until October 31, 2022 [40] - The cash balance as of June 30, 2022, was $1.1 million, down from $14.2 million at the end of 2021, with net cash used in operating activities totaling $11.1 million for the first half of 2022 [39] Q&A Session Summary Question: What are the expectations for revenue growth in the U.S. and UK markets? - Management indicated that they are working on finalizing paid pilot projects with several potential customers, which could lead to significant revenue opportunities [12][13] Question: How is the company addressing the challenges posed by COVID-19 lockdowns? - The company is focusing on building its business where lockdowns are less severe and is preparing for growth as restrictions are lifted [6][9] Question: What is the company's strategy for its AI solutions moving forward? - The company plans to expand its Smart Safety Platform and leverage its technology to enhance safety and security across various sectors [15][28]

PART I - FINANCIAL INFORMATION [Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) Unaudited statements show a significant net loss and stockholders' deficit, raising substantial doubt about the company's ability to continue as a going concern [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) The balance sheet reflects a sharp decline in cash and total assets, shifting stockholders' equity to a significant deficit Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Cash | $1,063 | $14,187 | | Investment in marketable securities | $12,532 | $42,349 | | Total current assets | $31,379 | $74,512 | | Total assets | $33,361 | $75,503 | | Total liabilities | $39,683 | $44,469 | | Total stockholders' equity (deficit) | $(6,322) | $31,034 | [Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss](index=5&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Loss) Operations resulted in lower revenue and a substantially increased net loss, driven by a significant loss on investment Statement of Operations Highlights (in thousands, except per share amounts) | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Revenue | $2,558 | $4,016 | $7,225 | $8,422 | | Operating loss | $(3,955) | $(2,470) | $(8,141) | $(6,130) | | Loss on investment | $(6,952) | $— | $(26,008) | $— | | Net loss | $(12,529) | $(1,561) | $(37,958) | $(7,022) | | Net loss per share | $(0.12) | $(0.02) | $(0.36) | $(0.07) | [Unaudited Condensed Consolidated Statements of Stockholders' Equity (Deficit)](index=6&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity%20(Deficit)) Stockholders' equity shifted from a $31.0 million surplus to a $6.3 million deficit, primarily due to a large net loss - **Total stockholders' equity decreased** from a positive $31.0 million to a **deficit of $6.3 million** as of June 30, 2022[16](index=16&type=chunk) - The decrease was primarily driven by a **net loss of $38.0 million** for the six-month period[16](index=16&type=chunk) [Unaudited Condensed Consolidated Statements of Cash Flows](index=7&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Cash flows show a significant increase in cash used for operations, leading to a net cash decrease of $13.1 million Cash Flow Summary for Six Months Ended June 30 (in thousands) | Cash Flow Activity | 2022 | 2021 | | :--- | :--- | :--- | | Net cash used in operating activities | $(11,082) | $(6,271) | | Net cash provided by (used in) investing activities | $2,644 | $(54) | | Net cash (used in) provided by financing activities | $(4,686) | $5,593 | | Net change in cash | $(13,124) | $(732) | | Cash at end of period | $1,063 | $122 | [Notes to Unaudited Condensed Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) Notes highlight significant risks including its VIE structure, going concern doubts, investment losses, and high-interest debt - The company operates a significant portion of its business in China through a **Variable Interest Entity (VIE) structure**, which carries legal and regulatory risks[21](index=21&type=chunk)[22](index=22&type=chunk)[23](index=23&type=chunk) - Management has concluded there is **substantial doubt about the company's ability to continue as a going concern** due to recurring losses and a stockholders' deficit[42](index=42&type=chunk)[43](index=43&type=chunk) - The company's investment in New Sharecare was valued at $12.5 million, reflecting a **$26.0 million loss** during the first six months of 2022[81](index=81&type=chunk) - The company had **$23.8 million in notes payable** outstanding, primarily from high-interest Mudrick Loans[96](index=96&type=chunk) - Subsequent to the quarter, the company prepaid part of the Mudrick Loans, which had its **interest rate increased to 18.5%** and maturity extended[125](index=125&type=chunk)[126](index=126&type=chunk) - The company received a **Nasdaq notice for failing to maintain a minimum bid price** of $1.00 per share[102](index=102&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=30&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) The discussion attributes a 14% revenue decline and a significant net loss to investment write-downs and higher interest expense [Our Business](index=30&type=section&id=OUR%20BUSINESS) The company delivers AI-based computer vision solutions through its Remark AI and KanKan AI businesses while planning to sell its e-commerce unit - The company's primary business is delivering **AI-based computer vision products** through its US and Asia-Pacific businesses[148](index=148&type=chunk) - Key AI solutions target markets such as retail, smart communities, workplace safety, and biosafety[150](index=150&type=chunk)[151](index=151&type=chunk)[153](index=153&type=chunk)[154](index=154&type=chunk) - The company plans to **sell its Bikini.com e-commerce business** and is developing a metaverse to explore new revenue streams[157](index=157&type=chunk) [Overall Business Outlook](index=36&type=section&id=Overall%20Business%20Outlook) The company sees growth opportunities for its AI products but faces material adverse impacts from China's 'Zero-COVID' policy - The company sees **growth opportunities in the Asia-Pacific, U.S., and European markets** for its AI products[158](index=158&type=chunk) - **China's 'Zero-COVID' policy** and associated lockdowns have had a material adverse impact on the business[159](index=159&type=chunk) [Results of Operations](index=37&type=section&id=RESULTS%20OF%20OPERATIONS) Revenue declined 14% while net loss widened by 441%, driven by investment losses and a 544% increase in interest expense Change in Operating Results for Six Months Ended June 30, 2022 vs 2021 (in thousands) | Account | 2022 | 2021 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Revenue | $7,225 | $8,422 | $(1,197) | (14)% | | Cost of revenue | $6,117 | $5,004 | $1,113 | 22% | | General and administrative | $7,872 | $5,179 | $2,693 | 52% | | Interest expense | $(3,960) | $(615) | $(3,345) | 544% | | Loss on investment | $(26,008) | $— | $(26,008) | N/A | | Net loss | $(37,958) | $(7,022) | $(30,936) | 441% | - The increase in General and Administrative expense was primarily due to higher **share-based compensation ($0.9M)** and other business costs[172](index=172&type=chunk)[173](index=173&type=chunk) - The significant increase in interest expense was caused by the **$30.0 million Mudrick loan** executed in December 2021[173](index=173&type=chunk) [Liquidity and Capital Resources](index=39&type=section&id=LIQUIDITY%20AND%20CAPITAL%20RESOURCES) With a cash balance of only $1.1 million and recurring losses, there is substantial doubt about the company's ability to continue as a going concern - The company has a history of recurring operating losses, resulting in a **cash balance of only $1.1 million** as of June 30, 2022[176](index=176&type=chunk) - There is **substantial doubt about the company's ability to continue as a going concern**[179](index=179&type=chunk) - Future operations will be funded through revenue growth, the **sale of the Bikini.com subsidiary**, and potential financings[180](index=180&type=chunk)[181](index=181&type=chunk) - The Mudrick Loan maturity was extended to October 31, 2022, and the **interest rate was increased to 18.5%** per annum[178](index=178&type=chunk)[179](index=179&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=41&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company states that this section is not applicable - The company has indicated that this disclosure is **not applicable**[187](index=187&type=chunk) [Controls and Procedures](index=41&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were not effective due to material weaknesses in internal control over financial reporting - Management concluded that **disclosure controls and procedures were not effective** at a reasonable assurance level as of June 30, 2022[189](index=189&type=chunk) - The ineffectiveness is due to **material weaknesses in internal control**, primarily related to processes in the AI business in China[189](index=189&type=chunk) - No material changes were made to internal controls during the quarter, and **remediation of the weaknesses is ongoing**[190](index=190&type=chunk) PART II - OTHER INFORMATION [Legal Proceedings](index=41&type=section&id=Item%201.%20Legal%20Proceedings) The company reports that there were no material pending legal proceedings as of the end of the reporting period - The company reports **no material legal proceedings**[192](index=192&type=chunk) [Risk Factors](index=42&type=section&id=Item%201A.%20Risk%20Factors) This section directs investors to the risk factors previously disclosed in the company's 2021 Annual Report on Form 10-K - The company refers investors to the **risk factors discussed in its 2021 Form 10-K**[192](index=192&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=42&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company states that it did not issue any unregistered equity securities during the period covered by this report - **No unregistered equity securities** were issued during the quarter[192](index=192&type=chunk) [Defaults Upon Senior Securities](index=42&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) The company indicates that this item is not applicable - **Not applicable**[193](index=193&type=chunk) [Mine Safety Disclosures](index=42&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) The company indicates that this item is not applicable - **Not applicable**[193](index=193&type=chunk) [Other Information](index=42&type=section&id=Item%205.%20Other%20Information) The company reports no information for this item - **None**[193](index=193&type=chunk) [Exhibits](index=43&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the report, including an amendment to a loan agreement and executive certifications - Exhibit 10.1 is the **First Amendment to the Senior Secured Loan Agreement**, dated August 3, 2022[196](index=196&type=chunk) - Exhibits 31.1, 31.2, and 32 are the **CEO and CFO certifications** pursuant to the Sarbanes-Oxley Act of 2002[196](index=196&type=chunk)

Remark Holdings, Inc. (OTCQX:MARK) Q1 2022 Earnings Conference Call May 16, 2022 4:30 PM ET Company Participants Fay Tian - VP of IR Kai-Shing Tao - Chairman and CEO Todd Brown - VP of Finance Conference Call Participants Operator Good day, and welcome to the Remark Holdings Fiscal First Quarter 2022 Financial Results Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Fay Tian. Please go ahead. Fay Tian Thank you, Justin. Good afternoon. And welc ...