Remark Holdings(MARK) - 2021 Q3 - Quarterly Report

PART I FINANCIAL INFORMATION Item 1. Financial Statements This section presents Remark Holdings, Inc.'s unaudited condensed consolidated financial statements, including balance sheets, statements of operations, cash flows, and stockholders' deficit, with notes on accounting policies, revenue, investments, debt, and equity Condensed Consolidated Balance Sheets Balance sheets reflect significant asset growth from marketable securities and a shift to positive equity by September 30, 2021 | Metric | Sep 30, 2021 (Unaudited, in thousands) | Dec 31, 2020 (in thousands) | | :---------------------- | :------------------------------------- | :-------------------------- | | Total current assets | $92,011 | $8,798 | | Total assets | $93,080 | $11,311 | | Total current liabilities | $24,330 | $17,059 | | Total liabilities | $24,379 | $20,403 | | Total stockholders' equity (deficit) | $68,701 | $(9,092) | Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss Net income significantly increased for three and nine months ended September 30, 2021, from investment revaluation, despite a three-month revenue decrease | Metric (in thousands) | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :-------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Revenue | $1,234 | $2,646 | $9,656 | $5,376 | | Operating loss | $(6,665) | $(3,103) | $(12,795) | $(9,425) | | Gain on investment revaluation | $78,917 | — | $78,917 | — | | Net income (loss) | $72,746 | $4,414 | $65,724 | $(7,825) | | Net income (loss) per share, basic | $0.73 | $0.04 | $0.66 | $(0.10) | Unaudited Condensed Consolidated Statements of Cash Flows Operating cash flows remained negative, investing activities turned positive from investment proceeds, and financing activities provided less cash, increasing overall cash | Cash Flow Activity (in thousands) | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :-------------------------------- | :----------------------------- | :----------------------------- | | Net cash used in operating activities | $(10,117) | $(14,532) | | Net cash provided by (used in) investing activities | $2,167 | $(1,581) | | Net cash provided by financing activities | $10,264 | $17,931 | | Net change in cash | $2,314 | $1,818 | | Cash, end of period | $3,168 | $2,090 | Notes to Unaudited Condensed Consolidated Financial Statements These notes detail the company's organization, business model, accounting policies, financial items, VIE risks, recent developments, and going concern NOTE 1. ORGANIZATION AND BUSINESS Remark Holdings sells AI products via U.S. and China VIEs, facing regulatory and going concern risks from its VIE structure and accumulated deficit - Remark Holdings, Inc. is a technology-focused holding company primarily selling AI-based products and services through its U.S. operations and consolidated VIEs in China. The KanKan data intelligence platform is central to its AI-based solutions[20] - The company utilizes a VIE structure for its significant operations in China, which are subject to risks from Chinese laws and regulations, including potential disallowance of the VIE structure and significant depreciation of common stock value[21][22][23] - The company has incurred net losses and accumulated a deficit of $(294.8) million as of September 30, 2021, with net cash used in operating activities of $10.1 million, leading to substantial doubt about its ability to continue as a going concern[39][40] - Future operations will be funded through revenue growth from AI offerings, sales of thermal-imaging products, and evaluation of strategic alternatives including debt/equity financings and asset sales[41][42] NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES This section details financial statement presentation, consolidation, estimates, and accounting treatments for key financial items, including recent pronouncements - The financial statements are prepared in conformity with GAAP, consolidating all subsidiaries and VIEs, and involve estimates significantly impacted by the COVID-19 pandemic[46][47][48] | Cash Denominated In (in thousands) | Sep 30, 2021 | Dec 31, 2020 | | :--------------------------------- | :----------- | :----------- | | USD | $1,934 | $56 | | RMB | $1,093 | $28 | | GBP | $135 | — | | HKD | — | — | | Total cash | $3,168 | $85 | - Revenue from AI-based products is recognized over time for continuous services or at a point in time upon completion and acceptance of fully-integrated solutions. Other revenue sources include advertising, e-commerce, and media production[56][57][59] | Exchange Rates (USD) | Sep 30, 2021 | Sep 30, 2020 | | :------------------- | :----------- | :----------- | | GBP:USD | 1.346 | — | | RMB:USD | 0.155 | 0.147 | | HKD:USD | 0.128 | 0.129 | | Average RMB:USD (9 months) | 0.154 | 0.143 | NOTE 3. REVENUE Revenue primarily from AI-based products and services, largely from China VIEs; AI product revenue decreased in Q3 2021 but increased for the nine-month period - The company and its VIEs primarily sell AI-based products and services, including Remark AI Thermal Kits and rPads in the U.S., and customized computer vision products in China[68] | Revenue Category (in thousands) | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :------------------------------ | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | AI-based products and services | $834 | $2,496 | $8,706 | $4,873 | | Other | $400 | $150 | $950 | $503 | | Total Revenue | $1,234 | $2,646 | $9,656 | $5,376 | | Revenue by Country (in thousands) | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :-------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | China | $840 | $2,051 | $6,053 | $3,384 | | United States | $394 | $595 | $3,603 | $1,992 | | Total Revenue | $1,234 | $2,646 | $9,656 | $5,376 | NOTE 4. FAIR VALUE MEASUREMENTS OF CERTAIN LIABILITIES CBG Acquisition claims settled by issuing warrants for 5.71 million common shares, reclassifying liability to equity, resulting in no warrant liability by September 30, 2021 - On August 31, 2021, the company settled claims from the CBG Acquisition by issuing warrants to purchase 5,710,000 shares of common stock at an exercise price of $6.00, reclassifying the warrant liability to equity[75][76] | Warrant Liability (in thousands) | Nine Months Ended Sep 30, 2021 | Year Ended Dec 31, 2020 | | :------------------------------- | :----------------------------- | :---------------------- | | Balance at beginning of period | $1,725 | $115 | | Increase (decrease) in fair value of liability | $(123) | $1,