Our common stock is listed on the NASDAQ Capital Market under the symbol MARK.
We have never declared or paid dividends or distributions on our common equity. We currently intend to retain all available funds and any future consolidated earnings to fund our operations and continue the development and growth of our business; therefore, we do not anticipate paying any cash dividends.
We are a diversified global technology company with leading artificial intelligence and data-analytics solutions, and we also own and operate an e-commerce digital media property focused on a luxury beach lifestyle.
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)KanKan) generates our data platform services revenue by delivering AI-based visionsoftware products, computing devices and software-as-a-service solutions
for businesses in many industries. Our technology is becoming noted for its performance. In June 2019, in addition to other recent successes on other testing platforms, our facial-recognition algorithms received a top ranking in the National Institute of Standards and Technology’s Wild Image Accuracy Test, a widely-recognized, global facial-recognition-testing platform. 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, ourOur research team participatedcontinues to participate in a series ofvarious computer vision competitions at which it wins or ranks near or 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. Though we currently focus our KanKan business on the Asia-Pacific region, we have initiated marketing activities in Europe and the United States and are continuing to launch several proof-of-concept projects.top.
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.
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 Europe, 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 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.
Business Developments During 2019
2020
After operating Vegas.com for several years and reporting it as our Travel and Entertainment segment, we sold it to an affiliate of MGG in May 2019. See Note 18 in Notes to Consolidated Financial Statements for more information regarding the sale, which allowed us to use the resulting proceeds to significantly reduce our debt and also further focus on our AI business.
We continuedAfter spending most of the first quarter of 2020 on product development and relationship building, we were able to launch our biosafety 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 closely with a diverse groupto develop other markets as well. The third quarter of clients and executed on various stages of AI product deployment, including a project that installed KanKan’staxi safety monitoring system in more than 2,000 taxis in the Chinese city of Xi’an. Our installation of 5,000 terminals2020 saw us ramp up execution of our AI-driven pharmacy-patient terminal systemlarger contracts in 2018 ledChina, such as the China Mobile project and the projects with several school districts. We expect to continue completing projects under those contracts and under other contracts to continue to increase revenue from our China AI business. Our work to build on the initial success of our biosafety business continues. Not all businesses across the U.S. have re-opened after COVID-19 lockdowns and not all of those that have re-opened have done so completely, which, in addition to the uncertainty of whether new closures will be implemented, somewhat slowed our biosafety business sales during the second half of 2020. Customers and potential customers, however, continue to show strong interest in our products, so we expect that revenue from the biosafety business will increase as more businesses can begin to make their plans to re-open.
Though 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 additional contracteffort to install in 2019 an additional 15,000 terminals in pharmacies in additional Chinese cities, a project which is ongoing. With strategic partner Hanvon Technology, we won a contract to transform onecontrol the spread of the world’s largest telecom provider’s 17,800 corporate stores in China into “smart” retail stores.virus, including travel restrictions, shelter-in-place orders, school closings, closure of non-essential businesses and other quarantine measures. The first phasepandemic 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 strategic partnership with Hanvon is expectedcustomers to bring us $50.0 million of revenue over the three-year life of the project.
Results during 2019 were affected by several factors, including working capital constraints. Celebrations of the 70th anniversary of the founding of the People’s Republic of China caused a country-wide slowdown in business for several weeks as corporate management postponed major decisions and work stopped while the celebrations occurred. Also, the trade war between the United States and China affected us by disrupting supply chain management and making the transfer of capital to our China-based subsidiaries more difficult. Finally, as AI is a new frontier in the business world, we and our partners, as well as our customers, are “learning on the job” as we identify new opportunities and ramp up thedelay implementation of contracts we already signed with them, all of which has adversely impacted our contracts.business and results of operations. Our projects often involve extended testingbusiness and verification that occur throughout a project’s life, which can slowfinancial results may be materially and adversely impacted by the speedCOVID-19 pandemic during the first half of full delivery2021 or longer, and therefore, slow revenue recognition.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 years ended December 31, 20192020 and 2018.2019.
| | | | | | | | | | | |
| Year Ended December 31, |
| 2020 | | 2019 |
AI-based products services | 95 | % | | 72 | % |
Advertising and other | 5 | % | | 28 | % |
|
| | | | | |
| Year Ended December 31, |
| 2019 | | 2018 |
FinTech services | — | % | | 37 | % |
AI-based products services | 72 | % | | 43 | % |
Advertising and other | 28 | % | | 20 | % |
In early 2018, because of an industry-wide regulatory audit in China that resulted in regulatory changes, we ceased providing services under our then-existing FinTech contracts.
Matters Affecting Comparability of Results
We disposed of the subsidiaries comprising our former Travel and Entertainment segment and we have reported such former segment as discontinued operations in our Consolidated Statements of Operations and Comprehensive Loss. Unless otherwise noted therein, the Results of Operations section below only discusses our continuing operations.
CRITICAL ACCOUNTING POLICIES
Management’s discussion and analysis of our results of operations and liquidity and capital resources is based upon our financial statements. We prepare our financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”). Certain of our accounting policies require that we apply significant judgment in determining the estimates and assumptions for calculating estimates. By their nature, these judgments are subject to an inherent degree of uncertainty. We use, in part, our historical experience, terms of existing contracts, observance of trends in the industry and information obtained from independent valuation experts or other outside sources to make our judgments. We cannot assure
you that our actual results will conform to our estimates. We regularly evaluate these estimates and assumptions, particularly in areas we consider to be critical accounting estimates, where changes in estimates and assumptions could have a material impact on our results of operations, financial position and, generally to a lesser extent, cash flows.
Senior management and the Audit Committee of the Board of Directors have reviewed the disclosures included herein about our critical accounting estimates, and have reviewed the processes to determine those estimates.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions which affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expense during the period. Estimates incorporated into our consolidated financial statements include the estimated useful lives for depreciable and amortizable assets, the fair value of the derivative and non-derivative liabilities related to certain stock warrants we issued, the fair value of stock options issued under our equity incentive plans, the estimated cash flows we use in assessing the recoverability of long-lived assets, and the estimated fair values we use when indicators suggest the need to quantitatively test goodwill for impairment. Actual results could differ from those estimates.
Accounting for Share-Based Compensation
For grants of restricted stock or restricted stock units, we measure fair value using the closing price of our stock on the measurement date, while we use the Black-Scholes-Merton option pricing model (the “BSM Model”) to estimate the fair value of stock options and similar instruments awarded.
The BSM Model requires the following inputs:
| |
• | Expected volatility of our stock price. We analyze the historical volatility of our stock price utilizing daily stock price returns, and we also review the stock price volatility of certain peers. Using the information developed from such analysis and our judgment, we estimate how volatile our stock price will be over the period we expect the stock options will remain outstanding.
|
| |
• | Risk-free interest rate. We estimate the risk-free interest rate using data from the Federal Reserve Treasury Constant Maturity Instruments H.15 Release (a table of rates downloaded from the Federal Reserve website) as of the valuation date for a security with a remaining term that approximates the period over which we expect the stock options will remain outstanding.
|
•Expected volatility of our stock price. We analyze the historical volatility of our stock price utilizing daily stock price returns, and we also review the stock price volatility of certain peers. Using the information developed from such analysis and our judgment, we estimate how volatile our stock price will be over the period we expect the stock options will remain outstanding.
|
| | |
•Stock price, exercise price and expected term. We use an estimate of the fair value of our common stock on the measurement date, the exercise price of the option, and the period over which we expect the stock options will remain outstanding.
| 23 | |
| |
• | Stock price, exercise price and expected term. We use an estimate of the fair value of our common stock on the measurement date, the exercise price of the option, and the period over which we expect the stock options will remain outstanding.
|
We do not currently issue dividends, but if we did so, then we would also include an estimated dividend rate as an input to the BSM model. Generally speaking, the BSM model tends to be most sensitive to changes in stock price, volatility or expected term.
We measure compensation expense as of the grant date for granted equity-classified instruments and as of the settlement date for granted liability-classified instruments (meaning that we re-measure compensation expense at each balance sheet date until the settlement date occurs).
Once we measure compensation expense, we recognize it over the requisite service period (generally the vesting period) of the grant, net of forfeitures as they occur.
Liabilities Related to Warrants Issued
We record certain common stock warrants we issued (see Note 4 in Notes to Consolidated Financial Statements for more detailed information) at fair value and recognize the change in the fair value of such warrants as a gain or loss which we report
in the Other income (expense) section in our consolidated statement of operations. We report some of the warrants that we record at fair value as liabilities because they contain certain provisions allowing for reduction of their exercise price, while others are recorded as liabilities because they contain a conditional promise to issue a variable number of our common stock shares upon the warrants’ expiration, and the monetary amount of such obligation was fixed at the inception of the contract.
We estimate the fair value of the warrants using either the BSM Model, for warrants whose terms do not change resulting from dilutive events (i.e., “plain vanilla” warrants), or the Monte Carlo Simulation method. The Monte Carlo Simulation method uses many of the same types of estimated inputs, such as the expected volatility of our stock price, the risk-free interest rate and the expected term of the warrant, as the BSM Model that we use to estimate the fair value of stock options that we issue.
Impairments
Long-Lived Assets Other Than Indefinite-Lived Intangible Assets. When events or changes in circumstances indicate that the carrying amount of a long-lived asset may not be recoverable, we evaluate long-lived assets for potential impairment. We estimate the future undiscounted cash flows expected to result from the use of the asset and its eventual disposition and, if the sum of the expected undiscounted future cash flows is less than the carrying value of the asset, we recognize an impairment loss for the difference between the carrying value of the asset and its fair value.
Goodwill and Indefinite-Lived Intangible Assets. When testing for impairment, we first evaluate qualitative factors to determine whether events and circumstances indicate that, more likely than not, an indefinite-lived intangible asset is impaired. If, after evaluating the totality of events and circumstances and their potential effect on significant inputs to the fair value determination, we determine that, more likely than not, an indefinite-lived intangible asset is impaired, we then quantitatively test for impairment.
Investment. We routinely perform an assessment of our investments in Sharecare and in Beijing All-in-one Cloud Net Technology, Co. Ltd. (“AIO”) to determine if they are other-than-temporarily impaired. An investment is impaired when the fair value of the investment declines to an amount less than the cost or amortized cost of that investment. As part of our assessment process, we determine whether the impairment is temporary or other-than-temporary. We base our assessment on both quantitative criteria and qualitative information, considering a number of factors including, but not limited to how long the security has been impaired, the amount of the impairment, the financial condition and near-term prospects of the issuer, whether the issuer is current on contractually-obligated interest and principal payments, key corporate events pertaining to the issuer and whether the market decline was affected by macroeconomic conditions.
If we determine that an investment has incurred an other-than-temporary impairment, we permanently reduce the cost of the security to fair value and recognize an impairment charge in our consolidated statements of operations.
Recently Issued Accounting Pronouncements
Please refer to Note 2 in the Notes to Consolidated Financial Statements included in this report for a discussion regarding recently issued accounting pronouncements which may affect us.
RESULTS OF OPERATIONS
The following discussion summarizes our operating results for the year ended December 31, 20192020 compared to the year ended December 31, 2018. 2019.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
(dollars in thousands) | | Year Ended December 31, | | Change |
| | 2020 | | 2019 | | Dollars | | Percentage |
Revenue | | $ | 10,145 | | | $ | 5,020 | | | $ | 5,125 | | | 102 | % |
| | | | | | | | |
Cost of revenue | | 6,422 | | | 3,514 | | | 2,908 | | | 83 | % |
Sales and marketing | | 3,378 | | | 3,003 | | | 375 | | | 12 | % |
Technology and development | | 4,142 | | | 3,573 | | | 569 | | | 16 | % |
General and administrative | | 9,368 | | | 14,174 | | | (4,806) | | | (34) | % |
Depreciation and amortization | | 308 | | | 982 | | | (674) | | | (69) | % |
Impairments | | 772 | | | 2,522 | | | (1,750) | | | (69) | % |
Other operating expenses | | — | | | 6 | | | (6) | | | (100) | % |
Total cost and expenses | | 24,390 | | | 27,774 | | | (3,384) | | | (12) | % |
| | | | | | | | |
Interest expense | | (1,342) | | | (1,876) | | | 534 | | | (28) | % |
Other income, net | | — | | | 530 | | | (530) | | | (100) | % |
Gain on lease termination | | 3,582 | | | — | | | 3,582 | | | |
Change in fair value of warrant liability | | (1,610) | | | 1,268 | | | (2,878) | | | (227) | % |
Other gain (loss) | | (70) | | | (172) | | | 102 | | | (59) | % |
Total Other expense | | 560 | | | (250) | | | 810 | | | (324) | % |
Reportable Segment Results
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 products and services to our customers based upon the data collected and processed by our proprietary data intelligence software.
Technology and Data Intelligence
|
| | | | | | | | | | | | | | | |
(dollars in thousands) | | Year Ended December 31, | | Change |
| | 2019 | | 2018 | | Dollars | | Percentage |
Revenue | | $ | 3,595 |
| | $ | 8,030 |
| | $ | (4,435 | ) | | (55 | )% |
| | | | | | | | |
Cost of revenue | | 2,629 |
| | 11,637 |
| | (9,008 | ) | | (77 | )% |
Sales and marketing | | 750 |
| | 1,200 |
| | (450 | ) | | (38 | )% |
Technology and development | | 3,271 |
| | 3,955 |
| | (684 | ) | | (17 | )% |
General and administrative | | 3,983 |
| | 2,208 |
| | 1,775 |
| | 80 | % |
Depreciation and amortization | | 507 |
| | 653 |
| | (146 | ) | | (22 | )% |
Impairments | | 2,342 |
| | — |
| | 2,342 |
| |
|
Other operating expenses | | 6 |
| | 129 |
| | (123 | ) | | (95 | )% |
Total cost and expenses | | 13,488 |
| | 19,782 |
| | (6,294 | ) | | (32 | )% |
Revenue and Cost of Revenue. We generatedDuring the second half of the year ended December 31, 2020, we ramped up execution of our larger contracts in China, such as our China Mobile project and the projects with several school districts, such that we were able to complete more projects than we did in 2019 and earn $4.3 million more revenue. Our new biosafety business contributed $1.7 million to the overall increase in revenue as we launched our thermal imaging product line primarily in the U.S beginning in 2020.
The increases in revenue from our project acceleration in China and from our new biosafety business were partially offset by a result of passing proof-of-concept tests on projects and beginningdecrease in the deployment and implementation phasesrevenue contribution of our solutions. Such projects deliver fully-integrated AI solutions which combine our proprietary technology with third-party hardware and software products to meet end-user specifications. In prior-year periods, large portionsRemark Entertainment business of our revenue resulted from certain financial technology (“FinTech”) services we provided, which we have since discontinued$0.6 million, primarily due to regulatory changes resulting from the industry-wide audit in China in 2018. As described earlier, in addition to our decision to discontinue our FinTech services, our revenue during 2019 was also affected by a country-wide slowdown in business due to anniversary celebrations in China, the U.S.-China trade war, and extended project testing and customizations on our larger projects.
During 2019, we recognized approximately $1.1 million of revenue on projects delivered in prior periods and the cost of revenue was recognized in prior periods. We could not, however, recognize the revenue in the prior periods because uncertainty regarding the timing of collection prevented us from determiningcontracts that collectability of all amounts payable to us under the contracts was probable.
Our cost of revenue decreased in 2019 primarily because we completed fewer large projects in the current year compared to the prior year due to the factors we described above. Our decision to discontinue the FinTech contract services was also a large contributor to the decrease in cost of revenue.
Sales and Marketing. We participated in a large industry conferenceended in the prior year that we did not participaterenew, and a decrease in during 2019. Thee-commerce revenue of $0.3 million, decreaseprimarily due to the combined effects of our decision to sell portions of our inventory at lower costs as well as reduced orders due to changes in registration costs related to conferences in the current year primarily caused the decrease in sales and marketing expense, as did a less material reduction of $0.1 million in travel costs resulting from cost management.
Technology and development. Our technology and development expense decreased primarilyconsumer spending as a result of headcount reductionthe COVID-19 pandemic.
Our cost of revenue during the year ended December 31, 2020 primarily increased in conjunction with the ramping up of work on our larger contracts in China, which caused an increase of $2.7 million, while the new biosafety business added another $1.0 million during the period. The increases were partially offset by a decrease of $0.7 million that resulted because we recorded a full reserve against our e-commerce inventory during 2019, meaning that sales in 2020 had no associated cost of revenue.
Sales and other cost saving measures resulting from themarketing. Marketing expense increased by $1.5 million as a result of a payment we made to a third-party computer hardware manufacturer in China to present a combination of their hardware and our KanKan AI software to large potential clients in response to requests for proposals that could result in lucrative contracts on AI projects to modernize such
potential clients’ facilities and operations. A decrease in revenue.headcount, including in several more-highly-compensated positions, led to a decrease of $0.6 million in payroll-related expense that partially offset the increase in marketing expense.
Technology and Development. The increase in our common stock price at December 31, 2020 as compared to the price of our common stock on December 31, 2019 caused a $0.5 million increase in share-based compensation expense related to our outstanding liability-classified China Cash Awards. Stock price is an input to the model we use to estimate the fair value of the China Cash Awards, and changes in stock price can cause large fluctuations in our estimates of fair value.
General and administrative. administrative. The increasedecrease in general and administrative expense primarily resultedin 2020 from the corresponding 2019 period was affected by the following:
•Net lease cost decreased by $2.9 million. As a result of the early termination of our increasinglease for our former office located in Las Vegas, Nevada (see Note 9 for more information), we recorded additional lease cost of $1.5 million in 2019. We also entered into a less-costly lease on our current office space in Las Vegas in 2020, resulting in the remainder of the decrease in lease cost.
•Bad debt expense decreased by $2.0 million because collection patterns have not indicated a need to record a significant allowance in the current year period, while during 2019 we recorded a large increase in the allowance for doubtful accounts to $1.9 million because we identified an increased risk in 2019 that we may not fully collect on certain trade receivables related to our AI projects and our former FinTech business. The increase
• A decrease in allowance for doubtful accounts was partially offset byheadcount contributed to a decrease of $0.3approximately $0.6 million in stock-based compensation expense as a result of the decrease in our stock price.payroll and related cost.
Impairments.• During 2019, we determined that collection of a security deposit related to the FinTech services we discontinued was no longer probable and we recorded a full impairment of the $1.3 million asset. Also, after reviewing the status of certain internal-use software projects, we determined that they would no longer provide benefit to us. As a result, we recorded an impairment of $1.0 million.
Consolidated Results
|
| | | | | | | | | | | | | | | |
(dollars in thousands) | | Year Ended December 31, | | Change |
| | 2019 | | 2018 | | Dollars | | Percentage |
Revenue | | $ | 5,020 |
| | $ | 10,053 |
| | $ | (5,033 | ) | | (50 | )% |
| | | | | | | | |
Cost of revenue | | 3,514 |
| | 12,903 |
| | (9,389 | ) | | (73 | )% |
Sales and marketing | | 3,003 |
| | 4,308 |
| | (1,305 | ) | | (30 | )% |
Technology and development | | 3,573 |
| | 4,393 |
| | (820 | ) | | (19 | )% |
General and administrative | | 14,174 |
| | 28,521 |
| | (14,347 | ) | | (50 | )% |
Depreciation and amortization | | 982 |
| | 2,089 |
| | (1,107 | ) | | (53 | )% |
Impairments | | 2,522 |
| | 2,209 |
| | 313 |
| | 14 | % |
Other operating expenses | | 6 |
| | 130 |
| | (124 | ) | | (95 | )% |
Total cost and expenses | | 27,774 |
| | 54,553 |
| | (26,779 | ) | | (49 | )% |
| | | | | | | | |
Interest expense | | (1,876 | ) | | (3,237 | ) | | 1,361 |
| | (42 | )% |
Other income, net | | 530 |
| | 267 |
| | 263 |
| | 99 | % |
Change in fair value of warrant liability | | 1,268 |
| | 27,879 |
| | (26,611 | ) | | (95 | )% |
Other gain (loss) | | (172 | ) | | 886 |
| | (1,058 | ) | | (119 | )% |
Total Other expense | | (250 | ) | | 25,795 |
| | (26,045 | ) | | (101 | )% |
In addition to the results of operations of our reportable segment that we described above, the following items impacted our consolidated results of operations:
Revenue and Cost of Revenue. During 2019, advertising revenue decreased $0.8 million because we sold Banks.com and the tax-related businesses during 2018, which had generated such revenue in the prior year. The decrease in advertising revenue was partially offset by anAn increase of $0.3 million in e-commerce revenue due to increased site traffic resulting from more efficient marketing efforts.
Our cost of revenue decreased $0.3 million due to contracts in our Remark Entertainment business that ended intravel-related expense partially offset the prior year that we did not renew.
Sales and marketing. A decrease in headcount resulted in a decrease of $0.8 million in payroll and related costs, while other marketing costs decreased $0.3 million due to more efficient use of marketing dollars.
General and administrative. The decreasedecreases in general and administrative expense incurred by our non-reportable-segment businesses in 2019noted above, and resulted from the corresponding 2018 period was affected by the following:
Stock-based compensation expense decreased approximately $12.4 millionincreased domestic travel primarily because in January 2018, we immediately recognized $11.6 million of expense related to a grant of an option to purchase 1.3 million shares of our common stock at an exercise price of $7.81 per share to our Chief Executive Officer. We did not make a similar grant in the current year.
Rent expense decreased $0.4 million, which was almost entirely related to $0.3 million more expense in 2018 related to the early abandonment or terminationlaunch of leases.our new biosafety business in the U.S.
Consulting fees decreased approximately $1.1 million, primarily as a result of decreased use of temporary external consultants.
Payroll and related costs, excluding bonuses, decreased approximately $0.7 million as a result of headcount reductions in finance and administration.
We reduced business travel in 2019, resulting in a decrease of approximately $0.4 million in travel expense.
Approximately $0.3 million of one-time bonuses were paid in 2018 that were not repeated during 2019.
Franchise tax and VAT tax decreased $0.4 million, due to the decrease in our total assets and a decrease in cash transfers to fund our China operations, respectively.
•Immaterial increases and decreases affected other accounts in the general and administrative expense category but did not represent trends in our business.
Depreciation and amortization. The decrease in depreciation and amortization for 2019expense was primarily the result of long-lived assets which were being depreciated or amortized in the prior-year which were no longer being depreciated or amortized in the current year either as a result of impairments and write offs or as a result ofbecause such assets beingbecame fully depreciated or amortized before, or during the early part of, the current year.year periods.
Impairments. During 2018,Impairment expense decreased primarily because, during 2019, we recognizedrecorded a $1.6$1.3 million impairment of goodwilla security deposit related to our sale of Banks.com. Also during 2018, we determined that the remaining intangible asset related to the CBG Acquisition was impaired due to our decision to outsource video production toformer FinTech business and a third party for Remark Entertainment, so we recorded an impairment of $0.6 million. The decrease due to the large prior year impairments was partially offset by our recording of a $0.2$1.0 million impairment of aninternal-use software projects, while during 2020 we only recorded a $0.4 million impairment of our investment in AIO and a $0.3 million impairment of the intangible asset in 2019.representing the bikini.com domain name.
Interest expense. The decrease in interest expense for 2019 was primarily due to the lower principal amount outstanding under the Loan that resultedOur prepayment of a large portion of our debt when we usedcompleted the cash proceeds of our sale of Vegas.com in May 2019 resulted in the decrease in interest expense.
Other income. The amount of other income we recorded during the year ended December 31, 2019 primarily resulted from our release from a liability related to pay amounts due underour former FinTech business. We had no similar activity during 2020.
Gain on lease termination. During August 2020, we entered into a settlement agreement relating to the Financing Agreement. Also,lease for our former office space in Las Vegas which we vacated during March 2020. During March 2020, we reduced right of use assets and operating lease liabilities relating to this lease, which resulted in a gain on lease termination of $1.5 million. In addition, we recognized a further gain of $2.0 million during August 2020, when we entered into the Hughes Center Lease Settlement (as defined below). The comparable period of the prior year included a fee (related to one of the amendments to the Financing Agreement) that we did not incur during 2019.reflected no comparable activity.
Other gain. While we only recorded de minimis amounts during 2019, during 2018 we sold the IRS.com domain and the Banks.com domain, resulting in gains of $0.6 million and $0.4 million, respectively.
Change in fair value of warrant liability. The fair value of our warrant liability maintains a direct relationship with the price of our common stock. The increase in our common stock price between December 31, 2019 and December 31, 2020 caused the increase in the fair value of our warrant liability for the year ended December 31, 2020, while the decrease in our common stock price between December 31, 2018 and December 31, 2019 was much smaller in scale thancaused the decrease in our commonfair value during the year
ended December 31, 2019. Partially offsetting the effect of the stock price between December 31, 2017 and December 31, 2018; therefore,increase during 2019, we recognized less of a gain than during the same period in 2018. Also contributing to the decreases in the change in the fair value of the warrant liability2020 was the one-year decrease in the amount of time the warrants are expected to be outstanding. In 2019, the amount of the decrease from the same period in 2018 in the recognized change in the fair value of the warrant liability that resulted from stock price changes and the decrease in expected term of the warrants was partially offset by increases in the estimated fair values of the warrant liability as a result of an increase in our estimate of stock price volatility as an input to the model we use for fair value estimation.
LIQUIDITY AND CAPITAL RESOURCES
Overview
During the year ended December 31, 2019,2020, and in each fiscal year since our inception, we have incurred net losses which has resulted in an accumulated deficit of $346.8$360.5 million as of December 31, 2019.2020. Additionally, our operations have historically used more cash than they have provided. Net cash used in continuing operating activities was $12.6$18.0 million during the year ended December 31, 2019.2020. As of December 31, 2019,2020, our cash and cash equivalents balance was $0.3$0.9 million and we had a negative working capital balance of $30.9$8.3 million. Our net revenue during the year ended December 31, 20192020 was $5.0$10.1 million.
As of December 31, 2019, weWe were a party to the Financing Agreement with the Lenders pursuant to which the Lenders extended credit to the Borrowersus consisting of a term loan in the aggregate principal amount of $12.0 million of principal and accrued interest outstanding as of December 31, 2019 (the “Loan”). Additionally, as of December 31, 2019, the Loan bore interest at three-month LIBOR (with a floor of 2%) plus 11% per annum, payable monthly, and had a maturity date of$35.5 million.
On May 15,
2020. The material terms2019, we completed the sale of all of the
Financing Agreement,issued and outstanding membership interests of Vegas.com and used the
amendments thereto, and related documents effective ascash proceeds of
December 31, 2019 are described in Note 12 in the Notes$30.0 million to Consolidated Financial Statements.
The Financing Agreement contained certain affirmative and negative covenants, including but not limited to a covenant requiring us to maintain a minimum of $1.0 million in unrestricted cash in designated bank accounts. As of December 31, 2019, we were not in compliance with such minimum cash covenant. We were also not in compliance with certain other covenantspay amounts due under the Financing Agreement, including a covenant requiring us to obtain and pay for a tail directors’ and officers’ liability insurance policy (the “Tail Policy”) by June 4, 2019 in connection with the VDC Transaction and a covenant requiring us to make the final earnout payment related to our acquisition of Vegas.com by June 14, 2019. Additionally, although we have actively taken steps to monetize our ownership interest in Sharecare, we did not comply with certain procedural requirements set forth in the Financing Agreement with respect to such sale process. Our non-compliance with such covenants constituted events of default under the Financing Agreement. In addition, in June 2019, the Lenders paid the $1.1which approximately $10.0 million of premium under the Tail Policy on our behalf and such amount was addedremained outstanding after giving effect to the amountapplication of principal due under the Financing Agreement.such cash proceeds.
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 Loan, and all fees and other amounts payable under the Financing Agreement, was immediately due and payable and demanded that all such amounts be paid immediately to MGG.
On May 28, 2020, we repaid in full all outstanding obligations under, and terminated, the Financing Agreement in an amount equal to approximately $12.7 million.
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 December 31, 2019,2020, we owed 3.3$1.5 million in principal and $0.5 million accrued interest on such note.
Pursuant to the terms of the purchase agreement we entered into in connection with our acquisition of Vegas.com in 2015, we were obligated to make a final earnout paymentan Earnout Payment of $1.0 million based upon the performance of Vegas.com in the year ended December 31, 2018, but we have not yet2018. We made such payment.the payment during August 2020.
On March 29, 2019,3, 2020, we entered into the 2019a new common stock agreement (the “2020 Aspire Purchase AgreementAgreement”), later amended on April 9, 2020, with Aspire Capital Fund, LLC (“Aspire Capital”) under which provides that, upon the terms and subject to the conditions and limitations set forth therein, we have the right to direct Aspire Capital to purchase up to an aggregate ofpurchased $30.0 million of shares of our common stock over the 30-month term of the 2019 Aspire Purchase
Agreement. In consideration for entering into the 2019 Aspire Purchase Agreement, we issued to Aspire 629,370 shares of our common stock. Purchases under the 2019 Aspire Purchase Agreement, which is described in more detail in Note 15 in the Notes to Consolidated Financial Statements, are made at prices calculated in accordance with the terms of the 2019 Aspire Purchase Agreement at the time of our submission to Aspire Capital of a purchase notice specifying such number of shares to be purchased, subject to maximum dollar and share amounts for sales on any one date unless the parties mutually agree otherwise. Additionally, the total number of shares that may be issued pursuant to the 2019 Aspire Purchase Agreement is limited to 8,140,373 shares (the “Exchange Cap”), or 19.99% of our shares of common stock outstanding as of the date of the 2019 Aspire Purchase Agreement, unless stockholder approval is obtained in accordance with the rules of the Nasdaq Stock Market. If stockholder approval is not obtained, such limitation will not apply after the Exchange Cap is reached if at all times thereafter the average purchase price paid for all shares issued under the 2019 Aspire Purchase Agreement is equal to or greater than $1.85 per share. On March 3, 2020, we entered into theThe 2020 Aspire Purchase Agreement with Aspire Capital, whichterminated and replaced the 2019 Aspire Purchase Agreement. The terms of the 2020 Aspire Purchase Agreement are described in more detail in Note 19 in the Notes to Consolidated Financial Statements.
Our history of recurring operating losses, working capital deficiencies and negative cash flows from operating activities, in conjunction with the ongoing events of default under the Financing Agreement, 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 inas well as through sales of our Technology and Data Intelligence segment;thermal-imaging products. We cannot, however, we cannot 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 20192020 Form 10-K (including but not limited to payment of the amounts required under the Financing Agreement).10-K. As a result, we are actively evaluating strategic alternatives including debt refinancingand equity financings and potential sales of investment assets or operating businesses. We may also need to obtain additional capital through equity financing.
Conditions in the debt and equity markets, as well as the volatility of investor sentiment regarding macroeconomic and microeconomic conditions (including developments and volatility arising from COVID-19)(in particular, in response to the COVID-19 pandemic), will play primary roles in determining whether we can successfully obtain additional capital. Additionally, pursuant to the Financing Agreement, we are subject to certain limitations on our ability and the ability of our subsidiaries to, among other things, incur additional debt and transfer, sell or otherwise dispose of assets, without the consent of the Lenders. We cannot be certain that we will be successful at raising additional capital.
A variety of factors, many of which are outside of our control, affect our cash flow; those factors include 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 following this report, (including repayment of our existing debt as it matures) with existing cash, cash equivalents and cash resources, and based on the probable success of one or more of the following plans:
•develop and grow new product line(s)
•monetize existing assets
refinance our debt
•obtain additional capital through equity issuances, including but not limited to under the 2020 Aspire Purchase Agreement (which issuances may dilute existing stockholders).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 May 29, 2021.March 31, 2022.
In addition, because of the recent outbreak of the novel coronavirus COVID-19, there is significant uncertainty surrounding the potential impact on our results of operations and cash flows. We are proactively taking steps to increase available cash on hand including, but not limited to, targeted reductions in discretionary operating expenses and capital expenditures.
Cash Flows - Continuing Operating Activities
We used $9.3$5.4 million lessmore cash from operating activities during the year ended December 31, 20192020 than we did during the year ended December 31, 2018.2019. The decreaseincrease in cash used in continuing operating activities partially resulted from the $1.5 million payment we made to try to win lucrative contracts on AI projects to modernize potential clients’ facilities and operations in China, and is also a result of the timing of payments related to elements of working capital.
Cash Flows - Continuing Investing Activities
DuringWe engaged in an immaterial amount of investing activities for the year ended December 31, 2019, we received $30.0 million2020, and the change in investing activities from the comparable period of the prior year was not material, exclusive of the proceeds from the VDC Transaction, while no similar transaction occurredsale of Vegas.com in the prior year.year period.
Cash Flows - Financing Activities
During the year ended December 31, 2018,2020, we received an aggregate of $1.1 million upon the sales of the IRS.com and Banks.com web domains. The proceeds from such sales were almost entirely offset by the $0.7 million in capital expenditures and our payment of $0.5 million towards our investment in AIO.
Cash Flows - Financing Activities
During the year ended December 31, 2019, we received $10.8$32.0 million from sales of shares of our common stock reflecting more activity under our agreements with Aspire Capital, whereas the same period in 2018of 2019 included stock sale and stock option exercise proceeds of $14.5only $10.8 million. We also paid $27.8received debt proceeds of $1.4 million inand repaid $13.8 million of debt fees and debt principal induring the current year compared to payments for debt fees duringended December 31, 2020, while the same period of the prior year included debt repayment of $25.5 million plus loan fee and debt issuance cost payments of $2.3 million. Finally, in 2018the third quarter of $1.5 million, and2020, we made a $0.9 million earnout paymentpaid the final Earnout Payment related to our acquisition of Vegas.com in 2015; $0.9 million of the prior-year period that we did not make in 2019.payment was reflected as a financing activity.
Off-Balance Sheet Arrangements
We currently have no off-balance sheet arrangements.
| |
ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable
| |
ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
We have included the required financial statements and schedules in this 20192020 Form 10-K beginning on page F-1.
| |
ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
| |
ITEM 9A. | CONTROLS AND PROCEDURES |
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain a set of disclosure controls and procedures designed to provide reasonable assurance that the information we must disclose in reports we file or submit under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms. We designed our disclosure controls with the objective of ensuring we accumulate and communicate this information to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.
Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of the design and operations of our disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) under Exchange Act, as of the end of the period covered by this report. Based upon that evaluation, our management, including our principal executive officer and principal financial officer, concluded that, due to the identification of the material weaknesses in our internal control over financial reporting as further described below, our disclosure controls and procedures were not effective at a reasonable assurance level as of December 31, 2019.2020. Notwithstanding the material weaknesses in our internal control over financial reporting, the consolidated financial statements included in this Annual Report on Form 10-K fairly present, in all material respects, our financial position, results of operations and cash flows for the periods presented in conformity with accounting principles generally accepted in the United States of America.
Management’s Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 20192020 based on the framework set forth in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “COSO Framework”).
Our internal control over financial reporting includes those policies and procedures that: (a) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect our transactions and dispositions of our assets; (b) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (c) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our consolidated financial statements.
A material weakness is defined as a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our financial statements will not be prevented or detected on a timely basis. During 2018, management identified material weaknesses related to the sufficiency of documentation of review and approval of manual journal entries. Specifically, we failed to retain documentary evidence that we had reviewed underlying information at a sufficient level of detail. As a result, we are unable to demonstrate our effective review prior to approval of manual journal entries. Management also identified a material weakness related to insufficient documentation of our consideration of appropriate revenue recognition criteria for certain contracts arising from our Technology and Data Intelligence segment. As a result, there is a risk that we could misapply the new revenue recognition guidance and improperly recognize revenue. During 2019, management identified a material weakness related to the valuation of its e-commerce inventory. Specifically, we failed to retain documentary evidence of all inventory purchases and our evaluation of the impact of discounted sales transactions on the valuation of our inventory was insufficient. As a result, there is a risk that we could fail to properly record our e-commerce inventory at the lower of cost or net realizable value.
During our fourth quarter of 2020 and 2019 evaluation,evaluations, management concluded that we did not select and develop control activities that contributed to the mitigation of risks to acceptable levels, as required by the control activities component of the COSO framework; specifically, we had not completed implementation of our remediation plan related to the material weaknesses we identified during 2018. Such material weaknesses included deficiencies in the documentation of appropriate review and approval of manual journal entries, in our consideration of appropriate revenue recognition criteria for certain contracts arising from our Technology and Data Intelligence segment, and in our monitoring and activity-level controls specific to various business processes within our Technology and Data Intelligence segment. The failure to retain appropriate documentation of our review and approval of manual journal entries has a pervasive impact and, as such, this deficiency resulted in a risk that could have impacted virtually all financial statement account balances and disclosures. Regarding our Technology and Data Intelligence segment, the failure to document consideration of appropriate revenue recognition for certain contracts resulted in a risk that could have materially impacted revenue and cost of sales, while we noted deficiencies in our monitoring and activity-level controls related to processes including accounts payable, accrued liabilities, payroll and fixed assets. The deficiencies in the various business processes aggregate to a material weakness.
Based upon our evaluation, our management concluded that we did not maintain effective internal control over financial reporting as of December 31, 2019.2020.
Changes in Internal Control over Financial Reporting
Except for the identified material weaknesses, there was no change in our internal control over financial reporting during the fiscal quarter ended December 31, 20192020 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Remediation Efforts to Address the Material Weakness
We are committed to maintaining a strong internal control environment and will make remediation efforts to improve our controls. With the oversight of senior management, subsequent to December 31, 2018, a plan to remediate the underlying causes of the material weaknesses and improve the design and operating effectiveness of internal control over financial reporting and our disclosure controls was developed. Though the implementation of management’s planplans to remediate the 2018 material weaknesses hasidentified in 2018 and 2019 have been slowed by various factors, itsincluding the COVID-19 pandemic, their implementation is still ongoing. Senior management has also developed a plan to remediate the underlying causes of the 2019 material weakness and is initiating its implementation.ongoing; therefore, their effects were not fully mitigated in 2020.
| |
ITEM 9B. | OTHER INFORMATION
|
None.
ITEM 9B. OTHER INFORMATION
None.
PART III
| |
ITEM 10. | ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE |
The following table and paragraphs set forth
We incorporate the information regarding our executive officers and directors, including the business experience for the past five years (and, in some instances, for prior years) of each such executive officer and director.
|
| | | | |
Name | | Age | | Position |
Kai-Shing Tao | | 43 | | Chief Executive Officer and Chairman of the Board |
Theodore P. Botts | | 74 | | Director and Chairman of the Audit Committee |
Elizabeth Xu | | 55 | | Director |
Brett Ratner | | 51 | | Director and Chairman of the Compensation Committee |
Daniel Stein | | 44 | | Director and Chairman of the Nominating and Governance Committee |
Executive Officer
Kai-Shing Tao has served as our Chief Executive Officer since December 2012, previously serving as Co-Chief Executive Officer since October 2012, and as a member of our board of directors (the “Board”) since 2007 and Chairman of the Board since October 2012. Mr. Tao also has served as Chairman and Chief Investment Officer of Pacific Star Capital Management, L.P. (“Pacific Star Capital”), a private investment group, since January 2004. Prior to founding Pacific Star Capital, Mr. Tao was a Partner at FALA Capital Group, a single-family investment office, where he headed the global liquid investments outside the operating companies. Mr. Tao has been a director of Paradise Entertainment Limited (SEHK: 1180), a Hong-Kong-Stock-Exchange-traded company engaged in casino services and the development, supply and sales of electronic gaming systems, since April 2014. Mr. Tao previously was a director of Playboy Enterprises, Inc. from May 2010 to March 2011. Mr. Tao is a graduate of the New York University Stern School of Business.
Non-Employee Directors
Theodore P. Botts has served as a member of our Board since 2007. Mr. Botts has been the President of Kensington Gate Capital, LLC, a private corporate finance advisory firm, since April 2001. Previously, Mr. Botts served as Chief Financial Officer of StereoVision Entertainment, Inc., a film entertainment company, from July 2007 until September 2008. Prior to 2000, Mr. Botts served in executive capacities at UBS Group and Goldman Sachs in London and New York. Mr. Botts also served on the board of directors and as chairman of the audit committee of INTAC International, Inc. from 2002 until its merger with a predecessor of Remark in 2006. Mr. Botts served as a member of the board and chairman of both the compensation and audit committees of Crystal Peak Minerals (CPMMF) from 2012 to 2018. Mr. Botts also served as a member of the Board of Trustees and head of development for REACH Prep, a non-profit organization serving the educational needs of underprivileged African-American and Latino children in Fairfield and Westchester counties, from 2003 to 2012. Mr. Botts graduated with highest honors from Williams College and received an MBA from the New York University Stern School of Business.
Brett Ratner has been a member of our Board since March 2017. Mr. Ratner is one of Hollywood's most successful filmmakers. His films have grossed more than $2 billion at the global box office. He has served as an executive producer on films such as the Golden-Globe-winning and Oscar-winning The Revenant, starring Leonardo DiCaprio, executive producer and director of the Golden Globe-nominated FOX series Prison Break, and executive producer of the television series Rush Hour, based on his hit films. Mr. Ratner, along with his business partner James Packer, formed RatPac Entertainment, a film finance and media company, in 2013. Since inception, RatPac Entertainment has co-financed 63 theatrically-released motion pictures exceeding $11.6 billion in worldwide box office receipts. In 2017, he received a coveted star on the Hollywood Walk of Fame. Mr. Ratner received a Bachelor in Fine Arts degree from New York University’s Tisch School of the Arts. He is currently attending Harvard University’s Business School Graduate Program.
Daniel Stein has served as a member of our Board since March 2017. Since 2012, Daniel Stein has served as the Senior Vice President of Analytics Services & Product Strategy at Crossix, a healthcare analytics and data company, where he is responsible for driving innovation across the Crossix product suite, including platform, digital and TV-based solutions. Prior to joining Crossix, Mr. Stein spent eight years at Digitas and Digitas Health, an advertising agency, where he led the Strategy and Analysis group in New York. At Digitas Health, he built a team focused on leveraging analytics to help pharma and health-focused clients optimize their marketing plans and partnerships. Mr. Stein brings almost 20 years of media, marketing and agency experience focusing on innovation. Previously, he worked at Scholastic, where he developed interactive and direct marketing plans to support teachers and parents, and he gained additional healthcare experience at PricewaterhouseCoopers, where he designed and built comprehensive health & welfare systems for large companies. Mr. Stein graduated from the University of Pennsylvania with a B.A. in Economics. He has not served on any other boards or committees in the last five years.
Elizabeth Xu has served as a member of our Board since May 2019. Dr. Xu is a global technical executive and digital transformation expert. Her expertise is in artificial intelligence, Internet of Things, Big Data, database, Enterprise Application Integration, Business Process Management and IT Service and Cloud Management. She has more than 20 years of experience in building mission-critical Enterprise Software products that have generated billions of dollars in annual revenue. She currently serves as an Innovation Advisor at MIT’s Sloan School of Management and at the College of Computer Science at the University of Nevada, and as a Board member at Be the Change Foundation and Women In Technology (WITI). Dr. Xu has served as the Group CTO at Thailand-based Charoen Pokphand Group (CP Group), one of the world's largest conglomerates, where she drove the group’s technology strategy, digital transformation and R&D advancement. Dr. Xu also held several other senior executive roles during her career, including CTO/Chief Architect with BMC Software, Inc. (“BMC”), a global leader in information technology service management. Before joining BMC, Dr. Xu held global head of engineering positions at several other organizations, including LiveRamp Holdings, Inc. Deem and Vitria Technology. She also served as the public company officer at Vitria. She started her management career at IBM in 1996, where she developed the IBM Content Management Suite and DB2. Dr. Xu earned a B.S. degree and an M.S. degree from Peking University, as well as an M.S. in Computer Science and a Ph.D. in Atmospheric Science from the University of Nevada, Reno. She has also completed the Stanford Executive Program at Stanford Business School and received the Board Certificate from Harvard Business School.
Director Qualifications
The Board comprises a diverse group of leaders in their respective fields. Some of the current directors have senior leadership experience at major domestic and international corporations. In these positions, they have gained experience in core management skills, such as strategic and financial planning, public company financial reporting, compliance, risk management, and leadership development. Some of our directors also have experience serving on boards of directors and board committees of other public companies, and have an understanding of corporate governance practices and trends, which provides an understanding of different business processes, challenges, and strategies. Other directors have experience as principals in private investment and advisory firms, which brings financial expertise and unique perspectivesthis item requires by referring to the Board. Our directors also have other experience that makes them valuable members, such as experience managing technology and media companies, or developing and pursuing investment or business opportunitiesinformation under the captions Proposal 1: Election of Directors in international markets,our proxy statement for our 2021 annual meeting of stockholders (“2021 Proxy Statement”), which provides insight into strategic and operational issues faced by Remark.
The Nominating and Governance Committee believes that the above-mentioned attributes, alongwe will file with the leadership skills and other experiences of the directors described below, provide us with a diverse range of perspectives and judgment necessarySEC pursuant to guide our strategies and monitor their execution.
Kai-Shing Tao
Knowledge and experience regarding Remark from serving as our Chief Executive Officer since December 2012
Global financial industry and investment experience and extensive knowledge of Asian markets as Chief Investment Officer of Pacific Star Capital and a former member of the U.S.-China and U.S.-Taiwan Business Council
Outside public company board experience as a former director of Playboy Enterprises, Inc.
Theodore P. Botts
Global financial advisory experience and extensive knowledge of the technology sector as President of Kensington Gate Capital, LLC
Outside board experience as a director and chairman of the audit committee of INTAC International
Global financial industry experience as an executive at UBS Group and Goldman Sachs
Brett Ratner
Extensive experience in the entertainment industry, including co-founding and operating a successful film finance and media company
Daniel Stein
Operational experience leading data monetization efforts for analytics companies, leveraging partnerships with top digital, television and media companies
Oversees all product strategy for Crossix, a leading technology company currently focused in healthcare
More than 19 years of media, marketing and agency experience focusing on innovation
Elizabeth Xu
Senior executive experience as former Group CTO of CP Group and CEO of CP R&D Thailand and USA companies
Global business experience in operational and governance roles for technology businesses
Harvard Business School certified board member
Family Relationships
There are no family relationships among our executive officers and directors.
Code of Business Conduct and Ethics
We have adopted a Code of Business Conduct and Ethics (the “Code of Ethics”) that applies to all of our employees, officers and directors. A copy of the Code of Ethics is publicly available on our website at ir.remarkholdings.com/corporate-governance. Amendments to the Code of Ethics or any grant of a waiver from a provision of the Code of Ethics requiring disclosure under applicable SEC rules will also be disclosed on our website.
Audit Committee
The Audit Committee of our Board is comprised of Messrs. Botts and Stein and Ms. Xu, each of whom is independent under applicable NASDAQ listing standards. Mr. Botts serves as Chairman of the Audit Committee.
The Board determined that Mr. Botts qualifies as an “audit committee financial expert”, as defined under the Exchange Act. The Board made a qualitative assessment of Mr. Botts’ level of knowledge and experience based on a number of factors, including his experience as a financial professional.
| |
ITEM 11. | ITEM 11. EXECUTIVE COMPENSATION |
Summary Compensation Table
The following table presents the dollar amounts of various forms of compensation earned by our named executive officers (“NEOs”) during the years noted:
|
| | | | | | | | | | | | | | | | | |
| Year | | Salary | | Bonus | | Option Awards | | Total |
Kai-Shing Tao 1 | 2019 | | $ | 350,000 |
| | — |
| | $ | — |
| | $ | 350,000 |
|
Chairman and CEO | 2018 | | 343,269 |
| | — |
| | 11,557,000 |
| | 11,900,269 |
|
Alison Davidson 2 | 2019 | | 190,385 |
| | $ | — |
| | — |
| | 190,385 |
|
Interim CFO | 2018 | | 246,635 |
| | 112,500 |
| | 707,000 |
| | 1,066,135 |
|
| |
Note: | The Option Awards column in the table above reflect the aggregate grant date fair value of the respective awards granted in the year noted. For a discussion of the assumptions and methodologies used to calculate these amounts, please see Note 2 and Note 15 in the Notes to Consolidated Financial Statements included in Item 8 in this 2019 Form 10-K. |
| |
1. | For 2018, the option award represents an option to purchase 1,300,000 shares of our common stock at an exercise price of $7.81 per share awarded to Mr. Tao on December 15, 2017, which our stockholders approved on January 19, 2018 and which vested in full upon such stockholder approval. |
| |
2. | Ms. Davidson resigned from her position as our Interim Chief Financial Officer effective August 2, 2019. In 2018, we paid Ms. Davidson a discretionary cash bonus for past service. For 2018, the option award represents an option to purchase 350,000 shares of our common stock at an exercise price of $3.51 per share awarded to Ms. Davidson on August 13, 2018, which vested 50% on August 13, 2018, 25% on September 30, 2018 and 25% on December 31, 2018. |
Employment Agreements
Mr. Tao is an “at will” employee and we do not have employment agreements with any of our NEOs.
Outstanding Equity Awards at Fiscal Year End
The following table presents
We incorporate the information regardingthis item requires by referring to the information under the caption Executive Compensation in our NEOs’ unexercised options2021 Proxy Statement, which we will file with the SEC pursuant to purchase our common stock as of December 31, 2019 (all stock awards to our NEOs had vested as of December 31, 2019):Regulation 14A.