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

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

 

 

During the ninethree months ended September 30, 2018,March 31, 2019, and in each fiscal year since our inception, we have incurred net losses which have resulted in an accumulated deficit of $314.1$330.1 million as of September 30, 2018.March 31, 2019. Additionally, our operations have historically used more cash than they have provided. Net cash used in operating activities was $0.1 million during the three months ended March 31, 2019. As of September 30, 2018,March 31, 2019, our cash and cash equivalents balance was $9.9$16.5 million, and we had a negative working capital balance of $55.0 million. Our revenue during the nine months ended September 30, 2018 was $56.8$62.9 million.

Concurrently with entering into the 20182019 Aspire Purchase Agreement, we also entered into a registration rights agreement with Aspire Capital, in which we agreed to file with the Securities and Exchange Commission (the “SEC”) one or more registration statements, as necessary, and to the extent permissible and subject to certain exceptions, to register under the Securities Act of 1933, as amended, the sale of the shares of our common stock that may be issued to Aspire Capital under the 20182019 Aspire Purchase Agreement. We have filed with the SEC a prospectus supplement to our effective shelf Registration Statement on Form S-3 (File No. 333-225448) registering all of the shares of common stock that may be offered to Aspire Capital from time to time under the 20182019 Aspire Purchase Agreement. As of September 30, 2018,March 31, 2019, Aspire Capital has purchased $10.0 millionhad not made any purchases of shares of our common stock under the 20182019 Aspire Purchase Agreement.

During the ninethree months ended September 30, 2017,March 31, 2019, we issued a total of 3,052,8971,666,667 shares of our common stock to investorsAspire Capital under the 2018 Aspire Purchase Agreement in exchange for approximately $8.3 million in cash, including a $5.0 million issuance to Aspire.$2.5 million. We did not issue our common stock in private sales during the ninethree months ended September 30, 2018, althoughMarch 31, 2019, and we did not sell any shares of our common stock during the three months ended March 31, 2018. We did receive cash from the issuances to Aspire Capital and from stock option exercises.

We intend to fund our future operations and meet our financial obligations through revenue growth in our Technology and Data Intelligence segment; however, we cannot provide assurance that revenue, income and cash flows generated from our businesses will be sufficient to sustain our operations in the long term (including but not limited to payment of the amounts required under the Financing Agreement); therefore,. As a result, we are actively evaluating strategic alternatives including the potential sale of certain non-core assets, investment assets and operating businesses. However, we may need to obtain additional capital through equity financing or debt financing. Conditions in the debt and equity markets, as well as the volatility of investor sentiment regarding macroeconomic and microeconomic conditions, will play primary roles in determining whether we can successfully obtain additional capital. Additionally, pursuant

A variety of factors, many of which are outside of our control, affect our cash flow; those factors include regulatory issues, competition, financial markets and other general business conditions. Based on 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 the amounts required under the Financing Agreement, based on the current status of discussions with the Lenders regarding ongoing events of default) with existing cash, cash equivalents and cash resources, and based on the probable success of one or more of the following plans:

However, projections are inherently uncertain and we cannot assure you that we will generate sufficient income and cash flow to meet allthe success of our liquidity requirements.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 10, 2020.

We have reclassified an amountcertain amounts in the Decemberour March 31, 2017 Consolidated Balance Sheet2018 unaudited condensed consolidated financial statements to conform to the current presentation as of September 30, 2018.March 31, 2019. Specifically, we reclassified liabilities associated with gift cards and similar items from contract liabilityhave changed how we present operating expense to other current liabilitiesbetter reflect the activities that generate such expense. Neither total stockholders’ deficit as we continue to clarify our disclosures related toof March 31, 2018 nor net loss or cash flows for the newly-adopted revenue standard.three months ended March 31, 2018 changed because of the reclassifications.

We prepared the accompanying unaudited Condensed Consolidated Balance Sheet as of September 30, 2018,March 31, 2019, with the audited Consolidated Balance Sheet amounts as of December 31, 20172018 presented for comparative purposes, and the related unaudited Condensed Consolidated Statements of Operations and Statements of Cash Flows in accordance with the instructions for Form 10-Q. In compliance with those instructions, we have omitted certain information and footnote disclosures normally included in annual consolidated financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”), though management believes the disclosures made herein are sufficient to ensure that the information presented is not misleading.

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

Management believes that we have included all adjustments (including those of a normal, recurring nature) considered necessary to fairly present our unaudited Condensed Consolidated Balance Sheet as of September 30, 2018,March 31, 2019, our unaudited Condensed Consolidated Statements of Operations and our unaudited Condensed Consolidated Statements of Cash Flows for all periods presented. You should read our unaudited condensed consolidated interim financial statements and footnotes in conjunction with our consolidated financial statements and footnotes included within the Annual Report on Form 10-K (the “2017“2018 Form 10-K”).

We include all of our subsidiaries, which include the VIEs for which we are the primary beneficiary, in our consolidated financial statements, eliminating all significant intercompany balances and transactions during consolidation.

 

 

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

We recognize revenue when we transfer controlAs of the promised goods or services to our customers, and we recognize an amount that reflects the consideration to which we expect to be entitled in exchange for those goods or services.

We have reviewed all recently issued accounting pronouncements. The pronouncements that we have already adopted, except as noted above for leases, did not have a material effect on our financial condition, results of operations, cash flows or reporting thereof, and except as otherwise noted above, we do not believe that any of the pronouncements that we have not yet adopted will have a material effect upon our financial condition, results of operations, cash flows or reporting thereof.

We are not required to include disclosures related to remaining performance obligations because substantially all of our contracts with customers have an original expected duration of one year or less.

When accounting for revenue in accordance with ASC 606, we make certain judgments, such as whether we act as a principal or as an agent in transactions or whether our contracts with customers fall within the scope of ASC 606, that affect the determination of the amount and timing of our revenue from contracts with customers. Based on the current facts and circumstances related to our contracts with customers, none of the judgments we make involve an elevated degree of qualitative significance or complexity such that further disclosure is warranted in terms of their potential impact on the amount and timing of our revenue.

We do not currently generate material contract assets. Other than changes resulting fromDuring the three months ended March 31, 2019, our contract liability changed only as a result of routine business activity, the balance of our Contract liability did not change significantly during the nine months ended September 30, 2018.activity. We recognized revenue of $3.1$3.2 million and $2.9 million during the ninethree months ended September 30,March 31, 2019 and 2018, respectively, which was included in the beginning balance of Contract liability at January 1, 2018.1st of the respective period.

At the end of each reporting period, we use the Monte Carlo Simulation model to estimate and report the fair value of liabilities related to certain outstanding warrants to purchase our common stock that are subject to potential anti-dilution adjustments or that contain put options or call options. Ourstock. As of March 31, 2019, our outstanding liability-classified warrants include the warrants we issued or that we are obligated to issue as part of the consideration for our acquisition (the “CBG Acquisition”) of assets of China Branding Group Limited (“CBG”) in September 2016 (the “CBG

The following table presents the quantitative inputs, which we classify in Level 3 of the fair value hierarchy, used in estimating the fair value of the warrants:

In addition to the quantitative assumptions above, we also consider whether we would issue additional equity and, if so, the price per share of such equity. At September 30, 2018,March 31, 2019, we estimated that onefive future equity financing eventevents would potentially occur within the subsequent twelve months.

Our estimate of expected volatility and our stock price tend to have the most significant impact on the estimated fair value of the CBG Financing Warrants and the CBG Acquisition Warrants. If we added or subtracted five percentage points with regard to our estimate of expected volatility, or if our stock price increased or decreased by five percent, our estimates of fair value would change approximately as follows (in thousands):

The following table presents the change in the liability balance associated with our liability-classified warrants (in thousands):

The following table provides a reconciliation of the amounts separately reported as Cash and cash equivalents and Restricted cash on our consolidated balance sheetsCondensed Consolidated Balance Sheets with the single line item reported on our consolidated statements of cash flows as Cash, cash equivalents and restricted cash (in thousands):

The following table summarizes intangible assets by category (in thousands):

Our effective tax rate (“ETR”) from continuing operations was 9.1%0.0% for the ninethree months ended September 30, 2018.March 31, 2019. The quarterly ETR has not significantly differed from our historical annual ETR. The ETR primarily results from recordingbecause we continue to maintain a benefit associated with a partialfull valuation allowance release during 2018. The release was affected by the Tax Act, as described below, which changed the carryforward period of net operating losses for U.S. federal tax purposes from 20 years to an indefinite period.

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.

The following table presents long-term debt (in thousands) as of:

We are neither a defendant in any material pending legal proceeding nor are we aware of any material threatened claims against us; therefore, we have not accrued any contingent liabilities, exclusive of the liability for the Earnout Payment related to the VDC Acquisition.

In addition, on any trading day on which we submit a Purchase Notice to Aspire Capital to purchase at least 50,000 shares, we also have the right, in our sole discretion, to present Aspire Capital with a volume-weighted average price purchase notice (each, a “VWAP Purchase Notice”) directing Aspire Capital to purchase an amount of our common stock equal to up to 30% of the aggregate shares of our common stock traded on the next trading day (the “VWAP Purchase Date”), subject to a maximum number of shares we may determine, and a minimum purchase price threshold equal to the greater of (i) 80% of the closing price of our common stock on the businesstrading day immediately preceding the VWAP Purchase Date or (ii) a higher price that may be determined by us. The purchase price per share pursuant to such VWAP Purchase Notice will be equal to the lesser of (i) the closing sale price of our common stock on the VWAP Purchase Date, or (ii) 97% of the volume-weighted average price for our common stock traded on its principal market on the VWAP Purchase Date, subject to certain exceptions.

In addition, Aspire Capital will not be required to buy any shares of our common stock pursuant to a Purchase Notice that is received by Aspire Capital on any trading day on which the last closing trade price of our common stock is below $1.00.$0.25. There are no trading volume requirements or restrictions under the 20182019 Aspire Purchase Agreement, and we will control the timing and amount of sales of our common stock to Aspire Capital. Aspire Capital has no right to require any sales by us, but is obligated to make purchases from us as directed by us in accordance with the 20182019 Aspire Purchase Agreement. There are no limitations on use of proceeds, financial or business covenants, restrictions on future fundings, rights of first refusal, participation rights, penalties or liquidated damages in the 20182019 Aspire Purchase Agreement. The 20182019 Aspire Purchase Agreement may be terminated by us at any time, at our discretion, without any cost to us. Aspire Capital has agreed that neither it nor any of its agents, representatives and affiliates will engage in any direct or indirect short-selling or hedging our common stock during any time prior to the termination of the 20182019 Aspire Purchase Agreement.

The 20182019 Aspire Purchase Agreement provides that the total number of shares that may be issued pursuant to such agreement is limited to 6,629,0398,140,373 shares (the “2018 Aspire Exchange“Exchange Cap”), or 19.99% of our shares of common stock outstanding as of the date of the 20182019 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 2018 Aspire Exchange Cap is reached if at all times thereafter the average purchase price paid for all shares issued under the 20182019 Aspire Purchase Agreement is equal to or greater than $3.91$1.85 per share. The 20182019 Aspire Purchase Agreement also provides that at no time will Aspire Capital (together with its affiliates) beneficially own more than 19.99% of our outstanding shares of common stock.

During the ninethree months ended September 30, 2017,March 31, 2019, we issued a total of 3,052,8971,666,667 shares of our common stock to investorsAspire Capital under the 2018 Aspire Purchase Agreement in exchange for approximately $8.3 million in cash, including a $5.0 million issuance to Aspire.$2.5 million. We did not issue our common stock in private sales during the ninethree months ended September 30,March 31, 2019, and we did not sell any shares of our common stock during the three months ended March 31, 2018.

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

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

We granted an optionincurred share-based compensation expense of $0.3 million and $11.6 million, respectively, during the three months ended March 31, 2019 and 2018.

For the three months ended March 31, 2019 and 2018, there were no reconciling items related to purchase 1.3 million shareseither the numerator or denominator of our common stock at an exercise price of $7.81the loss per share to Kai-Shing Tao, our Chief Executive Officer and Chairman of the Board, under the 2017 Incentive Plan, which our stockholders approved in January 2018. We recorded the entire $11.6 million of compensation expense associated with this award in January 2018 because Mr. Tao fully vested in the award at the time we received stockholder approval.calculation.

Securities which would have been anti-dilutive to a calculation of diluted earnings per share for the three and nine months ended September 30,March 31, 2019 and 2018 and 2017 include:

We currently report on two segments: our Travel & Entertainment segment, which provides our customers with access to a full range of travel and entertainment services in Las Vegas and surrounding areas, and our Technology & Data Intelligence segment, which provides services to our customers based upon the data collected and processed by our proprietary data intelligence software.

Our chief operating decision makers usemaker uses Adjusted EBITDA as the primary measure of profitability for evaluating the operational performance of our reportable segments. Adjusted EBITDA represents operating income (loss) plus depreciation and amortization expense, share-based compensation expense, impairments and net other income, less other loss. For our Travel

The following table presents certain financial information regarding our business segments and other entities for the three and nine months ended September 30,March 31, 2019 and 2018 and 2017 (in thousands):