UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended September 30, ~~2018~~2019

Commission File Number 001-33720

Remark Holdings, Inc.



	Delaware		33-1135689
	State of Incorporation		IRS Employer Identification Number

3960 Howard Hughes Parkway, Suite 900

Las Vegas, NV 89169

Address, including zip code, of principal executive offices

702-701-9514

Registrant’s telephone number, including area code

Securities registered pursuant to Section 12(b) of the Act:



Title of each class		Trading Symbol		Name of each exchange on which registered
	~~3960 Howard Hughes Parkway, Suite 900~~ ~~Las Vegas, NV 89169~~ Common Stock, $0.001 par value per share		~~702-701-9514~~
	~~Address, including zip code, of principal executive offices~~MARK		~~Registrant’s telephone number, including area code~~	The NASDAQ Stock Market LLC

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

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

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



Large accelerated filer	☐	Accelerated filer	☐ ☑
Non-accelerated filer	☐	Smaller reporting company	☑
		Emerging growth company	☐

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

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

As of November ~~13, 2018,~~8, 2019, a total of ~~36,668,696~~49,055,159 shares of our common stock were outstanding.

TABLE OF CONTENTS



Table of Contents	i

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

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

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

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



Table of Contents	ii

PART I FINANCIAL INFORMATION


ITEM 1.	FINANCIAL STATEMENTS

REMARK HOLDINGS, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(dollars in thousands, except share and per share amounts)


	September 30, 2018			December 31, 2017			September 30, 2019			December 31, 2018
	(Unaudited)						(Unaudited)
Assets
Cash and cash equivalents	$	9,902		$	22,632		$	656		$	1,410
Restricted cash	11,655			11,670
Trade accounts receivable, net	4,753			3,673			3,792			5,762
Prepaid expense and other current assets	8,710			5,518			6,233			7,907
Notes receivable, current	100			290			—			100
Assets of disposal group, current							—			28,966
Total current assets	35,120			43,783			10,681			44,145
Notes receivable	—			100
Property and equipment, net	11,630			13,387			1,591			2,075
Operating lease assets							5,294			—
Investment in unconsolidated affiliates	2,030			1,030			1,920			2,005
Intangibles, net	19,950			23,946			752			1,010
Goodwill	20,099			20,099
Other long-term assets	1,620			1,192			1,245			450
Assets of disposal group, long-term							—			44,123
Total assets	$	90,449		$	103,537		$	21,483		$	93,808
Liabilities and Stockholders’ Equity
Liabilities and Stockholders’ Deficit
Accounts payable	$	23,956		$	17,857		$	7,585		$	5,675
Accrued expense and other current liabilities	12,034			18,795			12,861			16,812
Deferred merchant booking	8,727			9,027
Contract liability	5,049			3,691			312			132
Note payable	3,000			3,000			3,000			3,000
Current maturities of long-term debt, net of unamortized discount and debt issuance cost	37,319			38,085
Loans payable, current, net of unamortized discount and debt issuance cost							11,632			35,314
Liabilities of disposal group, current							—			41,648
Total current liabilities	90,085			90,455			35,390			102,581
Operating lease liabilities, long-term							5,436			—
Warrant liability	7,072			89,169			881			1,383
Other liabilities	3,296			3,501			—			2,934
Liabilities of disposal group, long-term							—			34
Total liabilities	100,453			183,125			41,707			106,932

Commitments and contingencies (Note 13)
Commitments and contingencies (Note 14)

Preferred stock, $0.001 par value; 1,000,000 shares authorized; none issued	—			—			—			—
Common stock, $0.001 par value; 100,000,000 shares authorized; 36,468,696 and 28,406,026 shares issued and outstanding; each at September 30, 2018 and December 31, 2017, respectively	36			28
Common stock, $0.001 par value; 100,000,000 shares authorized; 48,430,159 and 39,053,312 shares issued and outstanding at September 30, 2019 and December 31, 2018, respectively							48			39
Additional paid-in-capital	304,006			220,117			317,732			308,018
Accumulated other comprehensive income	48			115			(224		)	32
Accumulated deficit	(314,094		)	(299,848		)	(337,780		)	(321,213		)
Total stockholders’ deficit	(10,004		)	(79,588		)	(20,224		)	(13,124		)
Total liabilities and stockholders’ deficit	$	90,449		$	103,537		$	21,483		$	93,808

See Notes to Unaudited Condensed Consolidated Financial Statements



Table of Contents	1	Financial Statement Index

REMARK HOLDINGS, INC. AND SUBSIDIARIES

Unaudited Condensed Consolidated Statements of Operations and Comprehensive ~~Income (Loss)~~Loss

(dollars in thousands, except per share amounts)


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended September 30,							Nine Months Ended September 30,
	2018			2017			2018			2017			2019			2018				2019			2018
Revenue	$	19,351		$	19,449		$	56,788		$	52,004		$	686		$	1,755			$	4,760		$	7,468
Cost and expense
Cost of revenue (excluding depreciation and amortization)	4,393			5,641			14,557			12,270			189			1,231				3,323			5,778
Sales and marketing	7,213			6,326			20,884			17,975			736			1,108				2,282			3,165
Technology and development	842			865			2,587			2,657			752			1,459				2,910			3,550
General and administrative	10,444			9,971			44,941			26,656			3,052			3,760				8,483			25,410
Depreciation and amortization	2,756			2,482			8,220			8,237			229			520				814			1,657
Impairments	—			28			—			28
Other operating expense	117			66			264			168			—			47				6			93
Total cost and expense	25,765			25,379			91,453			67,991			4,958			8,125				17,818			39,653
Operating loss	(6,414		)	(5,930		)	(34,665		)	(15,987		)	(4,272		)	(6,370		)		(13,058		)	(32,185		)
Other income (expense)
Interest expense	(1,307		)	(1,080		)	(3,968		)	(3,279		)	(457		)	(345		)		(1,397		)	(1,017		)
Other income, net	1			—			56			20
Other income (expense), net													(24		)	—				23			44
Change in fair value of warrant liability	3,525			(5,978		)	22,190			2,351			(160		)	3,525				502			22,190
Other gain (loss)	(12		)	(33		)	511			(85		)
Other gain (loss), net													(28		)	(16		)		(27		)	507
Total other income (expense), net	2,207			(7,091		)	18,789			(993		)	(669		)	3,164				(899		)	21,724
Loss before income taxes	(4,207		)	(13,021		)	(15,876		)	(16,980		)
Benefit from (provision for) income taxes	442			(229		)	1,437			(603		)
Loss from continuing operations before income taxes													(4,941		)	(3,206		)		(13,957		)	(10,461		)
Benefit from income taxes													—			442				—			1,437
Loss from continuing operations													$	(4,941	)	$	(2,764	)		$	(13,957	)	$	(9,024	)
Loss from discontinued operations, net of tax (Note 17)													—			(1,001		)		(2,610		)	(5,415		)
Net loss	$	(3,765	)	$	(13,250	)	$	(14,439	)	$	(17,583	)	$	(4,941	)	$	(3,765	)		$	(16,567	)	$	(14,439	)
Other comprehensive income (loss)
Foreign currency translation adjustments	(82		)	48			(67		)	20			(289		)	(82		)		(256		)	(67		)
Comprehensive loss	$	(3,847	)	$	(13,202	)	$	(14,506	)	$	(17,563	)	$	(5,230	)	$	(3,847	)		$	(16,823	)	$	(14,506	)

Weighted-average shares outstanding, basic and diluted	35,463			22,811			33,608			22,744			46,282			35,463				43,085			33,608

Net loss per share, basic and diluted
Continuing operations													$	(0.11	)	$	(0.08	)		$	(0.32	)	$	(0.27	)
Discontinued operations													—			(0.03		)	��	(0.06		)	(0.16		)
Consolidated													$	(0.11	)	$	(0.11	)		$	(0.38	)	$	(0.43	)

Net loss per share, basic and diluted	$	(0.11	)	$	(0.58	)	$	(0.43	)	$	(0.77	)

See Notes to Unaudited Condensed Consolidated Financial Statements



Table of Contents	2	Financial Statement Index

REMARK HOLDINGS, INC. AND SUBSIDIARIES

~~Unaudited~~ Condensed Consolidated Statements of ~~Cash Flows~~Stockholders’ Deficit

(~~dollars~~ in ~~thousands)~~thousands, except number of shares)

Nine Months Ended September 30,
2018 2017
Net cash provided by (used in) operating activities $ (18,691 )
$ 616
Cash flows from investing activities:
Proceeds from disposition of assets 629
—
Purchases of property, equipment and software (2,728 ) (2,631 )
Acquisition of unconsolidated affiliate (480 ) (29 )
Net cash used in investing activities (2,579 )
(2,660 )
Cash flows from financing activities:

Proceeds from issuance of common stock, net 10,951
8,315
Proceeds from debt issuance —
3,000
Payment of loan fees and debt issuance cost (1,526 ) —
Payment of contingent consideration in business acquisitions (900 ) —
Payments of capital lease obligations —
(179 )
Net cash provided by financing activities 8,525

11,136
Net change in cash, cash equivalents and restricted cash (12,745 )
9,092
Cash, cash equivalents and restricted cash:

Beginning of period 34,302
18,548
End of period $ 21,557
$ 27,640

Supplemental cash flow information:
Cash paid for interest $ 3,426
$ 3,031

Supplemental schedule of non-cash investing and financing activities:
Issuance of common stock upon warrant exercise $ 59,907
$ —
Issuance of common stock upon conversion of debt instruments $ —
$ 121
Common stock subscription payable $ 520
$ —



	Three Months Ended September 30, 2019
	Common Stock Shares	Common Stock Par Value		Additional Paid-In Capital			Accumulated Other Comprehensive Income (Loss)			Accumulated Deficit			Total
Balance at June 30, 2019	46,130,159	$	46	$	315,829		$	65		$	(332,839	)	$	(16,899	)
Net loss	—	—		—			—			(4,941		)	(4,941		)
Share-based compensation	—	—		65			—			—			65
Common stock sales	2,300,000	2		1,838			—			—			1,840
Other	—	—		—			(289		)	—			(289		)
Balance at September 30, 2019	48,430,159	$	48	$	317,732		$	(224	)	$	(337,780	)	$	(20,224	)


	Three Months Ended September 30, 2018
	Common Stock Shares	Common Stock Par Value		Additional Paid-In Capital			Accumulated Other Comprehensive Income (Loss)			Accumulated Deficit			Total
Balance at June 30, 2018	33,145,199	$	33	$	293,164		$	130		$	(310,329	)	$	(17,002	)
Net loss	—	—		—			—			(3,765		)	(3,765		)
Share-based compensation	—	—		844			—			—			844
Common stock sales	3,308,812	3		9,965			—			—			9,968
Equity instrument exercises	14,685	—		33			—			—			33
Other	—	—		—			(82		)	—			(82		)
Balance at September 30, 2018	36,468,696	$	36	$	304,006		$	48		$	(314,094	)	$	(10,004	)

	Nine Months Ended September 30, 2019
	Common Stock Shares	Common Stock Par Value		Additional Paid-In Capital			Accumulated Other Comprehensive Income (Loss)			Accumulated Deficit			Total
Balance at December 31, 2018	39,053,312	$	39	$	308,018		$	32		$	(321,213	)	$	(13,124	)
Net loss	—	—		—			—			(16,567		)	(16,567		)
Share-based compensation	—	—		379			—			—			379
Common stock sales	9,374,597	9		9,331			—			—			9,340
Equity instrument exercises	2,250	—		4			—			—			4
Other	—	—		—			(256		)	—			(256		)
Balance at September 30, 2019	48,430,159	$	48	$	317,732		$	(224	)	$	(337,780	)	$	(20,224	)

	Nine Months Ended September 30, 2018
	Common Stock Shares	Common Stock Par Value		Additional Paid-In Capital			Accumulated Other Comprehensive Income (Loss)			Accumulated Deficit			Total
Balance at December 31, 2017	28,406,026	$	28	$	220,117		$	115		$	(299,848	)	$	(79,588	)
Net loss	—	—		—			—			(14,439		)	(14,439		)
Effect of adopting new revenue recognition policy	—	—		—			—			193			193
Share-based compensation	—	—		13,079			—			—			13,079
Common stock sales	3,308,812	3		9,965			—			—			9,968
Equity instrument exercises	4,753,858	5		60,887			—			—			60,892
Reclassification of liability-classified stock-based compensation	—	—		(12		)	—			—			(12		)
Other	—	—		(30		)	(67		)	—			(97		)
Balance at September 30, 2018	36,468,696	$	36	$	304,006		$	48		$	(314,094	)	$	(10,004	)

~~See Notes to Unaudited Condensed Consolidated Financial Statements~~



Table of Contents	3	Financial Statement Index

REMARK HOLDINGS, INC. AND SUBSIDIARIES

Unaudited Condensed Consolidated Statements of Cash Flows

(dollars in thousands)



	Nine Months Ended September 30,
	2019			2018
Net cash used in continuing operating activities	$	(10,748	)	$	(16,963	)
Net cash used in discontinued operating activities	(7,159		)	(1,728		)
Net cash used in operating activities	(17,907		)	(18,691		)
Cash flows from investing activities:
Proceeds from sale of business	30,000			—
Proceeds from disposition of assets	—			629
Purchases of property, equipment and software	(5		)	(396		)
Payment of payroll costs capitalized to software in progress	(127		)	(346		)
Acquisition of unconsolidated affiliate	—			(480		)
Net cash provided by (used in) continuing investing activities	29,868			(593		)
Net cash used in discontinued investing activities	(18,396		)	(1,986		)
Net cash provided by (used in) investing activities	11,472			(2,579		)
Cash flows from financing activities:
Proceeds from issuance of common stock, net	9,344			10,951
Payment of loan fees and debt issuance cost	(2,275		)	(1,526		)
Repayments of debt	(25,526		)	—
Payment of contingent consideration in business acquisitions	—			(900		)
Net cash provided by (used in) financing activities	(18,457		)	8,525
Net change in cash, cash equivalents and restricted cash	(24,892		)	(12,745		)
Cash, cash equivalents and restricted cash:
Beginning of period, including cash in disposal group	25,548			34,302
End of period	$	656		$	21,557

Supplemental cash flow information:
Cash paid for interest	$	2,211		$	3,426

Supplemental schedule of non-cash investing and financing activities:
Issuance of common stock upon warrant exercise	$	—		$	59,907
Capitalization of interest to debt principal	$	555		$	—
Common stock subscription payable	$	—		$	520
Increase in loan payable	$	1,103		$	—

See Notes to Unaudited Condensed Consolidated Financial Statements



Table of Contents	4	Financial Statement Index

REMARK HOLDINGS, INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

NOTE 1. ORGANIZATION AND BUSINESS

Organization and Business

Remark Holdings, Inc. and subsidiaries (“Remark”, “we”, “us”, or “our”), which include its consolidated variable-interest entities (“VIEs”), are primarily technology-focused. Our KanKan data intelligence platform serves as the basis for our development and deployment of artificial-intelligence-based solutions for businesses in many industries and geographies. We also own and operate digital media properties ~~across multiple verticals, such as travel and entertainment and young adult lifestyle,~~ that deliver relevant, dynamic content ~~that attracts~~ and ~~engages users on a global scale.~~e-commerce solutions. Our common stock is listed on the Nasdaq Capital Market under the ticker symbol MARK.

~~Liquidity Considerations~~Going Concern

During the nine months ended September 30, ~~2018,~~2019, and in each fiscal year since our inception, we have incurred net losses which have resulted in an accumulated deficit of ~~$314.1~~$337.8 million as of September 30, ~~2018.~~2019. Additionally, our operations have historically used more cash than they have provided. Net cash used in continuing operating activities was $10.7 million during the nine months ended September 30, 2019. As of September 30, ~~2018,~~2019, our cash and cash equivalents balance was ~~$9.9~~$0.7 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~~$24.7 million.

On ~~July 2, 2018,~~March 29, 2019, we entered into a common stock purchase agreement (the ~~“2018~~“2019 Aspire Purchase Agreement”) with Aspire Capital Fund, LLC (“Aspire Capital”), 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 of $30.0 million of shares of our common stock over the 30-month term of the ~~2018~~2019 Aspire Purchase Agreement. The ~~2018~~2019 Aspire Purchase Agreement, which we describe in more detail in Note 1415, terminated and replaced the common stock purchase agreement we had entered into with Aspire Capital on ~~November 9, 2016~~July 2, 2018 (the ~~“2016~~“2018 Aspire Purchase Agreement”).

Concurrently with entering into the ~~2018~~2019 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 ~~2018~~2019 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 ~~2018~~2019 Aspire Purchase Agreement.

As of September 30, ~~2018,~~2019, we have issued to Aspire Capital ~~has purchased $10.0 million~~a total of 2,504,370 shares of our common stock under the ~~2018~~2019 Aspire Purchase Agreement.

During the nine months ended September 30, ~~2017,~~2019, we issued a total of ~~3,052,897~~9,374,597 shares of our common stock to private investors and to Aspire Capital under the 2018 Aspire Purchase Agreement and the 2019 Aspire Purchase Agreement in exchange for approximately ~~$8.3~~$9.3 million plus Aspire Capital’s commitment to participate in ~~cash, including a $5.0 million issuance to Aspire. We did not issue our common stock in private sales during~~ the ~~nine months ended September 30, 2018, although we did receive cash from the issuances to~~2019 Aspire ~~Capital and from stock option exercises.~~Purchase Agreement.

We are a party to a financing agreement dated as of September 24, 2015 (as amended, the “Financing Agreement”) with certain of our subsidiaries as borrowers (together with Remark, the “Borrowers”), certain of our subsidiaries as guarantors (the “Guarantors”), the lenders from time to time party thereto (the “Lenders”) and MGG Investment Group LP (“MGG”), in its capacity as collateral agent and administrative agent for the Lenders, ~~(“MGG”),~~ pursuant to which the Lenders extended credit to the Borrowers consisting of a term loan in the aggregate principal amount of $35.5 million (the “Loan”). The terms of the Financing Agreement, the amendments thereto, and related documents effective as of September 30, ~~2018~~2019 are described in Note 1112, which also describes our ongoing ~~event~~events of default relating to our failure to make certain required payments under the Financing Agreement as well as certain other ongoing events of default.

On May 15, 2019, we completed the sale of all of the issued and outstanding membership interests of Vegas.com, LLC (“Vegas.com”), pursuant to a Membership Interest Purchase Agreement, dated as of March 15, 2019, with VDC-MGG Holdings LLC, an affiliate of MGG, for an aggregate purchase price of $30 million (the “VDC Transaction”). The cash proceeds of the VDC Transaction were used to pay amounts due under the Financing Agreement, of which approximately $10 million remained outstanding after giving effect to the application of such cash proceeds.



Table of Contents	5	Financial Statement Index

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 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~~twelve months following the filing of this Form 10-Q (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~~debt refinancing and potential ~~sale~~sales of ~~certain non-core assets,~~ investment assets ~~and~~or operating businesses. However, we may need to obtain additional capital through equity ~~financing or debt~~ financing.



~~Table of Contents~~	4	~~Financial Statement Index~~

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 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:

monetize existing assets

~~work with our creditors to modify existing arrangements or~~ refinance our debt

obtain additional capital through equity issuances, including but not limited to equity issuances to Aspire Capital under its existing purchase commitment (which equity issuances may dilute existing stockholders)

However, projections are inherently uncertain and ~~we cannot assure you that we will generate sufficient income and cash flow to meet all~~the 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 November 12, 2020.

Comparability

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

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

We prepared the accompanying unaudited Condensed Consolidated Balance Sheet as of September 30, ~~2018,~~2019, with the audited Consolidated Balance Sheet amounts as of December 31, ~~2017~~2018 presented for comparative purposes, and the related unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss, the Condensed Consolidated Statements of Cash Flows and the Condensed Consolidated Statements of Stockholders’ Deficit in accordance with the instructions for Form 10-Q. In compliance with those instructions, we have omitted certain information and footnote disclosures normally included in annual consolidated financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”), though management believes the disclosures made herein are sufficient to ensure that the information presented is not misleading.

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



Table of Contents	6	Financial Statement Index

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

Consolidation

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



~~Table of Contents~~	5	~~Financial Statement Index~~

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

Use of Estimates

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, and inventory reserve, ~~and purchase price allocation,~~ among other items.

Changes to Significant Accounting Policies - ~~Revenue Recognition~~Leases

~~On January 1, 2018, we~~We adopted Accounting Standards ~~Update~~Codification Topic 842, Leases (“~~ASU”~~ASC 842”) ~~2014-09,~~ ~~Revenue from Contracts with Customers~~, as of January 1, 2019. When adopting ASC 842 we elected several practical expedients permitted under the transition guidance within ASC 842, which, among other things, allowed us to carry forward the historical lease classification and ~~all subsequent amendments (collectively “ASC 606”) using the modified retrospective method. We recognized the cumulative effect of initially applying the new revenue standard as an adjustment~~to avoid recording leases that had expired prior to the ~~opening~~date of adoption. We also elected to combine the lease and non-lease components of our leases for office space (which represent the largest portion of our operating lease assets and liabilities) and not to record leases with initial terms of 12 months or less (short-term leases) on the balance sheet. We amortize the cost of ~~Accumulated deficit (the amount was not material). We have not retrospectively adjusted~~short-term leases on a straight-line basis over the information for the comparative period reported herein, which information we continue to report under the accounting standards in effect for that period. The amounts of revenue, accounts receivable and contract balances that we reported under ASC 606 as of and for the three and nine months ended September 30, 2018, were not materially different than the amounts we would have reported under the accounting standards previously in effect.lease term.

~~We recognize revenue when we transfer control~~As 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.~~

When customers pay us prior to when we satisfy our obligation to transfer control of promised goods or services, we record the amount that reflects the consideration to which we expect to be entitled as a contract liability until such time as we satisfy our performance obligation. As a result ofJanuary 1, 2019, our adoption of ASC 606, the line item previously labeled “Deferred revenue” on our condensed consolidated balance sheets is now labeled “Contract liability”; the comparative period balance as reported herein did not change as a result842 added $4.9 million of ~~our application~~operating lease assets, $1.1 million of ~~the modified retrospective transition approach.~~

~~For our contracts with customers, we only extend short-term credit policies to our customers, generally of 90 days or less.~~

~~We record the incremental costs of obtaining contracts as an expense when incurred, because such costs would otherwise be amortized over a period of less than one year if capitalized.~~

~~Transaction Services~~

Our Travel & Entertainment segment generates our transaction services revenue, most of which results from the use of the merchant model under which we remain the merchant of record, but various service providers with whom we maintain relationships are ultimately responsible for delivering the underlying services for which our customers transact, such as lodging, air travel, entertainment, or tours. Our obligation to our customers is to arrange for these service providers to provide the underlying services, and we satisfy our obligation at the point in time that these service providers begin to provide the underlying service (e.g., upon the check-in date for lodging stays, upon the show/performance date for entertainment transactions, etc.). Though we are the merchant of record for transactions in which other entities provide the ultimate service, under current ~~accounting guidance we are an agent in such transactions; therefore, we recognize revenue from transactions~~



~~Table of Contents~~	6	~~Financial Statement Index~~

~~under the merchant model on a net basis (i.e., the amount we bill to our customers less the amounts we pay to the service providers).~~

To a lesser extent, we provide tour services directly to our customers. Our obligation to provide such services is satisfied at the point in time that we finish providing the tour, and we recognize the resulting revenue on a gross basis when our obligation is satisfied.

Our customers pay at the time the original transaction occurs via our sales channels, primarily the Vegas.com website and mobile application. Because the original transaction date almost always precedes the date that our performance obligation is satisfied, we record a Contract liability for the amount of consideration received (net of amounts owed to suppliers). In general, we satisfy most of our performance obligations within approximately three to four months from the original transaction date, and substantially all performance obligations are satisfied within one year from the original transaction date.

~~Data Platform Services~~

Our KanKan business generates our data platform services revenue. One of the business’s product offerings involves utilizing our proprietary data intelligence software to provide high-quality loan candidates to our customers, which are companies that help to market the loan products of banks and other lending institutions in China to potential loan candidates. We earn a commission for this service, which is deemed earned and is recognized at the point in time at which the related loan is issued to the candidate by a lending institution supporting the loan product being promoted by our customer. The amount of commission we recognize is determined by multiplying the commission rate specified in the applicable contract by the amount of the loan issued to the candidate.

Under contracts with two of our customers, we are required to reimburse those customers for as much as 10% of the commissions paid under the contract if the total amount of the defaults across all of the loans issued and outstanding with respect to such contract exceeds an established threshold (the “Reimbursement Obligation”). Such contracts also require us to maintain a cash deposit with those customers to support the Reimbursement Obligation, and they permit the customer to deduct the required amount of any reimbursement from such deposit. We no longer provide new candidates to those customers under those particular contracts, and none of our remaining contracts related to providing loan candidates to customers include the Reimbursement Obligation or similar terms, so the maximum amount of our liability with respect to the Reimbursement Obligation as of September 30, 2018 and going forward is $0.5 million, Further, as of September 30, 2018, the amount we have on deposit with the customers under those contracts to support the Reimbursement Obligation exceeds such maximum liability with respect to the Reimbursement Obligation, and we have not reimbursed any customer any amount of commissions paid under these contracts, nor are we required to do so because the total amount of the defaults has not exceeded the established threshold.

We have determined that the Reimbursement Obligation does not fall within the scope of ASC 606 and that we should account for it as a guarantee for accounting purposes using other GAAP. We recorded an initial liability, reportedoperating lease liabilities (reported in Accrued expense and other current liabilities) and $5.7 million of long-term operating lease liabilities into our ~~consolidated~~ balance sheet, ~~equal to our maximum potential Reimbursement Obligation, an amount which approximated fair value. As we are released from an amount~~and it removed $3.3 million of the Reimbursement Obligation, we record the amount of reduction in the Reimbursement Obligation as data platform services revenue. We have not recorded material amounts of revenue resulting from being released from the Reimbursement Obligation.previously-recorded deferred rent and early lease termination liabilities; it had no effect on consolidated net loss or consolidated cash flows.

We also generate revenue by creating and delivering integrated artificial-intelligence-based solutions for clients. Under this type of contract, we provide a single, continuous service to clients who control the assets as we create them. Accordingly, we recognize the revenue over the period of time during which we provide the service.

~~Advertising and Other~~

Our Travel & Entertainment segment generates the majority of our advertising revenue, and we report the remaining amount of advertising revenue in Corporate Entity and Other in our segment information. We primarily generate advertising revenue from the use of sponsored links and display advertising placed directly on our website pages. Substantially all of our advertising contracts with customers are completed within one year or less.



Table of Contents	7	Financial Statement Index

In click-through advertising contracts with customers, our obligation is to place our customers’ interactive ads on our websites for a specified period of time. We recognize revenue from click-through advertising at the point in time at which visitors to our websites click through the ads to our advertising customers’ websites. Any variability regarding contract consideration is resolved within the reporting period.

Some of our advertising contracts with customers require us to place our advertising customers’ static display ads on our websites for a specified period of time or in a specific location on our websites, or both. We recognize revenue from such advertising placement arrangements either over time (ratably over the contract term) or based upon the delivery of advertising impressions, depending upon the terms of the contract.

We also generate revenue from other sources, such as from e-commerce activity in which we sell goods to our customers, or media production which involves us producing video or Internet-based content for our customers. We recognize the revenue from these contracts at the point in time when we transfer control of the good sold to the customer or when we deliver the promised media content.

~~Other than as noted above, we have made no changes to our significant accounting policies as reported in our 2017 Form 10-K.~~

Recently Issued Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board issued ASU 2016-02, Leases (Topic 842), which changes GAAP primarily by requiring lessees to recognize, at lease commencement, a lease liability representing the present value of the lessee’s obligation to make lease payments, and a right-of-use asset representing the lessee’s right to use (or control the use of) a specified asset during the lease term, for leases classified as operating leases. For us, the amendments in ASU 2016-02 will become effective on January 1, 2019. We are designing appropriate internal controls and modifying key processes to allow for the implementation of ASU 2016-02, which we anticipate will have a material impact on our balance sheet, as we will be recording right-of-use assets and lease liabilities related to our operating leases, including our leases for office space. We do not anticipate that application of ASU 2016-02 will have a material impact on our statement of operations or cash flows.

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.

NOTE 3. REVENUE

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.

Disaggregation of Revenue

The following table presents a disaggregation of our revenue by major category ~~for the three and nine months ended September 30, 2018~~ (in thousands):

Revenue category Three Months Ended September 30, 2018 Nine Months Ended September 30, 2018
Transaction services $ 16,619
$ 46,272
Data platform services 1,039
5,591
Advertising and other 1,693
4,925
Revenue $ 19,351
$ 56,788



	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Data platform services:
FinTech services	$	—	$	363	$	—	$	3,739
AI-based products and services	549		676		3,439		1,852
Advertising and other	137		716		1,321		1,877
Revenue	$	686	$	1,755	$	4,760	$	7,468



~~Table of Contents~~	8	~~Financial Statement Index~~

Significant Judgments

~~When~~We make certain judgments 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.

Contract Assets and Contract Liabilities

We do not currently generate material contract assets. ~~Other than changes resulting from routine business activity, the balance of our Contract liability did not change significantly during~~During the nine months ended September 30, ~~2018. We~~2019, our contract liability related to continuing operations changed only as a result of routine business activity.

During the nine months ended September 30, 2019, we did 0t recognize material amounts of revenue which were included in the beginning balance of Contract liability at January 1, 2019, while we recognized ~~revenue~~$0.3 million of ~~$3.1 million~~revenue during the nine months ended September 30, 2018 which was included in the beginning balance of Contract liability at January 1, 2018.

During the nine months ended September 30, 2019 and 2018, we did not recognize revenue from performance obligations within the scope of ASC 606 that were satisfied in previous periods.



Table of Contents	8	Financial Statement Index

NOTE 4. FAIR VALUE MEASUREMENTS

Liabilities Related to Warrants to Purchase Common Stock

At the end of each reporting period, we use the Monte Carlo Simulation model to estimate and report the fair value of liabilities related to certain outstanding warrants to purchase ~~our~~ common ~~stock that are subject to potential anti-dilution adjustments or that contain put options or call options. Our~~stock. As of September 30, 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 Acquisition Warrants”) and warrants we issued as a result of an amendment to the Financing Agreement related to the acquisition (the “CBG Financing Warrants”).

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


	September 30,		December 31,		September 30,		December 31,
	2018		2017		2019		2018
CBG Financing Warrants
Expected volatility	60.00	%	60.00	%	85.00	%	70.00	%
Risk-free interest rate	2.81	%	1.96	%	1.75	%	2.52	%
Expected remaining term (years)	1.98		2.73		0.98		1.73
CBG Acquisition Warrants
Expected volatility	60.00	%	60.00	%	75.00	%	70.00	%
Risk-free interest rate	2.94	%	2.25	%	1.56	%	2.46	%
Expected remaining term (years)	4.97		5.72		3.97		4.72

In addition to the quantitative assumptions above, we also consider whether we would issue additional equity and, if so, the price per share of such equity. At September 30, ~~2018,~~2019, we estimated that ~~one~~2 future equity financing ~~event~~events would potentially occur within the subsequent twelve months.



~~Table of Contents~~	9	~~Financial Statement Index~~

Our estimate of expected volatility and our stock price tend to have the most significant impact on the estimated fair value of the CBG Financing Warrants and the CBG Acquisition Warrants. 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):


Change in volatility	Increase		Decrease		Increase		Decrease
CBG Financing Warrants	$	275	$	275	$	40	$	40
CBG Acquisition Warrants	805		865		230		175

Change in stock price
CBG Financing Warrants	$	245	$	245	$	40	$	40
CBG Acquisition Warrants	345		405		60		60



Table of Contents	9	Financial Statement Index

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


	Nine Months Ended September 30,			Year Ended December 31,		Nine Months Ended September 30,			Year Ended December 31,
	2018			2017		2019			2018
Balance at beginning of period	$	89,169		$	25,030	$	1,383		$	89,169
Warrant exercises	(59,907		)	—		—			(59,907		)
Increase (decrease) in fair value	(22,190		)	64,139
Decrease in fair value						(502		)	(27,879		)
Balance at end of period	$	7,072		$	89,169	$	881		$	1,383

At January 1, 2018, our outstanding liability-classified warrants included warrants we issued in connection with our acquisition of all of the outstanding equity interests in Vegas.com ~~LLC~~ in September 2015 (the “VDC Acquisition”) and the financing related thereto (the “VDC Acquisition Warrants” and the “VDC Financing Warrants”, respectively). On January 8, 2018, holders of VDC Acquisition Warrants with respect to 2,416,996 shares of our common stock exercised such warrants. Because the VDC Acquisition Warrants provided that such warrants were exercisable on a cashless basis only, we issued a total of 750,102 shares of common stock in settlement of such warrants without receiving any proceeds from the exercise thereof.

On January 10, 2018, we exercised our right to exercise all remaining VDC Acquisition Warrants and VDC Financing Warrants (which right became effective when the closing price of our common stock reached $14.00), exercising VDC Acquisition Warrants with respect to 6,184,414 shares of our common stock and VDC Financing Warrants with respect to 3,117,148 shares of our common stock. Because the VDC Acquisition Warrants and VDC Financing Warrants provided that such warrants were exercisable on a cashless basis only, we issued a total of 2,236,915 and 1,385,396 shares of common stock to the holders of the VDC Acquisition Warrants and the VDC Financing Warrants, respectively, in settlement of such warrants without receiving any proceeds from the exercise thereof.

Contingent Consideration Issued in Business Acquisition

We used the discounted cash flow valuation technique to estimate the fair value of the liability related to certain cash payments stipulated in the VDC Acquisition that were contingent upon the performance of Vegas.com in the years ended December 31, 2016, ~~and~~ 2017, and ~~are contingent upon the performance of Vegas.com in the year ending December 31,~~ 2018 (the “Earnout Payments”). The significant unobservable inputs that we used, which we classify in Level 3 of the fair value hierarchy, were projected earnings before interest, taxes, depreciation and amortization (“EBITDA”), the probability of achieving certain amounts of EBITDA, and the rate used to discount the liability.

The following table presents the change during the nine months ended September 30, 2019 in the balance of the liability associated with the Earnout Payments (in thousands):



Balance at beginning of period	$	990
Payments	(8		)
Change in fair value of contingent consideration (included in Other loss)	10
Interest accrued on unpaid balance	75
Balance at end of period	$	1,067

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



Table of Contents	10	Financial Statement Index

~~The following table presents the change during the nine months ended September 30, 2018 in the balance of the liability associated with the Earnout Payments (in thousands):~~NOTE 5. TRADE ACCOUNTS RECEIVABLE

Balance at beginning of period $ 1,930
Payments (1,000 )
Change in fair value of contingent consideration (included in Other loss) 50
Balance at end of period $ 980



	September 30, 2019			December 31, 2018
Gross accounts receivable balance	$	4,666		$	5,891
Allowance for bad debt	(874		)	(129		)
Accounts receivable, net	$	3,792		$	5,762

OnGenerally, it is not unusual for Chinese entities to pay their vendors on longer timelines than the ~~Condensed Consolidated Balance Sheet,~~timelines typically observed in U.S. commerce. Trade receivables related to our AI projects (exclusive of FinTech) represent 71% of our gross trade receivables. Substantially all of our remaining gross trade receivables balance resulted from the FinTech service we ~~included~~have discontinued. The delay in collection of the ~~liability for contingent consideration as a component~~FinTech-related balance is related to the processes our customer must follow to properly shut down the short-term loan business in which they previously participated before they can finally pay all their vendors, but we have no evidence that full collection of ~~Accrued expense and other liabilities.~~such balance is at risk.

~~NOTE 5. RESTRICTED CASH~~

~~Regarding our restricted cash, $2.25 million relates to the Financing Agreement and secures our obligations under that agreement (see~~ ~~Note 17~~ for more information regarding this amount). The restriction on the cash related to the Financing Agreement will not be released until we have repaid all of our obligations under the Financing Agreement, unless we obtain the written authorization of the Lenders. The remaining amount of our restricted cash relates to the Letter of Credit Facility Agreement we have in place to satisfy the requirements of several of the vendors for whom we sell products (hotel rooms, air travel, show tickets, et cetera) through our online outlets. By contract, certain vendors require letters of credit as a means of securing our payment to them of amounts related to the sales we make on their behalf. We renew the letter of credit facility annually in May, and the restrictions on the cash related to the letters of credit will remain to the extent we continue to enter into contracts requiring the security of letters of credit.

The following table provides a reconciliation of the amounts separately reported as Cash and cash equivalents and Restricted cash on our 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):

September 30,
2018 December 31, 2017
Cash and cash equivalents $ 9,902
$ 22,632
Restricted cash reported in current assets 11,655
11,670
Total cash, cash equivalents and restricted cash $ 21,557
$ 34,302

NOTE 6. INVESTMENT IN UNCONSOLIDATED AFFILIATES

In 2009, we co-founded a U.S.-based venture, Sharecare, Inc. (“Sharecare”), to build a web-based platform that simplifies the search for health and wellness information. The other co-founders of Sharecare were Dr. Mehmet Oz, HARPO Productions, Discovery Communications, Jeff Arnold and Sony Pictures Television. As of September 30, ~~2018,~~2019, we owned approximately ~~five percent~~4.6% of Sharecare’s issued stock and maintained representation on its Board of Directors.

During June 2018, one of our consolidated VIEs acquired a 20% interest in Beijing All-in-one Cloud Net Technology, Co. Ltd. (“AIO”), a Chinese technology company which provides consulting and data services to the Chinese film industry, in exchange for $1.0 million, a portion of which was paid by September 30, ~~2018,~~2019, and a license to use our proprietary KanKan data intelligence platform in China. Based on our evaluation of the facts and circumstances related to the transaction, we determined that we will account for such transaction using the equity method of accounting. We ~~will~~ recognize our equity in the net earnings or losses relating to AIO on a one-quarter reporting lag in our Unaudited Condensed Consolidated Statements of Operations and Comprehensive ~~Income (Loss).~~Loss. For the three months ended September 30, ~~2018,~~2019, the amount of our equity in AIO’s net earnings for their quarter ended June 30, ~~2018~~2019 was not material.



~~Table of Contents~~	11	~~Financial Statement Index~~

NOTE 7. PREPAID EXPENSE AND OTHER CURRENT ASSETS

The following table presents the components of prepaid expense and other current assets (in thousands):


	September 30, 2018		December 31, 2017		September 30, 2019		December 31, 2018
Other receivables					$	3,625	$	4,607
Prepaid expense	$	2,918	$	2,036	840		1,076
Deposits	3,487		1,960		1,282		1,395
Inventory, net	744		234		225		587
Other current assets	1,561		1,288		261		242
Total	$	8,710	$	5,518	$	6,233	$	7,907



Table of Contents	11	Financial Statement Index

NOTE 8. PROPERTY AND EQUIPMENT

Property and equipment consist of the following (in thousands, except estimated lives):


	Estimated Life (Years)	September 30, 2018			December 31, 2017			Estimated Life (Years)	September 30, 2019			December 31, 2018
Vehicles	5	$	1,350		$	447
Computers and equipment	2 - 12	1,978			1,635			3	999			1,004
Furniture and fixtures	2 - 9	221			220			3	23			20
Software	3 - 5	21,719			20,773			3	4,856			4,918
Software development in progress		2,010			1,935				1,010			924
Leasehold improvements	1 - 10	569			328			10	303			310
Total property, equipment and software		$	27,847		$	25,338			$	7,191		$	7,176
Less accumulated depreciation		(16,217		)	(11,951		)		(5,600		)	(5,101		)
Total property, equipment and software, net		$	11,630		$	13,387			$	1,591		$	2,075

For the nine months ended September 30, ~~2018~~2019 and ~~2017,~~2018, depreciation (and amortization of software) expense was ~~$4.4~~$0.6 million and ~~$4.1~~$1.1 million, respectively.

NOTE 9. LEASES

We lease office space and equipment under contracts we classify as operating leases. None of our leases are financing leases. Several of our leases include one or more options to renew; however, as of September 30, 2019, we are not reasonably certain that we will exercise the renewal options and we have not included such renewal options in the lease liabilities or disclosures herein.

As of September 30, 2019, the current portion of our operating lease liability was $1.5 million and was reported in Accrued expense and other current liabilities on our Unaudited Condensed Consolidated Balance Sheet.

The following table presents the detail of our lease expense, net of sublease income, which is reported in General and administrative expense (in thousands):



	Three Months Ended September 30, 2019			Nine Months Ended September 30, 2019
Operating lease expense	$	492		$	1,195
Short-term lease expense	67			231
Less: Sublease income	(94		)	(172		)
Lease expense	$	465		$	1,254

We reported within continuing operating cash flows for the nine months ended September 30, 2019 $1.5 million of cash paid for amounts included in the measurement of operating lease liabilities.

As of September 30, 2019, our operating leases had a weighted-average remaining lease term of approximately 48 months, and we used a weighted-average discount rate of 13% to measure our operating lease liabilities.



Table of Contents	12	Financial Statement Index

~~NOTE 9. GOODWILL AND OTHER INTANGIBLE ASSETS~~

Maturity of Lease Liabilities

The following table ~~summarizes intangible assets by category~~presents information regarding the maturities of our undiscounted remaining operating lease payments, with a reconciliation to the amount of the liabilities representing such payments as presented in our September 30, 2019 Unaudited Condensed Consolidated Balance Sheet (in thousands):.

September 30, 2018 December 31, 2017
Gross Amount Accumulated
Amortization Net Amount Gross Amount Accumulated
Amortization Net Amount
Finite-lived intangible assets
Domain names $ 2,000
$ (1,358 ) $ 642
$ 2,591
$ (1,663 ) $ 928
Customer relationships 23,186
(13,509 ) 9,677
23,486
(10,539 ) 12,947
Media content and broadcast rights 2,485
(1,309 ) 1,176
2,485
(936 ) 1,549
Acquired technology 578
(527 ) 51
578
(461 ) 117
Other intangible assets 68
(68 ) —
68
(68 ) —
$ 28,317
$ (16,771 ) $ 11,546
$ 29,208
$ (13,667 ) $ 15,541
Indefinite-lived intangible assets
Trademarks and trade names $ 8,276
$ 8,276
$ 8,276
$ 8,276
License to operate in China 128

128
129

129
Total intangible assets $ 36,721

$ 19,950
$ 37,613

$ 23,946



Operating lease liabilities maturing during the next:
One year	$	2,319
Two years	2,183
Three years	1,976
Four years	1,780
Five years	752
Thereafter	—
Total undiscounted cash flows	$	9,010
Present value of cash flows	$	6,941

Lease liabilities on balance sheet:
Short-term	$	1,505
Long-term	5,436
Total lease liabilities	$	6,941

~~Total amortization expense was $3.8 million and $4.1 million for the nine months ended September 30, 2018 and 2017, respectively.~~Significant Judgments

~~The following table summarizes~~When accounting for our leases, we make certain judgments, such as whether a contract contains a lease or what discount rate to use, that affect the ~~changes in goodwill during~~determination of the ~~nine months ended September 30, 2018~~amount of our lease assets and liabilities. Based on the ~~year ended December 31, 2017 (in thousands):~~current facts and circumstances related to our contracts, none of the judgments we make involve an elevated degree of qualitative significance or complexity such that further disclosure is warranted.

Nine Months Ended September 30, 2018 Year Ended December 31, 2017
Travel & Entertainment Segment Corporate Entity and Other Business Units Total Travel & Entertainment Segment Corporate Entity and Other Business Units Total
Balance at beginning of period $ 18,514
$ 1,585
$ 20,099
$ 18,514
$ 8,249
$ 26,763
Business acquisitions —
—
—
—
2,116
2,116
Impairment of goodwill —
—
—
—
(8,796 ) (8,796 )
Other —
—
—
—
16
16
Balance at end of period $ 18,514
$ 1,585
$ 20,099
$ 18,514
$ 1,585
$ 20,099



Table of Contents	13	Financial Statement Index

NOTE 10. INTANGIBLE ASSETS

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



	September 30, 2019							December 31, 2018
	Gross Amount		Accumulated Amortization			Net Amount		Gross Amount		Accumulated Amortization			Net Amount
Finite-lived intangible assets
Domain names	$	1,256	$	(856	)	$	400	$	1,256	$	(801	)	$	455
Media content and broadcast rights	1,350		(1,125		)	225		1,350		(923		)	427
Other intangible assets	68		(68		)	—		68		(68		)	—
	$	2,674	$	(2,049	)	$	625	$	2,674	$	(1,792	)	$	882
Indefinite-lived intangible assets
License to operate in China	127					127		128					128
Total intangible assets	$	2,801				$	752	$	2,802				$	1,010

~~The amount in~~Total amortization expense was $0.3 million and $0.5 million for the ~~table above related to business acquisitions in the year~~nine months ended ~~December 31, 2017 represents measurement-period adjustments related to the CBG Acquisition.~~September 30, 2019 and 2018, respectively.

NOTE ~~10.~~11. INCOME TAX

Our effective tax rate (“ETR”) from continuing operations was ~~9.1%~~0.0% for the nine months ended September 30, ~~2018.~~2019. The quarterly ETR has not significantly differed from our historical annual ~~ETR. The~~ ETR ~~primarily results from recording~~because we continue to maintain a ~~benefit associated with a partial~~full 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 December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”), which makes broad and complex changes to the U.S. tax code that will affect the 2018 tax year.

~~We have not completed~~against our ~~accounting for the Tax Act. As noted in our 2017 Form 10-K:~~

~~We were able to reasonably estimate certain effects and, therefore, recorded provisional adjustments associated with the impact on~~existing deferred tax ~~assets and deferred tax liabilities from reduction of the U.S. federal corporate tax rate.~~

~~We were not yet able to reasonably estimate the effects for global intangible low-taxed income (GILTI) and deemed repatriation taxes. Therefore, no provisional adjustments were recorded.~~assets.

NOTE ~~11.~~12. DEBT

Short-Term Debt

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



Table of Contents	14	Financial Statement Index

Other Debt

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


	September 30, 2018			December 31, 2017			September 30, 2019		December 31, 2018
Loan due September 2020	$	35,500		$	35,500
Loan payable to MGG							$	11,632	$	35,500
Unamortized original issue discount	(1,660		)	(836		)	—		(1,418		)
Unamortized debt issuance cost	(21		)	(79		)	—		(18		)
Carrying value of Loan	33,819			34,585			11,632		34,064
Exit fee payable in relation to Loan	3,500			3,500			—		1,250
Total long-term debt	$	37,319		$	38,085		$	—	$	35,314
Less: current portion	(37,319		)	(38,085		)	—		(35,314		)
Long-term debt, less current portion and net of debt issuance cost	$	—		$	—		$	—	$	—

On September 24, 2015, we entered into the Financing Agreement, pursuant to which the Lenders provided us with the $27.5 million Loan. We entered into Amendment No. 1 to Financing Agreement on September 20, 2016 which, among other



~~Table of Contents~~	14	~~Financial Statement Index~~

changes, increased the Loan by $8.0 million to a total aggregate principal amount of $35.5 million. As of September 30, ~~2018,~~2019, after amendments and other events described below, the Loan bore interest at three-month LIBOR (with a floor of 1%2%) plus 11% per annum, payable monthly, and had a maturity date of ~~September 30,~~May 15, 2020. As of September 30, ~~2018,~~2019, the applicable interest rate on the Loan was approximately 13% per annum.

In connection with the Financing Agreement, we also entered into a security agreement dated as of September 24, 2015 (the “Security Agreement”) with the other Borrowers and the Guarantors for the benefit of MGG, as collateral agent for the Secured Parties referred to therein, to secure the obligations of the Borrowers and the Guarantors under the Financing Agreement. The Security Agreement provides for a first-priority lien on, and security interest in, all assets of Remark and our subsidiaries, subject to certain exceptions.

On October 25, 2017, we entered into Amendment No. 2 and Waiver and Consent to Financing Agreement, pursuant to which the Lenders waived specified events of default under the Financing Agreement occurring prior to January 1, 2018, including but not limited to events of default resulting from our non-compliance with covenants requiring minimum consolidated EBITDA of Remark and its subsidiaries and value of our assets. The Lenders also waived the covenant related to restricted cash balance through September 19, 2017.

On December 5, 2017, we entered into Amendment No. 3 to Financing Agreement pursuant to which the Lenders agreed, among other things, to modify certain of our covenants under the Financing Agreement, including (i) replacing the covenant regarding consolidated EBITDA of Remark and our subsidiaries with a covenant regarding consolidated gross revenue of our subsidiaries engaged in the operation of our KanKan business, (ii) modifying the covenants regarding consolidated EBITDA of Vegas.com and its subsidiaries and the value of certain of our assets, and (iii) increasing the amount we are permitted to invest in our non-U.S. subsidiaries operating our KanKan business, subject to certain conditions.

On April 30, 2018, we entered into Amendment No. 4 and Waiver to Financing Agreement (the “Fourth Financing ~~Amendment”~~Amendment��), which provided for, among other things, (i) a reduction in the interest rate on the remaining amount outstanding under the Financing Agreement to three-month LIBOR plus 8.5% per annum, (ii) an extension of the maturity date under the Financing Agreement to September 30, 2020, (iii) a modification of certain of our covenants under the Financing Agreement, including covenants regarding capital expenditures, minimum value of certain of our assets, consolidated EBITDA of Vegas.com and its subsidiaries, and revenue generated by KanKan, (iv) an increase in the amount we are permitted to invest in our non-U.S. subsidiaries operating our KanKan business, (v) a waiver by the Lenders of certain events of default under the Financing Agreement, and (vi) prepayment by the Borrowers of $8.0 million principal amount outstanding and $3.5 million of exit fees under the Financing Agreement within 60 days following the date of the Fourth Financing Amendment. In consideration for the Lenders’ entry into the Fourth Financing Amendment, we also paid a closing fee of approximately $413 thousand.

Effective as of June 29, 2018, we entered into Amendment No. 5 and Waiver to Financing Agreement (the “Fifth Financing Amendment”) pursuant to which the Lenders agreed, among other things, to extend the due date of the prepayments required by the Fourth Financing Amendment for up to three months, provided that we made extension payments on the first business day of each such month. The extension payments were $250,000 for each of the first two months and $500,000 for the third month, with the final extension period ending on September 28, 2018. We made the extension payments required by the Fifth Financing Amendment to extend the due date of the prepayments required by the Fourth Financing Amendment to September 28, 2018; however, we failed to prepay the $8.0 million principal amount and $3.5 million of exit fees due on such date. Such failure to make the required payments ~~constitutes~~constituted an event of default under the Financing Agreement and as a result, from September 28, 2018, the Loan bore interest at three-month LIBOR plus 11.0%, the default interest rate.

~~The Financing Agreement also contains certain affirmative~~On May 15, 2019, we completed the VDC Transaction and ~~negative covenants (including, but not limited~~used the cash proceeds of $30 million to ~~financial covenants with respect to quarterly EBITDA levels and the value of our assets). As of September 30, 2018, we were not in compliance with the covenant~~pay amounts due under the Financing Agreement, ~~requiring minimum revenue from our KanKan business during~~of which approximately $10 million remained outstanding after giving effect to the trailing nine-month period ended September 30, 2018 of $12.6 million, as actual revenue from our KanKan business during such period was $5.6 million. Our non-compliance with such covenant constitutes an event of default under the Financing Agreement.

As a result of our events of default under the Financing Agreement, the Lenders may declare our obligations under the Financing Agreement, including all unpaid principal and interest, due and payable immediately and exercise such other rights available to them under the Financing Agreement, which could have a material adverse effect on our financial condition. Weapplication



Table of Contents	15	Financial Statement Index

~~have classified~~of such cash proceeds. On the ~~debt~~same date, in connection with the closing of the VDC Transaction, we entered into Amendment No. 6 and Waiver to Financing Agreement (the “Sixth Financing Amendment”), pursuant to which, among other things, (i) the Lenders waived all events of default under the Financing Agreement existing as ~~current~~of the date of the Sixth Financing Amendment, (ii) MGG released any and all liens in the ~~accompanying balance sheet. See~~ ~~Note 17~~ ~~for more information regarding subsequent events relating~~equity interests of Vegas.com and its subsidiaries and their assets and properties, (iii) the Borrowers may add the amount of any accrued and unpaid interest to the outstanding principal amount of the Loan, (iv) the remaining principal amount outstanding under the Financing Agreement accrues interest at a rate equal to the three-month LIBOR (with a floor of 2%) plus 8.5% per annum, (v) the continuing Loan has a maturity date of May 15, 2020, (vi) covenants with respect to capital expenditures and revenue generated by our KanKan business were eliminated and covenants regarding the minimum value of certain of our assets, our minimum liquidity and the amount we are permitted to invest in our non-U.S. subsidiaries were modified, and (vii) we were required to commence a sale process with respect to our equity in Sharecare within five business days of the effective date of the Sixth Financing Amendment, and to use the net cash proceeds of such sale to pay in full our outstanding obligations under the Financing Agreement the (“Sharecare Covenant”).

The Financing Agreement contains 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 September 30, 2019, we were not in compliance with such minimum cash covenant. We were also not in compliance with certain other covenants 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 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 stipulated by the Sharecare Covenant. Our non-compliance with such covenants constitutes events of default under the Financing Agreement. In addition, in June 2019, the Lenders paid the $1.1 million of premium under the Tail Policy on our behalf and such amount was added to the amount of principal due under the Financing Agreement.

NOTE ~~12.~~13. OTHER LIABILITIES

The following table presents the components of other liabilities (in thousands):


	September 30, 2018		December 31, 2017		December 31, 2018
Deferred rent	$	1,650	$	1,820	$	1,583
Early lease termination liability	1,242		—
Contingent consideration liability, net of current portion	—		940
Accrued early lease termination liability					1,137
Deferred tax liability, net	369		741		214
Other	35		—
Total	$	3,296	$	3,501	$	2,934

During the first quarter of 2018, we determined that we would no longer use certain leased office space and, as a result, we sublet the majority of such office space to third parties. As a result of our decision, we recognized $2.3 million of unallocated rent expense in the corporate entity, and an associated liability for early lease termination. The current portion of the liability is recorded in Accrued expense and other current liabilities, with the long-term portion recorded in Other liabilities (see table above).

~~The following table presents the change in the liability balance related to the early lease termination (in thousands):~~

Nine Months Ended September 30,
2018
Balance at beginning of period $ —
Establishment of early lease termination liability 2,295
Payment of rent and other costs (798 )
Receipt of amounts due under subleases 95
Other 16
Balance at end of period $ 1,608

NOTE ~~13.~~14. COMMITMENTS AND CONTINGENCIES

At September 30, 2019, we had no material commitments outside the normal course of business.

Contingencies

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.



Table of Contents	16	Financial Statement Index

NOTE ~~14.~~15. STOCKHOLDERS' EQUITY, STOCK-BASED COMPENSATION AND NET LOSS PER SHARE

Equity Issuances

On ~~July 2, 2018,~~March 29, 2019, we entered into the ~~2018~~2019 Aspire Purchase Agreement with Aspire Capital, 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 of $30.0 million of shares of our common stock over the 30-month term of the ~~2018~~2019 Aspire Purchase Agreement.



~~Table of Contents~~	16	~~Financial Statement Index~~

~~The~~ On April 5, 2019, the conditions necessary for purchases under the 2019 Aspire Purchase Agreement to commence were satisfied and the 2018 Aspire Purchase Agreement ~~replaced the 2016 Aspire Purchase Agreement, which~~ was terminated under the terms of the ~~2018~~2019 Aspire Purchase Agreement. We issued 629,370 shares of our common stock to Aspire Capital upon commencement of the 2019 Aspire Purchase Agreement.

Under the ~~2018~~2019 Aspire Purchase Agreement, on any trading day over the 30-month term of such agreement, we have the right, in our sole discretion, to present Aspire Capital with a purchase notice (each, a “Purchase Notice”) directing Aspire Capital to purchase up to 50,000 shares of our common stock per ~~business~~trading day, up to an aggregate of $30.0 million under the ~~2018~~2019 Aspire Purchase Agreement, at a per share price (the “Purchase Price”) equal to the lesser of (i) the lowest sale price of our common stock on the purchase date or (ii) the arithmetic average of the three lowest closing sale prices for our common stock during the 10 consecutive trading days ending on the trading day immediately preceding the purchase date.

The aggregate purchase price payable by Aspire Capital on any one purchase date may not exceed $250,000, unless otherwise mutually agreed. The parties may mutually agree to increase the number of shares of our common stock that may be purchased per trading day pursuant to the terms of the ~~2018~~2019 Aspire Purchase Agreement to 3,000,000 shares.

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 ~~business~~trading 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.

We may deliver multiple Purchase Notices and VWAP Purchase Notices to Aspire Capital from time to time during the term of the 2019 Aspire Purchase Agreement, so long as the most recent purchase has been completed.

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 ~~2018~~2019 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 ~~2018~~2019 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 ~~2018~~2019 Aspire Purchase Agreement. The ~~2018~~2019 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 ~~2018~~2019 Aspire Purchase Agreement.

The ~~2018~~2019 Aspire Purchase Agreement provides that the total number of shares that may be issued pursuant to such agreement is limited to ~~6,629,039~~8,140,373 shares (the ~~“2018 Aspire Exchange~~“Exchange Cap”), or 19.99% of our shares of common stock outstanding as of the date of the ~~2018~~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 ~~2018 Aspire~~ Exchange Cap is reached if at all times thereafter the average purchase price paid for all shares issued under the ~~2018~~2019 Aspire Purchase Agreement is equal to or greater than ~~$3.91~~$1.85 per share. The ~~2018~~2019 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.

As of September 30, ~~2018,~~2019, we have issued to Aspire Capital a total of ~~3,308,812~~2,504,370 shares of our common stock under the 2018 Aspire Purchase Agreement, including 3,095,238 shares purchased by Aspire Capital for an aggregate purchase price of $10.0 million, and 213,574 shares issued to Aspire Capital upon executing the 20182019 Aspire Purchase Agreement. During the nine months ended September 30, 2018, we also issued 381,445 shares of our common stock as a result of stock option exercises, from which we obtained approximately $1.0 million as well as the shares of our common stock in settlement of the warrants as described in ~~Note 4~~.

~~During the nine months ended September 30, 2017,~~2019, we issued a total of ~~3,052,897~~9,374,597 shares of our common stock to investors in exchange for approximately $8.3 million in cash, including a $5.0 million issuance to Aspire. We did not issue our common stock in private sales during the nine months ended September 30, 2018.



Table of Contents	17	Financial Statement Index

our common stock to private investors and to Aspire Capital under the 2018 Aspire Purchase Agreement and the 2019 Aspire Purchase Agreement in exchange for $9.3 million plus Aspire Capital’s commitment to participate in the 2019 Aspire Purchase Agreement.

Stock-Based Compensation

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

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

The following table summarizes activity under our equity incentive plans related to equity-classified stock option grants as of September 30, ~~2018,~~2019, and changes during the nine months then ended:


	Shares		Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value (in thousands)		Shares		Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value (in thousands)
Outstanding at January 1, 2018	9,397,056		$	3.80
Outstanding at January 1, 2019								10,874,849		$	4.36
Granted	1,909,500		6.79					755,250		0.69
Exercised	(385,820	)	2.60					(2,250	)	1.99
Forfeited, cancelled or expired	(46,377	)	6.09					(158,117	)	3.70
Outstanding at September 30, 2018	10,874,359		$	4.36	7.8	$	2,885
Options exercisable at September 30, 2018	10,009,767		$	4.44	7.7	$	2,319
Outstanding at September 30, 2019								11,469,732		$	4.12	6.3	$	285
Options exercisable at September 30, 2019								10,853,295		$	4.32	6.1	$	44

~~We granted an option~~The following table summarizes activity under our equity incentive plans related to ~~purchase 1.3 million shares~~the China Cash Bonuses as of ~~our common stock at an exercise price of $7.81 per share to Kai-Shing Tao, our Chief Executive Officer~~September 30, 2019, and ~~Chairman of~~changes during 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.nine months then ended:



	Shares		Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value (in thousands)
Outstanding at January 1, 2019	1,464,750		$	5.60
Granted	152,000		1.56
Forfeited, cancelled or expired	(723,250	)	4.94
Outstanding at September 30, 2019	893,500		$	5.36	8.2	$	—
Bonuses exercisable at September 30, 2019	496,250		$	5.39	7.8	$	—

During the nine months ended September 30, 2019, we did not award restricted stock under our equity incentive plans.



Table of Contents	18	Financial Statement Index

~~The following table summarizes activity under our equity incentive plans related to the China Cash Bonuses as of September 30, 2018, and changes during the nine months then ended:~~

Shares Weighted-Average Exercise Price
Weighted-Average Remaining Contractual Term
(in years)
Aggregate Intrinsic Value (in thousands)
Outstanding at January 1, 2018 266,500
$ 3.84

Granted 1,367,375
6.02

Exercised (7,875 ) 4.28

Forfeited, cancelled or expired (233,375 ) 5.76

Outstanding at September 30, 2018 1,392,625
$ 5.67
9.3 $ 36
Bonuses exercisable at September 30, 2018 169,750
$ 4.04
8.2 $ 19

During ~~the nine months ended September 30, 2018, we did not award restricted stock under our equity incentive plans.~~

~~We incurred share-based compensation expense of $0.9 million and $1.6 million, respectively, during~~ the three months ended September 30, 2019 and 2018, ~~and 2017, and~~we incurred share-based compensation expense of ~~$12.9~~$0.1 million and ~~$2.2~~$0.8 million, respectively, and we incurred share-based compensation expense of $0.3 million and $12.5 million, respectively, during the nine months ended September 30, ~~2018~~2019 and ~~2017.~~2018.

Net ~~Income (Loss)~~Loss per Share

For the three and nine months ended September 30, ~~2018~~2019 and ~~2017,~~2018, there were no reconciling items related to either the numerator or denominator of the loss per share calculation.

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

include the outstanding stock options described above;

the outstanding CBG Acquisition Warrant, which may be exercised to purchase 40,000 shares of our common stock at a per-share exercise price of $10.00 (we are also committed to the future issuance of additional CBG Acquisition Warrants at the same per-share exercise price as the CBG Acquisition Warrant that has already been issued),; and the outstanding CBG Financing Warrants, which may be exercised to purchase ~~3,070,638~~3,808,423 shares of our common stock at an exercise price of ~~$4.78 per share;~~

the warrants issued in conjunction with our acquisition of Hotelmobi, Inc., which may be exercised to purchase 1,000,000 shares of our common stock, half at an exercise price of $8.00 per share and half at an exercise price of $12.00$3.86 per share.

NOTE ~~15.~~16. SEGMENT INFORMATION

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

Our chief operating decision ~~makers use~~maker uses Adjusted EBITDA as the primary measure of profitability for evaluating the operational performance of our reportable ~~segments.~~segment. Adjusted EBITDA represents operating income (loss) plus depreciation and amortization expense, share-based compensation expense, impairments and net other income, less other loss. ~~For~~We do not allocate certain types of shared expense, such as legal and accounting, to our ~~Travel~~reportable segment; such costs are included in Corporate Entity and Other.

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



	Technology & Data Intelligence			Corporate Entity and Other			Consolidated
Three Months Ended September 30, 2019
Revenue	$	549		$	137		$	686
Adjusted EBITDA	$	(1,556	)	$	(2,445	)	$	(4,001	)
Three Months Ended September 30, 2018
Revenue	$	1,039		$	716		$	1,755
Adjusted EBITDA	$	(1,674	)	$	(3,428	)	$	(5,102	)

Nine Months Ended September 30, 2019
Revenue	$	3,439		$	1,321		$	4,760
Adjusted EBITDA	$	(4,559	)	$	(7,372	)	$	(11,931	)
Nine Months Ended September 30, 2018
Revenue	$	5,591		$	1,877		$	7,468
Adjusted EBITDA	$	(5,166	)	$	(12,292	)	$	(17,458	)



Table of Contents	19	Financial Statement Index

~~& Entertainment segment,~~The following table reconciles Adjusted EBITDA ~~includes an allocation of rent expense, which allocation we base on usage of space. We do not allocate certain other types of shared expense, such as legal and accounting,~~ to ~~our reportable segments; such costs are included in Corporate Entity and Other.~~Loss before income taxes (in thousands):



	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
Adjusted EBITDA	$	(4,001	)	$	(5,102	)	$	(11,931	)	$	(17,458	)
Depreciation and amortization	(229		)	(520		)	(814		)	(1,657		)
Share-based compensation expense	(94		)	(764		)	(317		)	(12,519		)
Other expense (income), net	24			—			(23		)	(44		)
Other loss (gain)	28			16			27			(507		)
Operating loss	$	(4,272	)	$	(6,370	)	$	(13,058	)	$	(32,185	)
Other income (expense)
Interest expense	(457		)	(345		)	(1,397		)	(1,017		)
Other income (expense), net	(24		)	—			23			44
Change in fair value of warrant liability	(160		)	3,525			502			22,190
Other gain (loss), net	(28		)	(16		)	(27		)	507
Total other income (expense), net	$	(669	)	$	3,164		$	(899	)	$	21,724
Loss from continuing operations before income taxes	$	(4,941	)	$	(3,206	)	$	(13,957	)	$	(10,461	)

The following table presents ~~certain financial information regarding~~total assets for our ~~business segments~~reportable segment and the corporate and other entities (in thousands):



	September 30, 2019		December 31, 2018
Technology & Data Intelligence segment	$	12,905	$	15,563
Corporate entity and other business units	8,578		5,156
Consolidated	$	21,483	$	20,719

Capital expenditures for our Technology & Data Intelligence segment were de minimus during the three months ended September 30, 2019 and totaled $0.1 million during the three months ended September 30, 2018. During the nine months ended September 30, 2019 and 2018, capital expenditures for our Technology & Data Intelligence segment totaled $0.1 million and ~~2017 (in thousands):~~

Travel & Entertainment Technology & Data Intelligence Corporate Entity and Other Consolidated
Three Months Ended September 30, 2018
Revenue $ 17,596
$ 1,039
$ 716
$ 19,351
Adjusted EBITDA $ 2,324
$ (1,674 ) $ (3,428 ) $ (2,778 )

Three Months Ended September 30, 2017
Revenue $ 16,284
$ 2,203
$ 962
$ 19,449
Adjusted EBITDA $ 1,955
$ (946 ) $ (2,833 ) $ (1,824 )

Nine Months Ended September 30, 2018
Revenue $ 49,320
$ 5,591
$ 1,877
$ 56,788
Adjusted EBITDA $ 4,493
$ (5,166 ) $ (12,292 ) $ (12,965 )

Nine Months Ended September 30, 2017
Revenue $ 45,765
$ 3,212
$ 3,027
$ 52,004
Adjusted EBITDA $ 4,322
$ (2,096 ) $ (7,788 ) $ (5,562 )

$0.6 million, respectively.

NOTE 17. DISCONTINUED OPERATIONS

On May 15, 2019, we completed the VDC Transaction for an aggregate purchase price of $30 million. The business we sold in the VDC Transaction formerly comprised our Travel and Entertainment segment. In discontinued operations, we recognized a gain on the VDC Transaction of $6.5 million.



Table of Contents	20	Financial Statement Index

The following table ~~reconciles Adjusted EBITDA to Loss before income taxes~~presents the carrying amounts of the major classes of assets and liabilities associated with the disposed Travel and Entertainment segment (in thousands):

Three Months Ended September 30, Nine Months Ended September 30,
2018 2017 2018 2017
Adjusted EBITDA $ (2,778 ) $ (1,824 ) $ (12,965 ) $ (5,562 )
Depreciation and amortization (2,756 ) (2,482 ) (8,220 ) (8,237 )
Impairments —
(28 ) —
(28 )
Share-based compensation expense (891 ) (1,629 ) (12,913 ) (2,225 )
Other loss (1 ) —
(56 ) (20 )
Other loss (gain) 12
33
(511 ) 85
Operating loss $ (6,414 )
$ (5,930 )
$ (34,665 )
$ (15,987 )
Other income (expense)
Interest expense (1,307 ) (1,080 ) (3,968 ) (3,279 )
Other income 1
—
56
20
Change in fair value of warrant liability 3,525
(5,978 ) 22,190
2,351
Other gain (loss) (12 ) (33 ) 511
(85 )
Total other income, net $ 2,207

$ (7,091 )
$ 18,789

$ (993 )
Income (loss) before income taxes $ (4,207 )
$ (13,021 )
$ (15,876 )
$ (16,980 )



	May 15, 2019		December 31, 2018
Cash and cash equivalents (including restricted cash)	$	18,011	$	24,138
Other current assets	4,753		4,828
Current assets	$	22,764	$	28,966
Property and equipment, net	7,331		8,495
Goodwill and other intangibles, net	28,977		35,434
Other assets	1,856		194
Total assets	$	60,928	$	73,089

Accounts payable, accrued expense and other current liabilities	$	22,749	$	33,053
Deferred merchant booking	7,358		4,664
Contract liability	5,381		3,931
Current liabilities	$	35,488	$	41,648
Other liabilities	1,938		34
Total liabilities	$	37,426	$	41,682

The following table presents ~~total assets for our segments~~the major classes of line items constituting the pretax profit or loss of the disposed Travel and ~~the corporate and other entities~~Entertainment segment (in thousands):



	Three Months Ended September 30,					January 1, 2019 through May 15, 2019			Nine Months Ended September 30, 2018
	2019		2018			January 1, 2019 through May 15, 2019			Nine Months Ended September 30, 2018
Revenue	$	—	$	17,596		$	27,432		$	49,320

Cost of revenue (excluding depreciation and amortization)	—		3,162			4,016			8,779
Selling, general and administrative	—		9,793			18,383			29,107
Technology and development	—		2,185			3,280			6,640
Depreciation, amortization and impairments	—		2,236			8,007			6,563
Other operating expense	—		264			384			711
Other expense (income) and loss (gain), net	—		957			(3,814		)	2,935
Loss from discontinued operations before income taxes	—		(1,001		)	(2,824		)	(5,415		)
Benefit from income taxes	—		—			214			—
Loss from discontinued operations	$	—	$	(1,001	)	$	(2,610	)	$	(5,415	)

September 30,
2018 December 31, 2017
Travel & Entertainment segment $ 69,296
$ 75,820
Technology & Data Intelligence segment 3,824
5,105
Corporate entity and other business units 17,329
22,612
Consolidated $ 90,449
$ 103,537

Capital expenditures for our Travel & Entertainment segment totaled $0.3 million and $0.7 million during the three months ended September 30, 2018 and 2017, respectively, while capital expenditures for our Technology & Data Intelligence segment totaled $0.1 million and $0.2 million during each of the same periods, respectively. Capital expenditures for our Travel & Entertainment segment totaled $2.0 million and $1.6 million during the nine months ended September 30, 2018 and 2017, respectively, while capital expenditures for our Technology & Data Intelligence segment totaled $0.6 million and $1.0 million during each of the same periods, respectively.

~~NOTE 16. RELATED PARTY TRANSACTION~~

On June 11, 2018, we sold the IRS.com web domain to a company in which our former CFO has a significant ownership interest. The consideration consisted of a cash payment of approximately $0.6 million and assumed liabilities of approximately $0.1 million. We recognized a gain of approximately $0.6 million on the transaction which is reported in Other gain (loss) on our Unaudited Condensed Consolidated Statement of Operations and Comprehensive Income (Loss).



Table of Contents	21	Financial Statement Index

Depreciation, amortization and impairments includes $4.8 million of impairments of goodwill and intangible assets resulting from our decision to dispose of the previously-reported Travel and Entertainment segment.

For the nine months ended September 30, 2019, we allocated $2.7 million of interest expense to discontinued operations. We made such allocations based on the amount of debt specifically attributable to the discontinued operations.

NOTE ~~17.~~18. SUBSEQUENT EVENTS

~~Events Related to the Financing Agreement~~

On October 4, 2018, $2.25 million held in a cash collateral account to secure our obligations under the Financing Agreement (such amount reflected in Restricted cash in our consolidated balance sheet) was transferred to the Lenders and applied to the amount of exit fees due and payable under the Financing Agreement. The Financing Agreement requires us to maintain a balance in that account of at least $2.25 million and we have not replaced that amount transferred to Lenders, which constitutes an event of default under the Financing Agreement.

We are actively engaged in discussions with the Lenders regarding a resolution of the events of default under the Financing Agreement described herein. On October 16, 2018, in connection with those discussions, we agreed to increase the amount of the exit fees payable to the Lenders under the Financing Agreement by $1.0 million. Also in connection with those discussions, the Lenders have informed us that they are willing to forebear from taking any enforcement actions against us through December 31, 2018 if we continue to pursue certain strategic alternatives. We have engaged a financial advisor to assist us in assessing and pursuing those strategic alternatives, and we intend to continue pursuing those strategic alternatives and others, including the potential sale of certain non-core assets, investment assets and operating businesses, and to explore other alternatives for obtaining financing. We cannot provide any assurance that we will be successful in completing a strategic transaction or obtaining alternative financing, or that the Lenders will forebear from taking any enforcement actions against us.

~~Common Stock Issuance~~

~~On November 2, 2018,~~7, 2019, we sold ~~200,000~~625,000 shares of our common stock to ~~an accredited investor~~Aspire Capital under the 2019 Aspire Purchase Agreement in ~~a private placement~~exchange for $0.5 million.



Table of Contents	22	Financial Statement Index


ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read our discussion and analysis of our financial condition and results of operations for the three and nine months ended September 30, ~~2018~~2019 in conjunction with our unaudited condensed consolidated financial statements and notes thereto set forth in Part I, Item 1 of this Quarterly Report on Form 10-Q. Such discussion and analysis includes forward-looking statements that involve risks and uncertainties and that are not historical facts, including statements about our beliefs and expectations. You should also read “Special Note Regarding Forward-Looking Statements” in the section following the table of contents of this report.

OVERVIEW

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

Remark AI Business

Through our proprietary data and ~~increasing portion of~~AI platform, our ~~resources towards growing our~~Remark AI business (currently known in the Asia-Pacific region as KanKan, ~~business,~~and which we report as our Technology & Data Intelligence ~~segment. The segment~~segment) generates our data platform services revenue by developing and deploying artificial intelligence (“AI”) products and AI-based solutions for businesses in many industries and geographies, as well as by providing financial technology (“FinTech”) services. 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 launching several proof-of-concept projects.

~~We have been developing~~delivering AI-based vision products, computing devices and software-as-a-service ~~products that we are deploying~~(“SaaS”) solutions for businesses in ~~the retail, food-safety, construction-safety, and public-safety~~many industries. ~~We constantly improve our KanKan data and AI platform with advanced data, algorithms and training;~~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 ~~recently~~ received a top ~~rankings in Labeled Faces~~ranking in the National Institute of Standards and Technology’s Wild ~~(hosted by the University of Massachusetts) and MegaFace (hosted by the University of Washington), two~~Image Accuracy Test, a widely-recognized, global ~~facial-recognition testing platforms. Among~~facial-recognition-testing platform. In addition to the other work that we have ramped up, ~~during 2018,~~ 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. 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.

We have been introducing Remark AI’s innovative AI-based solutions into the retail, “smart city”, public safety, and workplace markets.

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

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

In traffic management, our ~~FinTech business, we are currently testing new products that comply~~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 ~~the strict regulations recently imposed by the Chinese government during an extended shutdown~~real-time information on traffic conditions such as areas of the lending market in China while the Chinese government conducted an industry-wide regulatory audit. We believe the new products, which we plan to launch in the near future, will serve the high demand for consumer loans in China.congestion or other traffic anomalies.

~~We also own~~Workplace and ~~operate Vegas.com, an online agency catering~~Food Safety Solutions. The monitoring and detection capabilities of our solutions ensure that workers are practicing established food safety protocols, wearing the proper safety gear, and complying with local health codes. From commercial kitchens to ~~the travel~~construction work zones, our safety-compliance algorithms manage regulatory functions, review hygienic and ~~entertainment needs of visitors to the Las Vegas area~~equipment status while checking and ~~those of Las Vegas locals. Our Travel & Entertainment segment generates transaction services revenue from sales of travel and entertainment products, such as show tickets and hotel rooms.~~

~~Various advertising mechanisms and other activity, such as online merchandise sales, also contribute to our consolidated revenue.~~

~~The following table presents our revenue categories as a percentage of total consolidated revenue during the three and nine months ended September 30, 2018.~~

Three Months Ended September 30, Nine Months Ended September 30,
2018 2017 2018 2017
Transaction services 86 % 77 % 82 % 82 %
Data platform services 5 % 11 % 10 % 6 %
Advertising and other 9 % 12 % 8 % 12 %

Our Travel & Entertainment segment experienced a record number of transactions during the first nine months of 2018, and is on pace for a record number of transactions during the 2018 year. Such activity, a large portion of which resulted from significant improvement in conversion rates related to entertainment bookings, gives us confidence that our strategy of gaining market share in the entertainment market by continuing to invest in technology and marketing is succeeding. As we havealerting management regarding violations.



Table of Contents	23	Financial Statement Index

~~previously noted,~~

Other Business

In addition to AI and data-analytics solutions, we maintain a digital media portfolio which, in addition to operating businesses, includes approximately 4.6% ownership in the issued stock of Sharecare, Inc., an established health and wellness platform with more than 100 million users, which has now raised in excess of $425 million of total capital. We continue to ~~focus on expanding~~evaluate opportunities to monetize and maximize the value of this asset for our ~~presence on mobile devices and improving the user experience on~~shareholders. In addition to Data Platform Services revenue from our ~~mobile~~Remark AI business, activities such as online ~~offerings, and will~~merchandise sales at our other operating businesses also ~~continue making changes~~contributed to our ~~desktop experience such as those that led to our improved conversion rates.~~

~~We recognized~~consolidated revenue ~~during the nine months ended September 30, 2018 from creating and deploying a data analytics product for one of our customers, from installing our retail product~~ in the ~~first two retail locations of one of our retail clients,~~current-year and ~~we are currently passing proof-of-concept tests and beginning deployment and implementation on additional AI projects. We will continue~~prior-year periods, while advertising also contributed to ~~accelerate our development and deployment of products and services built upon our KanKan data and AI platform, and we expect our operating expenses to increase~~revenue in ~~line with such activity.~~

Revenue from our FinTech services, which represents commissions we earn for providing high-quality loan candidates to our customers, was impacted by the industry-wide regulatory audit in China. After January 2018, due to the regulatory changes resulting from the audit, we ceased providing such services under our then-existing FinTech contracts that gave rise to Reimbursement Obligations (see ~~Note 2~~ ~~in the Notes to Unaudited Condensed Consolidated Financial Statements for more information), and the new FinTech products we are currently testing do not give rise to Reimbursement Obligations.~~prior-year periods.

Overall Business Outlook

~~CRITICAL ACCOUNTING POLICIES~~

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 continue expanding our business, particularly in the Asia-Pacific region, where we believe there are greater market opportunities for our solutions. However, we may continue to face challenges in 2019 due to continuing economic and geopolitical conditions in some international regions. We continue to pursue large business opportunities, but it is difficult to anticipate how long it will take to close these opportunities, or if they will ever ultimately come to fruition. It is also difficult to determine whether our software solutions will be accepted as viable in the market segments we have identified, which include a number of large, well-known competitors. The continued expansion of our business is expected to cause increases in our operating expenses in the future.

Business Developments During 2019

On May 15, 2019, we completed the sale of Vegas.com, which allowed us to use the resulting proceeds to significantly reduce our debt and also further our near-complete focus on data analytics and AI technology. We continued to work closely with a diverse group of clients and executed on various stages of AI product deployment, including a project that installed KanKan’s taxi-safety-monitoring system in more than 2,000 taxis in the Chinese city of Xi’an. Our installation of 5,000 terminals of our AI-driven pharmacy-patient terminal system in 2018 led to an additional contract to install in 2019 an additional 15,000 terminals in pharmacies in additional Chinese cities, a project which is ongoing. With partner Hanvon Technology, we won a contract to transform one of the world’s largest telecom provider’s 17,800 corporate stores in China into “smart” retail stores. The first phase of the partnership with Hanvon is expected to bring us $50.0 million of revenue over the three-year life of the project.

Results during the third quarter 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 put off decisions and work stopped while the celebrations occurred. Also, the trade war between the United States and China has 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 the implementation of our contracts. Our projects often involve extended testing and customer customization requests that occur throughout a project’s life, which can slow the speed of full delivery and, therefore, slow revenue recognition.

The following table presents our revenue categories as a percentage of total consolidated revenue during the three and nine months ended September 30, ~~2018, we made no material changes to our critical accounting policies as we disclosed them in Part II, Item 7 of our 2017 Form 10-K.~~

~~RESULTS OF OPERATIONS~~

~~The following discussion summarizes our operating results for the three and nine months ended September 30, 2018 compared to the three and nine months ended September 30, 2017.~~

~~Reportable Segment Results~~

~~Travel & Entertainment~~

2019.

(dollars in thousands) Three Months Ended September 30, Change
2018 2017 Dollars Percentage
Revenue $ 17,596
$ 16,284
$ 1,312
8 %

Cost of revenue 3,162
2,896
266
9 %
Sales and marketing 6,923
6,151
772
13 %
Technology and development 625
626
(1 ) — %
General and administrative 4,625
4,592
33
1 %
Depreciation and amortization 2,236
2,155
81
4 %
Other operating expense 69
65
4
6 %



	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Data platform services:
FinTech services	—	%	39	%	—	%	50	%
AI-based products and services	80	%	20	%	72	%	25	%
Advertising and other	20	%	41	%	28	%	25	%



Table of Contents	24	Financial Statement Index

(dollars in thousands) Nine Months Ended September 30, Change
2018 2017 Dollars Percentage
Revenue $ 49,320
$ 45,765
$ 3,555
8 %

Cost of revenue 8,779
8,144
635
8 %
Sales and marketing 20,165
17,531
2,634
15 %
Technology and development 1,878
1,877
1
— %
General and administrative 14,245
13,744
501
4 %
Depreciation and amortization 6,563
6,280
283
5 %
Other operating expense 170
167
3
2 %

~~Revenue.~~Matters Affecting Comparability of Results

We ~~continue~~disposed of the subsidiaries comprising our formerly-reported Travel and Entertainment segment and we have reported such former segment as discontinued operations in our Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss. Unless otherwise noted therein, the Results of Operations section below only discusses our continuing operations.

We have changed how we present operating expense to ~~experience increased conversion~~better reflect the activities that generate such expense. As a result, the operating expense line items in our results of ~~traffic through our sales channels. The increased transactions, as well as improved commissions we earn on sales of third-party products, increased transaction services revenue during~~operations for the three and nine months ended September 30, 2018 ~~by $2.2 million and $5.7 million, respectively.~~were reclassified to conform to the current presentation as of September 30, 2019.

The increased revenue from transaction growth was partially offset by decreases of approximately $0.3 million and $1.3 million, respectively, from hotel transactions resulting from lower average purchase prices due to market conditions.

~~We do not currently sell advertising on mobile devices, so the movement of online traffic from desktop devices to mobile devices caused a decline in advertising revenue during~~

CRITICAL ACCOUNTING POLICIES

During the three and nine months ended September 30, 2019, we made no material changes to our critical accounting policies as we disclosed them in Part II, Item 7 of our 2018 of approximately $0.2 million and $0.4 million, respectively, which also partially offset the increased revenue from transaction growth. Various immaterial declines in other revenue categories also contributed to offsetting of the increase resulting from show ticket sales.Form 10-K.

~~Sales and marketing.~~

RESULTS OF OPERATIONS

The ~~increase in~~following discussion summarizes our ~~sales and marketing expense in the Travel & Entertainment segment during~~operating results for the three and nine months ended September 30, ~~2018 was driven primarily by increases of $0.8 million~~2019 compared to the three and $2.8 million, respectively, in paid search marketing cost at Vegas.com. The increases resulted from the competitive nature of the paid search marketplace. The increases in conversion of traffic allowed Vegas.com to spend more in paid search to increase market share, which resulted in more transactions and increased revenue.

~~General and administrative.~~ ~~Of the increase in general and administrative expense in the Travel & Entertainment segment during the~~ nine months ended September 30, 2018, approximately $0.4 million resulted from recording share-based compensation expense in the segment during 2018, whereas all share-based compensation expense was recorded on the corporate entity during 2017 and prior years.2018.

Reportable Segment Results

Technology & Data Intelligence



(dollars in thousands)	Three Months Ended September 30,				Change
	2019		2018		Dollars			Percentage
Revenue	$	549	$	1,039	$	(490	)	(47	)%

Cost of revenue	62		612		(550		)	(90	)%
Sales and marketing	170		306		(136		)	(44	)%
Technology and development	686		1,363		(677		)	(50	)%
General and administrative	1,168		468		700			150	%
Depreciation and amortization	119		169		(50		)	(30	)%
Other operating expense	—		47		(47		)	(100	)%



Table of Contents	25	Financial Statement Index

~~Technology & Data Intelligence~~



(dollars in thousands)	Nine Months Ended September 30,				Change
	2019		2018		Dollars			Percentage
Revenue	$	3,439	$	5,591	$	(2,152	)	(38	)%

Cost of revenue	2,666		5,004		(2,338		)	(47	)%
Sales and marketing	615		706		(91		)	(13	)%
Technology and development	2,688		3,210		(522		)	(16	)%
General and administrative	2,022		1,658		364			22	%
Depreciation and amortization	424		486		(62		)	(13	)%
Other operating expense	6		93		(87		)	(94	)%

(dollars in thousands) Three Months Ended September 30, Change
2018 2017 Dollars Percentage
Revenue $ 1,039
$ 2,203
$ (1,164 ) (53 )%

Cost of revenue 612
2,056
(1,444 ) (70 )%
Sales and marketing 40
8
32
400 %
Technology and development 123
138
(15 ) (11 )%
General and administrative 1,974
946
1,028
109 %
Depreciation and amortization 169
172
(3 ) (2 )%
Other operating expense 47
1
46
4,600 %

(dollars in thousands) Nine Months Ended September 30, Change
2018 2017 Dollars Percentage
Revenue $ 5,591
$ 3,212
$ 2,379
74 %

Cost of revenue 5,004
3,028
1,976
65 %
Sales and marketing 88
22
66
300 %
Technology and development 398
391
7
2 %
General and administrative 5,088
1,863
3,225
173 %
Depreciation and amortization 486
379
107
28 %
Other operating expense 93
1
92
9,200 %

Revenue and Cost of ~~revenue.~~Revenue. During the three months ended September 30, 2018, revenue decreased by approximately $1.8 million as a result of regulatory changes impacting our FinTech business, which decrease was partially offset by an approximately $0.6 million increase in revenue from AI products and solutions. The amount of revenue from AI products and solutions was less than we expected due to delayed deployment primarily caused by extended proof-of-concept testing and clients’ schedule changes. We expect to begin deploying the delayed projects in the coming weeks.

~~For the~~ nine months ended September 30, ~~2018,~~2019, we ~~recognized approximately $1.8 million more~~generated revenue ~~related to AI projects~~ as a result of passing proof-of-concept tests on ~~several~~ projects and beginning the deployment and implementation phases. Such projects ~~include an AI-based data analytics product we developed for one~~deliver fully-integrated AI solutions which combine our proprietary technology with third-party hardware and software products to meet end-user specifications. In the prior-year periods, large portions of our ~~customers and an AI-based retail solution for two of~~revenue resulted from providing loan candidates under then-existing FinTech contracts, a service we have since discontinued due to regulatory changes resulting from the ~~largest retail chain stores~~industry-wide audit in ~~Asia, as well as other deployments of~~China in 2018. As described earlier, in addition to our ~~solutions. Additionally,~~decision to discontinue our FinTech contract services, our revenue during the ~~nine~~three months ended September 30, ~~2018, despite~~2019 was also affected by a country-wide slowdown in business due to anniversary celebrations in China, the ~~regulatory changes impacting~~ongoing U.S.-China trade war, and extended project testing and customizations on our FinTech business, we provided more high-quality loan candidates to customers than we did during the same period of the prior year primarily because we had just begun providing FinTech services towards the end of the second quarter of 2017, resulting in an increase of approximately $0.6 million in revenue. The changes in our cost of revenue were directly related to the changes in our revenue.larger projects.

~~General and administrative.~~ Our recent personnel increase (which approximately doubled headcount and consists almost exclusively of IT-related employees) to accelerate product development and support an increased number of our projects in the proof-of-concept phase resulted in increases duringDuring the three and nine months ended September 30, ~~2018~~2019, we recognized approximately $0.3 million and $1.1 million, respectively, 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 determining that collectability of all amounts payable to us under the contracts was probable.

Our cost of revenue decreased for the three and nine months ended September 30, 2019 primarily due to our decision to discontinue the FinTech contract services, the effect of which was partially offset in the nine months ended September 30, 2019 by an increase in cost of revenue related to more AI projects in the current year-to-date period.

Technology and development. Our technology and development expense decreased primarily as a result of headcount reduction, which led to decreases of approximately ~~$0.5~~$0.4 million ~~and $2.1 million, respectively,~~ in payroll and related ~~cost. The accelerated product development~~costs in the three and ~~increase in proof-of-concept testing for clients also caused expense for rent, travel and professional services to increase by an aggregate of $0.3 million and $0.7 million, respectively,~~nine months ended September 30, 2019. Additionally, during the ~~same periods. Individually immaterial increases~~three months ended September 30, 2019, decreases of approximately $0.1 million each in ~~various other expenses~~stock-based compensation expense and in data storage costs contributed to the ~~remaining~~overall decrease.

General and administrative. The increase in general and administrative ~~expense.~~expense for the three and nine months ended September 30, 2019 resulted due to an increase of approximately $0.8 million in our allowance for doubtful accounts because we identified an increased risk in the third quarter of 2019 that we may not fully collect on certain trade receivables related to our AI projects. The increase in the bad debt expense during the year-to-date period of 2019 was not as large as the increase in such expense during the third quarter of 2019 because the year-to-date period of the prior year included the recording of approximately $0.3 million of allowance for doubtful accounts during the first six months of 2018.

Generally, it is not unusual for Chinese entities to pay their vendors on longer timelines than the timelines typically observed in U.S. commerce. Trade receivables related to our AI projects (exclusive of FinTech) represent 71% of our gross trade receivables. Substantially all of our remaining gross trade receivables balance resulted from the FinTech service we have discontinued. The delay in collection of the FinTech-related balance is related to the processes our customer must follow to properly shut down the short-term loan business in which they previously participated before they can finally pay all their vendors, but we have no evidence that full collection of such balance is at risk.



Table of Contents	26

Consolidated Results


(dollars in thousands)	Three Months Ended September 30,						Change					Three Months Ended September 30,						Change
	2018			2017			Dollars			Percentage		2019			2018			Dollars			Percentage
Revenue	$	19,351		$	19,449		$	(98	)	(1	)%	$	686		$	1,755		$	(1,069	)	(61	)%

Cost of revenue	4,393			5,641			(1,248		)	(22	)%	189			1,231			(1,042		)	(85	)%
Sales and marketing	7,213			6,326			887			14	%	736			1,108			(372		)	(34	)%
Technology and development	842			865			(23		)	(3	)%	752			1,459			(707		)	(48	)%
General and administrative	10,444			9,971			473			5	%	3,052			3,760			(708		)	(19	)%
Depreciation and amortization	2,756			2,482			274			11	%	229			520			(291		)	(56	)%
Other operating expense	117			66			51			77	%	—			47			(47		)	(100	)%

Interest expense	(1,307		)	(1,080		)	(227		)	21	%	(457		)	(345		)	(112		)	32	%
Other income (expense)	1			—			1
Other expense												(24		)	—			(24		)
Change in FV of warrant liability	3,525			(5,978		)	9,503			(159	)%	(160		)	3,525			(3,685		)	(105	)%
Other gain (loss)	(12		)	(33		)	21			(64	)%
Provision for (benefit from) income taxes	442			(229		)	671			(293	)%
Other loss												(28		)	(16		)	(12		)	75	%
Benefit from income taxes												—			442			(442		)	(100	)%


(dollars in thousands)	Nine Months Ended September 30,						Change					Nine Months Ended September 30,						Change
	2018			2017			Dollars			Percentage		2019			2018			Dollars			Percentage
Revenue	$	56,788		$	52,004		$	4,784		9	%	$	4,760		$	7,468		$	(2,708	)	(36	)%

Cost of revenue	14,557			12,270			2,287			19	%	3,323			5,778			(2,455		)	(42	)%
Sales and marketing	20,884			17,975			2,909			16	%	2,282			3,165			(883		)	(28	)%
Technology and development	2,587			2,657			(70		)	(3	)%	2,910			3,550			(640		)	(18	)%
General and administrative	44,941			26,656			18,285			69	%	8,483			25,410			(16,927		)	(67	)%
Depreciation and amortization	8,220			8,237			(17		)	—	%	814			1,657			(843		)	(51	)%
Other operating expense	264			168			96			57	%	6			93			(87		)	(94	)%

Interest expense	(3,968		)	(3,279		)	(689		)	21	%	(1,397		)	(1,017		)	(380		)	37	%
Other income (expense)	56			20			36			180	%
Other income												23			44			(21		)	(48	)%
Change in FV of warrant liability	22,190			2,351			19,839			844	%	502			22,190			(21,688		)	(98	)%
Other gain (loss)	511			(85		)	596			(701	)%	(27		)	507			(534		)	(105	)%
Provision for (benefit from) income taxes	1,437			(603		)	2,040			(338	)%
Benefit from income taxes												—			1,437			(1,437		)	(100	)%

~~Consolidated results of operations were primarily impacted by~~In addition to the results of operations of our reportable ~~segments, as~~segment that we described ~~above.~~above, the following items impacted our consolidated results of operations:



Table of Contents	27

Revenue and Cost of Revenue.~~The~~ During the three months ended September 30, 2019, revenue ~~reported by~~from our Remark Entertainment business ~~(formerly referred~~decreased $0.5 million and associated cost of revenue decreased $0.3 million due to ~~as our Fanstang business) decreased during~~contracts that ended in the prior year that we did not renew. We also experienced a small decrease in e-commerce cost of sales.

During the nine months ended September 30, 2019, advertising revenue decreased $0.8 million because we sold Banks.com and the tax-related businesses during 2018, ~~by approximately $0.9 million primarily due to contracts for live broadcast events and sponsorships that expired~~which had generated such revenue in the prior ~~year~~year. The decrease in advertising revenue was partially offset by an increase of $0.3 million in e-commerce revenue due to increased site traffic resulting from more efficient marketing efforts.

Sales and ~~have not been renewed.~~marketing. The decrease in sales and marketing expense for the three and nine months ended September 30, 2019 primarily resulted from a decrease in headcount in certain of our businesses, which caused approximate decreases of $0.2 million and $0.6 million, respectively, in payroll and related costs. The nine months ended September 30, 2019 also saw a decrease of approximately $0.2 million in other marketing costs which resulted from more efficient use of marketing dollars.

General and administrative. The decrease in general and administrative expense incurred by our non-reportable-segment businesses in the third quarter of ~~2018~~2019 from the corresponding ~~2017~~2018 period was affected by the following:

~~A decrease~~Stock-based compensation decreased approximately $0.6 million because all awards outstanding vested in full during the second quarter of ~~approximately $0.9 million in share-based compensation expense resulted because the prior-year period included significantly more~~2019. Also, prior to 2019, our most recent company-wide grant of stock options ~~with early vesting.~~(which vest over a two-year period) had occurred in 2017 and contributed nine months of expense to the 2018 year-to-date period, but only six months of expense to the 2019 year-to-date period.

~~Our increased~~Consulting fees decreased approximately $0.3 million, primarily as a result of decreased use of ~~consultants for certain new strategic and administrative projects, primarily one to enhance the robustness~~temporary external consultants.

Individual immaterial decreases in several other expense categories that were not representative of ~~our global Sarbanes-Oxley compliance program, added approximately $0.4 million more than in the same period of the prior year.~~any significant trends.

The ~~increase~~decrease in general and administrative expense incurred by our non-reportable-segment businesses in the ~~first~~ nine months ~~of 2018~~ended September 30, 2019 from the corresponding ~~2017~~2018 period was affected by the following:

InStock-based compensation expense decreased approximately $12.4 million primarily because in January 2018, we immediately recognized $11.6 million of ~~stock-based compensation~~ 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. ~~The effect of that single award was partially offset by differences~~We did not make a similar grant in the ~~amount and timing~~current year. Also, prior to 2019, our most recent company-wide grant of stock ~~option grants~~options (which vest over a two-year period) had occurred in 2017 and contributed nine months of expense to ~~other employees, resulting in a net increase~~the 2018 year-to-date period, but only six months of ~~$10.3 million in stock-based compensation expense.~~expense to the 2019 year-to-date period.

~~An increase~~Rent expense decreased $2.3 million almost exclusively because, in ~~rent expense of approximately $1.9 million which resulted from our recording of~~March 2018, we recognized a liability ~~associated with~~on the early abandonment of a ~~lease for office space in March 2018.~~lease. No similar transactions occurred during the ~~same period~~first half of the ~~prior year.~~current year-to-date period.

~~Our increased use of consultants for certain new strategic and administrative projects, primarily one to enhance the rigor of our global Sarbanes-Oxley compliance program, added~~Consulting fees decreased approximately ~~$1.2 million more than in the same period of the prior year.~~

~~Legal expense increased approximately $0.4~~$0.9 million, primarily as a result of ~~litigation work related to the CBG Acquisition and contract review and translation services related to the increased number~~decreased use of ~~contracts related to our business in China.~~temporary external consultants.

~~Individually immaterial increases~~Payroll and related costs, excluding bonuses, decreased approximately $0.5 million as a result of headcount reductions in ~~other expense categories that contributed to the remaining increase.~~finance and administration.

We reduced business travel in 2019, resulting in a decrease of approximately $0.5 million in travel expense.

Approximately $0.3 million of one-time bonuses were paid in 2018 that were not repeated during 2019.

Depreciation and amortization. The decrease in depreciation and amortization for the three and nine months ended September 30, 2019 was the result of long-lived assets which were being depreciated or amortized in the prior-year periods which were no longer being depreciated in the current year periods, either as a result of impairments and write offs or as a result of such assets being fully depreciated or amortized before, or during the early part of, the current year periods.



Table of Contents	28

Interest expense. The increase in interest expense for the nine months ended September 30, 2019 was ~~the~~primarily related to our recognition of previously-unamortized debt discount and debt fees as a result of our prepayment of a portion of our debt when we completed the VDC Transaction. Such prepayment of debt also partially offset the increase from the accelerated amortization of debt discount and debt fees because of the lower debt principal amount generating interest expense.

Other gain. While we only recorded de minimis amounts of Other gain during the three and nine months ended September 30, 2019, the comparable prior-year periods included approximately $0.6 million of gain on ~~our debt. We accounted for~~ the ~~amendments to~~disposal of the ~~Financing Agreement executed since October 2017 as debt modifications, adding $2.5 million to the amount of discount on our debt in the form of additional fees.~~IRS.com domain.

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, such that the ~~significant~~increase in our common stock price between June 30, 2019 and September 30, 2019 resulted in a corresponding increase in the fair value of our warrant liability. The increase in our common stock price was much smaller in scale than the decrease in our common stock price between June 30, 2018 and September 30, 2018 and, as a result, we recognized only a small loss in the current period compared to the large gain we recognized during the same period of 2018.

The decrease in our common stock price between December 31, 2018 and September 30, 2019 was much smaller in scale than the decrease in our common stock price between December 31, 2017 and September 30, ~~2018 resulted in a corresponding decrease in~~2018; therefore, during the ~~fair value of our warrant liability. The decrease in our common stock price was much larger than the decrease in our common stock price between December 31, 2016 and~~nine months ended September 30, ~~2017 and, as~~2019, we recognized less of a ~~result, the amount of decrease in the warrant liability was much larger~~gain than during the same period of ~~2017. The same relationship between our common stock price and~~2018. Also contributing to the ~~estimated fair value of~~decreases in the ~~warrants was the primary cause of the decrease~~change in the fair value of ~~our~~the warrant liability ~~during~~was the ~~third quarter~~one-year decrease in the amount of time the warrants are expected to be outstanding. In both the quarter-to-date and year-to-date periods of 2019, the amount of the decrease from the same periods in 2018 ~~compared to an increase~~in the recognized change in the fair value of ~~our~~the warrant liability ~~during~~that resulted from stock price changes and the ~~third quarter of 2017.~~

~~Other gain (loss).~~ ~~During June 2018, we disposed~~decrease in expected term of the ~~IRS.com domain, resulting~~warrants was partially offset by increases in ~~a $0.6 million gain on disposal.~~the estimated fair values of the warrant liability that resulted because we increased our estimate of stock price volatility as an input to the model we use for fair value estimation.



~~Table of Contents~~	28

LIQUIDITY AND CAPITAL RESOURCES

Overview

We are a party to the Financing Agreement, pursuant to which the Lenders have extended credit to the Borrowers consisting of the Loan in the original aggregate principal amount of $35.5 million. As of September 30, ~~2018,~~2019, the Loan bore interest at three-month LIBOR (with a floor of 1%2%) plus 11% per annum, payable monthly, and had a maturity date of ~~September 30,~~May 15, 2020. ~~As of September 30, 2018, the applicable interest rate on the Loan was approximately 13% per annum.~~ The material terms of the Financing Agreement, the amendments thereto, and related documents effective as of September 30, ~~2018~~2019 are described in Note 1112. in the Notes to Unaudited Condensed Consolidated Financial Statements. As of September 30, ~~2018, $35.5~~2019, $11.6 million of aggregate principal remained outstanding under the ~~Loan.~~Loan, which bore an applicable interest rate of approximately 13% per annum. Our available cash and other liquid assets are not sufficient to pay our obligations under the Financing Agreement in full.

Pursuant to the Fourth Financing Amendment dated as of April 30, 2018, the Borrowers agreed to make a prepayment of $8.0 million principal amount outstanding and $3.5 million of exit fees under the Financing Agreement within 60 days following the date of the Fourth Financing Amendment. Pursuant to the Fifth Financing Amendment dated as of June 29, 2018, the Lenders agreed, among other things, to extend the due date of the prepayments and fees required by the Fourth Financing Amendment for up to three months, provided that we made extension payments on the first business day of each such month. The extension payments were $250,000 for each of the first two months and $500,000 for the third month, with the final extension period ending on September 28, 2018. We made the extension payments required by the Fifth Financing Amendment to extend the payment date to September 28, 2018; however, we did not make the payments required on such date, which constitutes an event of default under the Financing Agreement. As a result of the default, from September 28, 2018, the Loan bore interest at three-month LIBOR plus 11.0%, the default interest rate.

The Financing Agreement ~~also~~ contains certain affirmative and negative covenants, including but not limited to ~~financial covenants with respect~~a covenant requiring us to ~~quarterly EBITDA levels and the value~~maintain a minimum of ~~our assets.~~$1.0 million in unrestricted cash in designated bank accounts. As of September 30, ~~2018,~~2019, we were not in compliance with ~~the covenant under the Financing Agreement requiring~~such minimum revenue from our KanKan business during the trailing nine-month period ended September 30, 2018 of $12.6 million, as actual revenue from our KanKan business during such period was $5.6 million. Our non-compliancecash covenant. We were also not in compliance with ~~such covenant constitutes an event of default under the Financing Agreement.~~

On October 16, 2018, in connection with our discussions with Lenders regarding a resolution of the events of default under the Financing Agreement described herein, we agreed to increase the amount of the exit fees payable to the Lenders under the Financing Agreement by $1.0 million.

~~As a result of our events of default under the Financing Agreement, the Lenders may declare our obligations~~certain other covenants under the Financing Agreement, including ~~all unpaid principal~~a covenant requiring us to obtain and ~~interest, due and payable immediately and exercise such other rights available to them under~~pay for the ~~Financing Agreement. We are actively engaged~~Tail Policy by June 4, 2019 in ~~discussions~~connection with the ~~Lenders regarding~~VDC Transaction, and a ~~resolution of~~covenant requiring us to make the final Earnout Payment 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 stipulated by the Sharecare Covenant. Our non-compliance with such covenants constitutes events of default under the Financing Agreement. In ~~connection with those discussions,~~addition, in June 2019, the Lenders have informed us that they are willing to forebear from taking any enforcement actions against us for a specified period if we continue to pursue certain strategic alternatives. We have engaged a financial advisor to assist us in assessing and pursuing those strategic alternatives, and we intend to continue pursuing those strategic alternatives and others, includingpaid the potential sale of certain non-core assets, investment assets and operating businesses, and to explore other alternatives for obtaining financing. We cannot provide any assurance that we will be successful in completing a strategic transaction or obtaining alternative financing, or that the Lenders will forebear from taking any enforcement actions against us.



~~Table of Contents~~	29

On September 24, 2015, concurrently with the closing of the VDC Acquisition, Vegas.com entered into a Letter of Credit Facility Agreement with Bank of America, N.A., which currently expires on May 31, 2019, providing for a letter of credit facility with up to $9.3$1.1 million of ~~availability. Amounts available~~premium under the ~~letter of credit facility are subject~~Tail Policy on our behalf and such amount was added to ~~customary fees and are secured by a first-priority lien on, and security interest in, a cash collateral account with~~ the ~~bank containing cash equal to 101.25% of the aggregate outstanding undrawn face~~ amount of ~~all letters of credit~~principal due under the ~~letter of credit facility outstanding.~~Financing Agreement.



Table of Contents	29

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.

Pursuant to the terms of the purchase agreement we entered into in connection with the VDC Acquisition, we ~~are~~were obligated to make an Earnout Payment of $1.0 million based upon the performance of Vegas.com in the year ended December 31, ~~2018. We expect that the performance of Vegas.com during the year ended December 31,~~ 2018, ~~will trigger the maximum Earnout Payment of $1.0 million, which will be due in the second quarter of 2019.~~but we have not yet made such payment.

On ~~November 9, 2016,~~March 29, 2019, we entered into the 2016 Aspire Purchase Agreement with Aspire Capital, which provided that, upon the terms and subject to the conditions and limitations set forth therein, we had the right to direct Aspire Capital to purchase up to an aggregate of $20.0 million of shares of our common stock over the 30-month term of the 2016 Aspire Purchase Agreement. Purchases under the 2016 Aspire Purchase Agreement were made at prices calculated in accordance with the terms of the 2016 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 agreed otherwise. Additionally, the total number of shares issuable pursuant to the 2016 Aspire Purchase Agreement was limited to 4,273,411 shares (the “2016 Aspire Exchange Cap”), or 19.99% of our shares of common stock outstanding as of the date of the 2016 Aspire Purchase Agreement, unless stockholder approval was obtained in accordance with the rules of the Nasdaq Stock Market. If stockholder approval was not obtained, such limitation would not apply after the 2016 Aspire Exchange Cap was reached if at all times thereafter the average purchase price paid for all shares issued under the 2016 Aspire Purchase Agreement was equal to or greater than $3.96 per share. As of the termination of the 2016 Aspire Purchase Agreement effective July 2, 2018, we had issued the maximum number of shares issuable within the 2016 Aspire Exchange Cap, including 4,121,896 shares purchased by Aspire Capital for an aggregate purchase price of $12.8 million and 151,515 shares issued to Aspire Capital upon executing the 2016 Aspire Purchase Agreement. As of July 2, 2018, we had not obtained stockholder approval and we were able to make subsequent issuances under the 2016 Aspire Purchase Agreement only if and to the extent that following such issuance the average purchase price paid was equal to or greater than $3.96 per share.

~~On July 2, 2018, we entered into the 2018~~2019 Aspire Purchase Agreement with Aspire Capital, 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 of $30.0 million of shares of our common stock over the 30-month term of the 2019 Aspire Purchase Agreement. On April 5, 2019, the conditions necessary for purchases under the 2019 Aspire Purchase Agreement to commence were satisfied and the 2018 Aspire Purchase Agreement was terminated under the terms of the 2019 Aspire Purchase Agreement. We issued 629,370 shares of our common stock to Aspire Capital upon commencement of the 2019 Aspire Purchase Agreement. Purchases under the ~~2018~~2019 Aspire Purchase Agreement, which is described in more detail in Note 1415, in the Notes to Unaudited Condensed Consolidated Financial Statements, are made at prices calculated in accordance with the terms of the ~~2018~~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 ~~2018~~2019 Aspire Purchase Agreement is limited to the ~~2018 Aspire~~ Exchange Cap, ~~which represents 19.99% of our shares of common stock outstanding as of the date of the 2018 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 ~~2018~~2019 Aspire Purchase Agreement is equal to or greater than $3.91 per share. As of September 30, 2018, we have issued to Aspire Capital a total of 3,308,812 shares of our common stock under the 2018 Aspire Purchase Agreement, including 3,095,238 shares purchased by Aspire Capital for an aggregate purchase price of $10.0 million, and 213,574 shares issued to Aspire Capital upon executing the 2018 Aspire Purchase Agreement. As of September 30, 2018, we had not obtained stockholder approval and we were able to issue to Aspire Capital up to a maximum of 3,320,227 additional shares under the 2018 Aspire Purchase Agreement, unless and to the extent that following such issuance the average purchase price paid was equal to or greater than $3.91$1.85 per share.



~~Table of Contents~~	30

actively evaluating strategic alternatives including ~~the~~debt refinancing and potential ~~sale~~sales of ~~certain non-core assets,~~ investment assets ~~and~~or 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 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 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:

monetize existing assets

~~work with our creditors to modify existing arrangements or~~ refinance our debt

obtain additional capital through equity issuances, including but not limited to under the ~~2018~~2019 Aspire Purchase Agreement (which issuances may dilute existing stockholders)



Table of Contents	30

Cash Flows - Continuing Operating Activities

During the nine months ended September 30, ~~2018,~~2019, we used ~~$19.3~~$6.2 million ~~more~~less cash in continuing operating activities than we did during the ~~nine months ended September 30, 2017.~~same period of the prior year. The ~~increase~~decrease in cash used in continuing operating activities is a result of an increase in operating losses, including the increase in our operations in China (which included increasing payroll costs); paying security deposits related to our travel and entertainment business; increasing the use of consultants for certain new strategic and administrative projects (primarily one to enhance the rigor of our global Sarbanes-Oxley compliance program) and the timing of payments related to elements of working capital.

Cash Flows - Continuing Investing Activities

During the nine months ended September 30, ~~2018,~~2019, we received ~~approximately $0.6~~$30.0 million ~~upon the disposition of the IRS.com domain name~~ in ~~June 2018. The~~ proceeds from ~~such asset disposition were almost entirely offset by our payment of $0.5 million towards our investment~~the VDC Transaction, while no similar transaction occurred in ~~AIO (see~~ ~~Note 6~~ ~~for more details).~~the prior year.

Cash Flows - Financing Activities

During the nine months ended September 30, ~~2018, our financing activities provided $2.6~~2019, we received $9.3 million ~~more~~ from ~~the issuance~~sales of shares of our common stock, ~~including~~whereas the same period of 2018 included stock sale proceeds of $10.0 million and proceeds from stock option exercises ~~than~~of $1.0 million. We also paid $27.8 million in debt fees and debt principal in the current year, compared to payments for debt fees during the same period of ~~2017. The additional amount from common stock issuances, however, was offset by our payment~~2018 of $1.5 million, and we made a $0.9 million Earnout Payment in the prior-year period that we have not yet made in the current year of approximately $1.5 million in loan fees related to our debt modifications, $0.9 million of our payment of the Earnout Payment due in 2018 and the fact that the prior year period included $3.0 million of proceeds from our issuance of a note payable.year.

Off-Balance Sheet Arrangements

We currently have no off-balance sheet arrangements.



~~Table of Contents~~	31

Recently Issued Accounting Pronouncements

Please refer to Note 2 in the Notes to Unaudited Condensed Consolidated Financial Statements included in this report for a discussion regarding recently issued accounting pronouncements which may affect us.


ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable


ITEM 4.	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 Securities Exchange Act of 1934, as amended (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, because of the material weaknesses in our internal control over financial reporting related to: (i) insufficient documentary evidence that we had reviewed information underlying manual journal entries at a sufficient level of



Table of Contents	31

detail, (ii) insufficient documentation of our consideration of appropriate revenue recognition criteria for certain contracts arising from our Technology and Data Intelligence segment, and (iii) an aggregation of deficiencies in our monitoring and activity-level controls related to processes in our Technology and Data Intelligence segment including accounts payable, accrued liabilities, payroll and fixed assets, all of which we described in our 2018 Form 10-K, our disclosure controls and procedures were not effective at a reasonable assurance level as of September 30, ~~2018.~~2019.

Changes in Internal Control over Financial Reporting

~~There~~In our 2018 Form 10-K, we disclosed that management had determined that material weaknesses in our internal control over financial reporting (described above) existed. As of the date of this report, we are implementing procedural changes that we believe will remediate the material weaknesses, but not all such changes are complete and those changes that have been implemented have not operated for a sufficient time to be evaluated for their effectiveness; therefore, there was no change in our internal control over financial reporting during ~~the fiscal quarter ended September 30, 2018~~such period that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

On February 21, 2018, we initiated a legal proceeding (the “CBG Litigation”) against CBG, Adam Roseman, and CBG’s Joint Official Liquidators (the ~~“CBG Litigation”~~“JOLs”) arising from the CBG Acquisition. The CBG Litigation was filed in the United States District Court for the District of Nevada and is captioned as Remark Holdings, Inc., et al. v. China Branding Group, Limited (In Official Liquidation), et al., Case No. 2:18-cv-00322. In the CBG Litigation, we ~~are seeking~~sought a declaration from the court that we are entitled to rescission of the CBG Purchase Agreement and all transactions related to the CBG Acquisition, a declaration that the CBG Purchase Agreement and the transactions consummated pursuant thereto be rescinded and void ab initio,, a declaration that we are not required to deliver the remaining CBG Acquisition Warrants allowing for the purchase of 5,710,000 shares of common stock at a per-share exercise price of $10.00, an order directing release to us of any consideration held in escrow in connection with the CBG Acquisition, and disgorgement of all consideration paid by us in connection with the CBG Acquisition. We ~~are alleging~~alleged that the defendants fraudulently mispresented and concealed material information regarding the companies we acquired in the CBG Acquisition.

We entered into a settlement agreement with Mr. Roseman to settle all claims against him, and we dismissed those claims on May 13, 2019. The ~~defendants~~Plaintiffs, CBG, and the JOLs entered into a Stipulation for Settlement dated January 15, 2019, which sets forth the binding terms of their settlement agreement (the “Stipulation for Settlement”). Pursuant to the Stipulation for Settlement, we shall issue fully-transferable warrants on a non-diluted basis allowing for the purchase of 5,710,000 shares of our common stock at a per-share exercise price of $6.00, which warrants are exercisable for a period of five years from the date of the Stipulation for Settlement, and which we have the right to cause the warrant holders to exercise if the closing price of our common stock is $8.00 or greater on any five non-consecutive days in any consecutive thirty-day trading window. The parties to the Stipulation for Settlement also agreed to negotiate anti-dilution provisions for the warrants. In exchange for the foregoing consideration, the parties to the Stipulation for Settlement agreed to release their claims against each other and enter into a written definitive settlement agreement. After entering into the Stipulation for Settlement, the JOLs demanded the warrants also include an exchange right. We rejected this request and filed ~~motions~~a motion to ~~dismiss,~~enforce the Stipulation for Settlement on March 12, 2019. Magistrate Judge Hoffman issued a report and recommendation on August 2, 2019, which ~~are~~ ~~sub judice~~.the District Judge affirmed on September 24, 2019, requiring the JOLs to submit the written definitive settlement agreement (without an exchange right) to the Grand Court of the Cayman Islands overseeing CBG’s liquidation for approval. We intend to vigorously protect our rights under the Stipulation for Settlement and the Court’s orders enforcing it.



~~Table of Contents~~	32


ITEM 1A.	RISK FACTORS

~~The following risk factor supplements those included in Part I, Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2017, as filed with the SEC on April 2, 2018.~~

We are not in compliance with payment and certain other obligations under the Financing Agreement, constituting events of default as a result of which our obligations under the Financing Agreement, including all unpaid principal and interest, may be declared immediately due and payable.

We did not make a required prepayment of $8.0 million principal amount and $3.5 million of exit fees that was due on September 28, 2018 under the Financing Agreement. Also, as of September 30, 2018, we were not in compliance with the covenant under the Financing Agreement requiring minimum revenue from our KanKan business during the trailing nine-month period ended September 30, 2018, and subsequently were not in compliance with a covenant requiring us to maintain a balance of at least $2.25 million in a cash collateral account to secure our obligations under the Financing Agreement. These constitute events of default under the Financing Agreement for which we have not received a waiver as of the date of this report. As a result of our events of default, the Lenders may declare our obligations under the Financing Agreement, including all unpaid principal and interest, due and payable immediately and exercise such other rights available to them under the Financing Agreement. As of September 30, 2018, $35.5 million of aggregate principal remained outstanding under the Loan. Our available cash and other liquid assets are not sufficient to pay such obligations in full.

We are actively engaged in discussions with the Lenders regarding a resolution of such events of default. In connection with those discussions, the Lenders have informed us that they are willing to forebear from taking any enforcement actions against us for a specified period if we continue to pursue certain strategic alternatives. We have engaged a financial advisor to assist us in assessing and pursuing those strategic alternatives, and we intend to continue pursuing those strategic alternatives and others, including the potential sale of certain non-core assets, investment assets and operating businesses, and to explore other alternatives for obtaining financing. However, we cannot provide any assurance that we will be successful in completing a strategic transaction or obtaining alternative financing, or that the Lenders will forebear from taking any enforcement actions against us. The Lenders’ exercise of rights available to them under the Financing Agreement, including but not limited to their right to declare our obligations under the Financing Agreement, including all unpaid principal and interest, due and payable immediately, could have a material adverse effect on our financial condition.Not applicable



Table of Contents	32	Financial Statement Index


ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

~~None~~On September 13, 2019, we issued 2,300,000 shares of our common stock to an accredited investor in a private placement in exchange for $1.8 million.

We made the offer and sale of securities in the above-described private placement in reliance upon an exemption from registration requirements pursuant to Section 4(a)(2) under the Securities Act of 1933, as amended, based upon representations made to us by the investor in purchase agreement we entered into with the investor.


ITEM 3.	DEFAULTS UPON SENIOR SECURITIES

WeAs of September 30, 2019, we did not ~~make~~comply with a ~~required prepayment of $8.0 million principal amount and $3.5 million of exit fees that was due on September 28, 2018 under~~covenant in the Financing Agreement that required us to maintain a minimum of $1.0 million in unrestricted cash in designated bank accounts. We were also not in compliance with a covenant requiring us to obtain and ~~as of~~pay for the ~~date of this report,~~Tail Policy by June 4, 2019, and a covenant requiring us to make the final Earnout Payment by June 14, 2019. Additionally, although we have actively taken steps to monetize our ownership interest in Sharecare, we did not ~~paid any portion of that $8.0 million principal amount due. On October 4, 2018, $2.25 million held in a cash collateral account to secure our obligations under~~comply with certain procedural requirements stipulated by the ~~Financing Agreement was transferred to Lenders and applied to the amount of exit fees due and payable under the Financing Agreement, such that $1.25 million of exit fees remain due.~~Sharecare Covenant. These and other matters described herein constitute events of default under the Financing Agreement for which we have not received a waiver as of the date of this report. As of the date of this report, ~~$35.5~~$11.6 million of aggregate principal amount remained outstanding under the Loan.


ITEM 4.	MINE SAFETY DISCLOSURES

Not applicable


ITEM 5.	OTHER INFORMATION

None



Table of Contents	33


ITEM 6.	EXHIBITS

Incorporated Herein
By Reference To
Exhibit Number Description Document Filed On Exhibit Number
4.1

Registration Rights Agreement, dated as of July 2, 2018, by and between Remark Holdings, Inc. and Aspire Capital Fund, LLC.
8-K 07/03/18 4.1
10.1

Common Stock Purchase Agreement, dated as of July 2, 2018, by and between Remark Holdings, Inc. and Aspire Capital Fund, LLC.
8-K 07/03/18 10.2
31.1

Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002.

31.2

Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002.

32

Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes Oxley Act of 2002.

101.INS XBRL Instance Document - the instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document.
101.SCH XBRL Taxonomy Extension Schema Document
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF XBRL Taxonomy Extension Definition Linkbase Document
101.LAB XBRL Taxonomy Extension Label Linkbase Document
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document



		Incorporated Herein By Reference To
Exhibit Number	Description	Document	Filed On	Exhibit Number
31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002.
31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002.
32	Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes Oxley Act of 2002.
101.INS	XBRL Instance Document - the instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document.
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document



Table of Contents	34	Financial Statement Index

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



			REMARK HOLDINGS, INC.

Date:	November ~~14, 2018~~12, 2019	By:	/s/ ~~Alison Davidson~~Kai-Shing Tao
			~~Alison Davidson~~Kai-Shing Tao
			~~Interim~~Chairman and Chief ~~Financial~~Executive Officer
			(principal executive, financial and accounting officer)



Table of Contents	35	Financial Statement Index



PART I
Item 1.	Financial Statements	1
	Condensed Consolidated Balance Sheets	1
	Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss	2
	Unaudited Condensed Consolidated Statements of Cash Flows	34
	Notes to Unaudited Condensed Consolidated Financial Statements	45
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	23
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3231
Item 4.	Controls and Procedures	3231

PART II
Item 1.	Legal Proceedings	32
Item 1A.	Risk Factors	3332
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	33
Item 3.	Defaults Upon Senior Securities	33
Item 4.	Mine Safety Disclosures	33
Item 5.	Other Information	33
Item 6.	Exhibits	34
	Signature	35



Revenue category	Three Months Ended September 30, 2018		Nine Months Ended September 30, 2018
Transaction services	$	16,619	$	46,272
Data platform services	1,039		5,591
Advertising and other	1,693		4,925
Revenue	$	19,351	$	56,788



Balance at beginning of period	$	1,930
Payments	(1,000		)
Change in fair value of contingent consideration (included in Other loss)	50
Balance at end of period	$	980



	Nine Months Ended September 30, 2018						Year Ended December 31, 2017
	Travel & Entertainment Segment		Corporate Entity and Other Business Units		Total		Travel & Entertainment Segment		Corporate Entity and Other Business Units			Total
Balance at beginning of period	$	18,514	$	1,585	$	20,099	$	18,514	$	8,249		$	26,763
Business acquisitions	—		—		—		—		2,116			2,116
Impairment of goodwill	—		—		—		—		(8,796		)	(8,796		)
Other	—		—		—		—		16			16
Balance at end of period	$	18,514	$	1,585	$	20,099	$	18,514	$	1,585		$	20,099



	Travel & Entertainment		Technology & Data Intelligence			Corporate Entity and Other			Consolidated
Three Months Ended September 30, 2018
Revenue	$	17,596	$	1,039		$	716		$	19,351
Adjusted EBITDA	$	2,324	$	(1,674	)	$	(3,428	)	$	(2,778	)

Three Months Ended September 30, 2017
Revenue	$	16,284	$	2,203		$	962		$	19,449
Adjusted EBITDA	$	1,955	$	(946	)	$	(2,833	)	$	(1,824	)

Nine Months Ended September 30, 2018
Revenue	$	49,320	$	5,591		$	1,877		$	56,788
Adjusted EBITDA	$	4,493	$	(5,166	)	$	(12,292	)	$	(12,965	)

Nine Months Ended September 30, 2017
Revenue	$	45,765	$	3,212		$	3,027		$	52,004
Adjusted EBITDA	$	4,322	$	(2,096	)	$	(7,788	)	$	(5,562	)