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MARK > SEC Filings for MARK > Form 10-Q on 15-May-2014All Recent SEC Filings

Show all filings for REMARK MEDIA, INC.

Form 10-Q for REMARK MEDIA, INC.


15-May-2014

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Information included or incorporated by reference in this Quarterly Report on Form 10-Q may contain forward-looking statements. This information may involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different than the future results, performance or achievements expressed or implied by any forward-looking statements. Forward-looking statements, which involve assumptions and describe our future plans, strategies and expectations, are generally identifiable by use of the words "may," "should," "expect," "anticipate," "estimate," "believe," "intend" or "project" or the negative of these words or other variations on these words or comparable terminology. Actual events or results may differ materially from those discussed in forward-looking statements as a result of various factors, including, without limitation, the risks outlined under "Risk Factors" in the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission (the "SEC") on March 31, 2014, as amended on April 7, 2014, and in Part II, Item 1A of this report. In light of these risks and uncertainties, there can be no assurance that the forward-looking statements contained in this Quarterly Report on Form 10-Q will in fact be accurate. Further, we do not undertake any obligation to publicly update any forward-looking statements. As a result, you should not place undue reliance on these forward-looking statements.

Business Overview and Recent Events

Remark Media, Inc. ("we", "us", "our", "Remark Media" or the "Company") is a global digital media company focused on the 18-to-34 year old demographic, primarily in the United States and Asia. The brands segment consists of digital media properties owned and operated by Remark Media. It presently includes: (i) the translated and localized additions of HowStuffWorks.com in China and Brazil;
(ii) the personal finance vertical, encompassing Banks.com, US Tax Center at www.irs.com, FileLater.com, TaxExtension.com, TaxExtension.org and MyStockFund.com; and (iii) the young adult lifestyle vertical, including Bikini.com. The Company plans to expand its brands segment in the coming year by continuing to acquire, develop and launch U.S. based content, social and ecommerce websites in the 18-to-34 year old lifestyle and personal finance verticals.

For the duration of 2014, the Company intends to focus on the 18-to-34 year old demographic, investing in technology and product development to provide unique and dynamic digital media experiences across multiple verticals.

How Stuff Works

BoWenWang (http://www.bowenwang.com.cn) is a Chinese language portal that provides a broad array of engaging, informative content, covering everything from sports, entertainment, the arts, technology, and health. Published from Beijing since June 2008, BoWenWang is the exclusive digital publisher in China of translated and localized articles from Discovery Communications HowStuffWorks family of content.

ComoTudoFunciona (http://hsw.com.br) is a Brazilian portal designed to inform and engage on a vast array of subjects, ranging from cultural events, athletics, entertainment, science, technology, and travel. Published in Sao Paulo, the Portuguese-language site is the exclusive digital publisher in Brazil of translated and localized articles from Discovery Communications HowStuffWorks family of content.

The Company believes that the value of our international assets will be recognized over a longer-term horizon, with both the development of advertising markets in Brazil and China and the improvement of the websites' traffic fundamentals. In the near term, our content platforms provide us broad access to develop significant opportunities in the gaming, travel, and other verticals. Neither international subsidiary has yielded any significant revenues in 2013, or to date in 2014.

Personal Finance

The Company entered the personal finance vertical in June 2012 with the acquisition of Banks.com. Assets obtained through the acquisition serve to build a network of personal finance digital media businesses. These include Banks.com, the US Tax Center at www.irs.com, FileLater.com, and MyStockFund.com.

In order to expand our tax extension business and create synergies between existing assets, the Company's wholly owned subsidiary, Banks.com, completed an asset acquisition on January 15, 2014, of the following domain names which provide web-based tax extension services: www.taxextension.com, www.taxextensions.com, and www.onlinetaxextension.com, for an aggregate purchase price of $450,000.

Banks.com is an action-oriented resource for users searching for relevant news and information on financial institutions and products. Users are able to compare rates and take action on financial products, such as mortgages and savings accounts.


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US Tax Center at www.irs.com offers information about U.S. Tax matters while providing access to tax related information and services.

FileLater.com and TaxExtension.com are ecommerce businesses that assist taxpayers with filing official business and personal tax extensions with the IRS through an online platform.

MyStockFund.com offers fractional share investing and a dollar cost averaging brokerage product to investors seeking to build a diversified portfolio in stocks, index funds and bond funds without incurring the high fees and trading costs of traditional brokerage firms.

In 2014 the Company plans to further develop the tax extension sites and re-launch the personal finance vertical with additional rich content that will focus on attracting the 18-to-34 year old demographic.

Young Adult Life

The Company entered the young adult lifestyle vertical in March 2013 with the acquisition of Pop Factory, the owner and operator of Bikini.com. We developed and re-launched the brand and website as an aspirational beach lifestyle destination for 18-to-34 year old women featuring original editorial content covering the latest in fashion, beauty, travel, and health and fitness trends. In November 2013, the Company added retail ecommerce to the site, with the introduction of a swimwear and accessories boutique selling a carefully curated collection with the latest in must have seasonal trends. In April 2014, the Company launched Bikini.com's mobile application. The App offers the same content found on the website, with a unique and dynamic mobile design, compatible across multiple devices.

In 2014, the Company will continue to identify acquisition opportunities capable of bringing synergies to the young adult lifestyle vertical. Additionally, the Company will broaden its consumer base by diversifying its retail merchandising strategies to include men's softlines.

Sports

The Company entered the digital sports vertical in September 2013, signing an agreement with PPTV whereby Remark Media is the exclusive content partner for China's first streaming video Boxing Channel. PPTV owns and operates a leading streaming video platform in the Chinese market, with over 300 million downloads and in excess of 36 million daily active users.

In October 2013, the Company signed an agreement with Venetian Cotai Limited whereby Remark Media was appointed the official digital distributor in China, Taiwan, Hong Kong, Macao, and South Korea of the live internet broadcast of the "Clash in Cotai" boxing event featuring Pacquiao vs. Rios. Co-promoted by Venetian Cotai and Top Rank, the event occurred in Macau, China on November 23, 2013. Remark Media provided digital and social media, marketing, streaming operations, and established brand partners and sponsors for the event. Indicative of the success of the event, total viewership of the event's live stream was in excess of five times the U.S. pay-per-view audience. Since "Clash in Cotai", the Boxing Channel's inaugural event, through April 2014, monthly video views have grown from zero to 4.5 million. The Company plans to take advantage of the critical mass of viewership demand by delivering additional premium boxing content in the digital sports vertical.

The Company has continued to leverage its success in driving traffic to the Boxing Channel by developing and acquiring additional rich media opportunities. The Company's strategy is to provide original sports and entertainment content to the evolving Chinese media market through its longstanding business partnerships in Asia and, more specifically, in China. In April 2014, the Company executed a license agreement to digitally distribute the film "China Heavyweight", a Sundance Film Festival invitee and Golden Horse award-winner, in China and Macau.

The Company intends to globally expand its sports vertical. It is presently negotiating a proposed acquisition of Bombo Sports & Entertainment, LLC ("BSE"). BSE is a sports documentary and film company with a library of over 95 original films. As part of these negotiations, the Company and BSE entered into a Loan Agreement on February 11, 2014, whereby the Company loaned BSE $1 million (the "BSE Loan Agreement"). On April 16, 2014, the Company and BSE entered into an amendment to the BSE Loan Agreement, pursuant to which the Company increased the amount of the loan to up to $1.35 million, of which $1.2 million already had been loaned to BSE. The terms of the loan are further discussed in Note 3 to the unaudited condensed consolidated financial statements, Note Receivable from Bombo Sports & Entertainment, LLC. The Company and BSE have not entered into any binding agreements with respect to such transaction and the Company cannot provide any assurances that it will complete such transaction.

Travel

On May 2, 2014, the Company entered into an Agreement and Plan of Merger, dated as of May 2, 2014 (the "Merger Agreement"), with Roomlia, Inc., a wholly-owned subsidiary of the Company ("Merger Sub"), and Hotelmobi, Inc. ("Hotelmobi"), a company


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engaged in the business of developing, owning and operating mobile hotel booking applications. Pursuant to the Merger Agreement, Hotelmobi merged with and into Merger Sub, with Merger Sub surviving as a wholly-owned subsidiary of the Company. The terms of the Merger Agreement are discussed in Note 11 to the unaudited condensed consolidated financial statements, Subsequent Events.

Hotelmobi plans to launch its widely anticipated "Roomlia" hotel booking application domestically in the third quarter of 2014. An Asia-based launch is currently planned for the first half of 2015.

Results of Operations

The following table sets forth our operations for the three months ended March 31, 2014 and 2013:

                                                        Three Months Ended March 31,
                                                            2014             2013


Operating revenue
Brands                                                $       659,944    $    208,167

Operating expenses
Sales and marketing                                            75,273          12,356
Content, technology and development                            72,180          83,096
General and administrative                                  3,918,833         814,854
Depreciation and amortization expense                         134,098          84,039
Total operating expenses                                    4,200,384         994,345

Operating loss                                             (3,540,440)       (786,178)

Other income (expense)
Interest expense                                              (93,268)        (44,355)
  Gain (Loss) on change in fair value of derivative
liability                                                    (128,607)         17,242
Other income (expense)                                            114            (157)
Total other income (expense)                                 (221,761)        (27,270)

Loss before loss from equity-method investments            (3,762,201)       (813,448)

Proportional share in loss of equity-method
investment                                                           -       (222,707)

Loss before income taxes                                   (3,762,201)     (1,036,155)

Income tax expense                                                   -               -

Net loss                                              $    (3,762,201)   $ (1,036,155)

Net loss per share
Net loss per share, basic and diluted                 $         (0.48)   $      (0.15)

Basic and diluted weighted average shares
outstanding                                                 7,870,431       7,125,215

Comprehensive loss
Net loss                                              $    (3,762,201)   $ (1,036,155)
Cumulative foreign currency translation adjustments            (1,250)         (3,960)

Total comprehensive loss                              $    (3,763,451)   $ (1,040,115)


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Revenue

Total revenue for the three months ended March 31, 2014 was approximately $0.6 million, an increase of approximately $0.4 million from the same period in 2013. The increase from the prior year's period relates primarily to revenues generated from the purchase of tax extension services through the Company's personal finance websites.

Sales and Marketing

Sales and marketing expenses were approximately $75 thousand and $12 thousand in the three months ended March 31, 2014 and 2013, respectively. The increase relates primarily to marketing efforts to drive traffic to the Company's websites.

Content, technology and development

Content, technology and development expenses include the ongoing third-party costs to acquire original content, translate and localize content from English to Portuguese and Chinese, as well as costs of designing and developing our products, including labor, content and third party platform support services. For the three months ended March 31, 2014 and 2013, the expense was approximately $72 thousand and $83 thousand, respectively.

General and Administrative Expenses

Total general and administrative expense was approximately $3.9 million and $0.8 million in the three months ended March 31, 2014 and 2013, respectively. The increase primarily relates to stock-based compensation issued to our Chief Executive Officer and the modification of equity awards issued to both employees and directors in 2014.

Depreciation and Amortization

Depreciation and amortization expense was approximately $134 thousand and $84 thousand for the three months ended March 31, 2014 and 2013, respectively. The increase relates to the amortization of assets acquired in the Pop Factory acquisition.

Interest Expense

Interest expense for the three months ended March 31, 2014 and 2013 was approximately $93 thousand and $44 thousand, respectively. The increase in interest expense is due to the additional debt funding on both November 13, 2013 and January 29, 2014.

Change in Fair Value of Derivative Liability

The change in fair value of the derivative liability for the three months ended March 31, 2014 and 2013 was a loss of $0.1 million and a gain of $0.1 million, respectively. The decrease relates to the increased probability of an anti-dilutive event occurring subsequent to quarter end.

Loss from Equity-Method Investments and Change of Interest Gain

We accounted for our investment in Sharecare under the equity method of accounting through November 2012. In December 2012, the Company changed to the cost method of accounting. Under the equity method, for the three months ended March 31, 2013, we did not record any gain or loss resulting from the change in interest ownership in Sharecare. In the first quarter of 2013, the Company recorded a $0.2 million change in the estimate of its proportional share in loss of equity-method investment related to the period from January 1, 2012 through November 30, 2012.

Critical Accounting Policies

A description of our significant accounting policies can be found in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, in our 2013 Form 10-K. There were no material changes to those policies during the three months ended March 31, 2014.

Recent Accounting Pronouncements

For a description of recently issued accounting pronouncements, see Note 1 to the unaudited condensed consolidated financial statements, Description of Business and Summary of Significant Accounting Policies.


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Liquidity and Capital Resources

As of March 31, 2014, the Company's total cash and cash equivalents balance was approximately $1.4 million.

The Company has incurred net losses and generated negative cash flow from operations in the three months ended March 31, 2014 and in each fiscal year since its inception and has an accumulated deficit of $115.5 million as of March 31, 2014. The Company's revenues were $0.7 million for the three months ended March 31, 2014 generated principally from owning and operating its own digital media properties. The Company's primary focus has been organically building and strategically acquiring wholly-owned digital media properties.

On January 29, 2014 (the "January 2014 Note"), November 14, 2013 (the "November 2013 Note"), April 2, 2013 (the "April 2013 Note"), and November 23, 2012 (the "November 2012 Note"), the Company issued Senior Secured Convertible Promissory Notes to Digipac, LLC ("Digipac"), of which Kai-Shing Tao, the Company's Chairman of the Board and Chief Executive Officer, is the manager and a member, and Douglas Osrow, the Company's Chief Financial Officer, is a member, in the original principal amounts of $3,500,000, $2,500,000, $4,000,000 and $1,800,000, respectively, in exchange for cash equal to the respective original principal amounts. The January 2014 Note, November 2013 Note, April 2013 Note and November 2012 Note are collectively referred to herein as the "Digipac Notes".

The January 2014 Note and November 2013 Note bear interest at a rate of 6.67% per annum for the first year and 8.67% per annum thereafter, with interest payable quarterly and all unpaid principal and any accrued but unpaid interest due and payable on the second anniversary of issuance. At any time, Digipac may elect to convert all or any portion of the outstanding principal amount and accrued but unpaid interest under such notes into shares of common stock at a conversion price of $5.03 per share for the January 2014 Note and $3.75 per share for the November 2013 Note. The Company also may elect to convert all or any portion of the outstanding principal amount and accrued but unpaid interest under such notes into common stock at the applicable conversion price if the volume weighted average price of the common stock is equal to at least 150% of the applicable conversion price for at least 30 of the 40 trading days immediately prior to the date of the Company's election. Such notes also provide that the Company and Digipac will negotiate and enter into a registration rights agreement providing Digipac with demand and piggyback registration rights with respect to the shares of common stock underlying such notes. As of March 31, 2014, the Company had not entered into any such registration rights agreement. The Company may prepay all or a portion of such notes at any time upon at least 15 days' prior written notice to Digipac.

The April 2013 Note bore interest at a rate of 6.67% per annum for the first year and 8.67% per annum thereafter, and the November 2012 Note bore interest at a rate of 6.67% per annum. The outstanding principal amount and accrued but unpaid interest under the April 2013 Note and the November 2012 Note were convertible into common stock at a conversion price of $2.00 per share for the April 2013 Note and $1.30 per share for the November 2012 Note. On November 12, 2013, Digipac converted the $4,000,000 principal amount and $164,466 accrued but unpaid interest outstanding under the April 2013 Note into 2,082,233 shares of common stock, and converted the $1,800,000 principal amount and $116,771 accrued but unpaid interest outstanding under the November 2012 Note into 1,474,439 shares of common stock.

In connection with the issuance of the November 2012 Note, the Company and Digipac entered into a Security Agreement dated as of November 23, 2012 (the "Security Agreement") to secure the Company's obligations under such note. The Security Agreement provides that the Company's obligations are secured by all assets of the Company other than the shares of common stock of Sharecare, Inc. owned by the Company. The Company and Digipac subsequently entered into amendments to the Security Agreement in connection with the issuances of the April 2013 Note, the November 2013 Note and the January 2014 Note to include the Company's obligations under such notes as obligations secured by the Security Agreement.

On January 15, 2014, the Company's wholly owned subsidiary, Banks.com, completed an asset acquisition of the following domain names which provide web-based tax extension services: www.taxextension.com, www.taxextensions.com, and www.onlinetaxextension.com, for an aggregate purchase price of $450,000.

On February 11, 2014, the Company and BSE entered into the BSE Loan Agreement pursuant to which the Company loaned BSE $1 million. On April 16, 2014, the Company and BSE entered into an amendment to the BSE Loan Agreement, pursuant to which the Company increased the amount of the loan to up to $1.35 million, of which $1.2 million already had been loaned to BSE. The outstanding principal balance of the loan bears interest at 5% per annum, with principal and interest due and payable 10 days after the delivery of the written demand to BSE. If the loan is not paid in full at the end of the 10 day period, the outstanding principal will bear interest at 12% per annum until paid in full. BSE may prepay all or any portion of the loan at any time without premium or penalty.

BSE's obligations under the BSE Loan Agreement are secured by (i) a membership interest pledge agreement pursuant to which Robert S. Potter, the manager and owner of 86% membership interest in BSE, pledged to the Company all of his right, title, and interest in and to such membership interest and (ii) a pledge by BSE to the Company of all BSE's assets.


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The interest income on the loan was approximately $0.1 million and is recorded in the condensed consolidated statement of operations.

Based on the most recent cash flow projections, the Company believes it has sufficient existing cash and cash equivalents and cash resources as of May 15, 2014 to provide sufficient funds through December 31, 2014. Projecting operating results, however, is inherently uncertain as anticipated expenses may exceed what has been forecast.

The table below summarizes the change in our statement of cash flows for the three months ended March 31, 2014 and 2013:

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