REMARK HOLDINGS, INC. - Annual Report: 2009 (Form 10-K)

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·	HowStuffWorks contributed to us digital publishing rights to HowStuffWorks’ existing content for the countries of China and Brazil.

·	Our common stock became publicly traded on the NASDAQ Global Market under the symbol “HSWI,” and shareholders of INTAC common stock, then trading on NASDAQ under the symbol "INTN," received shares of HSWI in exchange for their shares of INTAC.

·	Investors purchased or agreed to purchase shares of our common stock having an aggregate value of approximately $39.4 million.

·	We hold a perpetual, fully paid, royalty-free, sublicensable exclusive license to certain of the content published on HowStuffWorks.com in local languages and the HowStuffWorks brand for Brazil and China.

·	HowStuffWorks provides to us new and updated content published on HowStuffWorks.com, upon our request and pursuant to the same license terms.

·	We have the right to an exclusive license for the HowStuffWorks trademarks for our Brazil and China websites that display the HowStuffWorks content.

·	We hold a perpetual, fully paid up, royalty-free, sublicensable license to the software code for HowStuffWorks’ content management platform.

·	HowStuffWorks has the right to designate three members of our Board of Directors and the chairperson of the Nominating and Governance Committee.

 

·	successfully commercialize and monetize the contributed and acquired assets;

·	successfully attract advertisers for our websites and clients for our web platform services;

·	continue to raise additional working capital, the lack of which would likely have a significant negative impact on our long term business plan and our ability to take advantage of our strategic alliances and to successfully execute our expansion plan;

·	manage our expense structure as a U.S. public company including, without limitation, compliance with the Sarbanes Oxley Act;

·	manage the anticipated rise in operating expenses;

·	manage and implement successfully new business strategies;

·	adapt and successfully execute our evolving and unpredictable business model, with which we will have only limited experience;

·	establish and take advantage of contacts and strategic relationships;

·	adapt to our potential diversification into other industries and geographic regions;

·	manage and adapt to rapidly changing and expanding operations;

·	implement and improve operational, financial and management systems and processes;

·	respond effectively to competitive developments;

·	attract, retain and motivate qualified personnel; and

·	manage each of the other risks set forth in this report.

 

 

·	general market and economic conditions;

·	our common stock has been thinly traded; and

·	minimal third party research is available regarding our company.

 

 

·	levying fines;

·	confiscating our income;

·	revoking our business licenses;

·	pursuing criminal sanctions against our business and personnel;

·	shutting down our servers and/or blocking our websites;

·	requiring us to restructure our ownership structure or operations; and

·	requiring us to discontinue any portion or all of our Internet business.

·	currency fluctuations;

·	exchange controls and restrictions on remittances abroad, such as those that were briefly imposed on such remittances (including dividends) in 1989 and in the beginning of 1990;

 

·	inflation;

·	price instability;

·	energy policy;

·	interest rate increases;

·	liquidity of domestic capital and lending markets;

·	changes in tax policy; and

·	other political, domestic, social and economic developments in or affecting Brazil.

 

·	structure;

 

·	level of government involvement;

·	level of development;

·	level of capital reinvestment;

·	growth rate;

·	control of foreign exchange; and

·	methods of allocating resources.

·	only our Board of Directors may call special meetings of our stockholders;

·	our stockholders may take action only at a meeting of our stockholders and not by written consent;

·	we have authorized undesignated preferred stock, the terms of which may be established and shares of which may be issued without stockholder approval;

·	SEC Rule 14a-8 requires that we receive notice of stockholder proposals at least 120 days prior to the date of our proxy statement for the previous year’s annual meeting or we do not have to include them in our proxy materials; and

·	for stockholder proposals not requested to be included in our proxy materials under Rule 14a-8, we require advance notice of not less than 60 nor more than 90 days prior to a meeting for the proposal to be introduced and considered.

·	cause substantial dilution of the percentage ownership of our stockholders at the time of the issuance;

·	cause substantial dilution of our earnings per share;

·	subject us to the risks associated with increased leverage;

·	subject us to restrictive covenants that could limit our flexibility in conducting future business activities; and

·	adversely affect the prevailing market price for our outstanding securities.

		High				Low
Year ended December 31, 2008
First Quarter		$	62.30			$	32.00
Second Quarter			53.00				26.10
Third Quarter			39.00				20.50
Fourth Quarter			27.40				1.50
Year ended December 31, 2009
First Quarter		$	4.70			$	0.80
Second Quarter			4.70				1.50
Third Quarter			6.80				1.90
Fourth Quarter			5.10				2.70

 

		Years Ended December 31,
		2009				2008
Operating revenue		$	2,259,816			$	457,006
Cost of services			2,869,509				987,266
Gross loss			(609,693	)			(530,260	)
Operating expenses			11,351,787				23,751,913
Loss from operations			(11,961,480	)			(24,282,173	)
Other income (loss)			209,661				515,238
Deferred income tax benefit			688,630				1,962,500
Loss in equity investment, net of tax			(818,087	)			—
Loss from continuing operations			(11,881,276	)			(21,804,435	)
Loss from discontinued operations			—				(133,526	)
Net loss		$	(11,881,276	)		$	(21,937,961	)
Per share data:
Basic loss per share from continuing operations		$	(2.22	)		$	(4.12	)
Basic loss per share from discontinued operations			—				(0.03	)
Basic loss per share		$	(2.22	)		$	(4.15	)
Weighted average shares outstanding – basic			5,361,767				5,294,152

		December 31,
		2009				2008
Cash and cash equivalents		$	8,724,546			$	18,020,159
Goodwill and other intangibles			985,989				5,799,066
Total assets			15,899,679				26,309,653
Total liabilities			1,483,139				1,833,231
Stockholders’ equity			14,416,540				24,476,422

The number of page views for BoWenWang increased 312% during 2009 compared to the six months ended 2008.  Additionally, the number of unique visitors to the website increased 53% for the same period.  We expect to see growth in the number of users and page views, which we believe should result in increased revenues for our Chinese website.

 

 

 

 

 

·	Entered into a subscription agreement for the purchase of 125,000 shares of common stock of Sharecare, representing 20% ownership of Sharecare at the time of purchase;

·	Sold substantially all of the assets of its DailyStrength subsidiary to Sharecare;

·	Agreed to provide management and website development services to Sharecare; and

·	Received a limited license to use the Sharecare web platform for HSWI's own businesses.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

		Year Ended December 31,
		2008
Revenues		$	38,849
Loss from discontinued operations (before income taxes)			(133,526	)
Loss from discontinued operations		$	(133,526	)

 

 

 

 

 

 

		Assumptions
Weighted-average cost of capital			27.50	%
Long-term growth rates			7	%
Annual revenue growth rates			14.0-127.0	%
Time required to obtain similar licenses		9 months

 

 

 

 

 

Reports of Independent Registered Public Accounting Firms	35
Consolidated Balance Sheets	37
Consolidated Statements of Operations	38
Consolidated Statements of Stockholders’ Equity and Comprehensive Loss	39
Consolidated Statements of Cash Flows	40
Notes to Consolidated Financial Statements	42
Schedule II:  Valuation and Qualifying Accounts	73

 

 

 

 

 

 

 

 

 

 

 

 

		December 31,
		2009				2008
Assets
Current assets
Cash and cash equivalents		$	8,724,546			$	18,020,159
Trade accounts receivable (net of allowance for doubtful accounts
of $0 and $15,343 at December 31, 2009 and 2008, respectively)			36,377				103,020
Trade accounts receivable due from affiliates			469,185				—
Prepaid expenses and other current assets			787,972				1,660,097
Total current assets			10,018,080				19,783,276
Property and equipment, net			490,306				727,311
Investment in unconsolidated affiliate			4,405,304				—
Licenses to operate in China			969,560				2,150,000
Goodwill			—				1,972,944
Intangibles, net			16,429				1,676,122
Total assets		$	15,899,679			$	26,309,653
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable		$	410,966			$	554,673
Accrued expenses and other current liabilities			686,549				322,094
Advances from shareholder			85,296				83,044
Other current liabilities			57,938				—
Total current liabilities			1,240,749				959,811
Long-term liabilities
Deferred tax liability			242,390				873,420
Commitments and contingencies			—				—
Stockholders’ equity
Preferred stock, $0.001 par value, 1,000,000 shares authorized, none issued			—				—
Common stock, $0.001 par value, 20,000,000 shares authorized,­ 5,369,829
issued and outstanding at December 31, 2009, and 5,363,878 issued and
outstanding at December 31, 2008  (a)			5,369				5,363
Additional paid-in-capital			100,435,372				98,655,210
Accumulated other comprehensive income (loss)			40,100				(1,126	)
Accumulated deficit			(86,064,301	)			(74,183,025	)
Total stockholders’ equity			14,416,540				24,476,422
Total liabilities and stockholders’ equity		$	15,899,679			$	26,309,653

(a)	All outstanding share amounts have been restated to reflect HSWI’s February 2010 10-for-1 reverse stock split.  See Note 11, “Stockholders’ Equity”.

 

(a)	All outstanding share and per share amounts have been restated to reflect HSWI’s February 2010 10-for-1 reverse stock split.  See Note 11, “Stockholders’ Equity”.

																						Accumulated								Total
										Additional												Other								Stockholders’
		Common Stock								Paid-in				Treasury								Comprehensive				Accumulated				Equity
		Shares				Amount				Capital				Shares				Amount				Income (Loss)				Deficit				(Deficit)
Balance at December 31, 2007			4,930,611			$	4,931			$	86,025,121				(300,000	)		$	(8,986,842	)		$	112,291			$	(52,245,064	)		$	24,910,437
Comprehensive loss:
Net loss			—				—				—				—				—				—				(21,937,961	)			(21,937,961	)
Foreign currency translation			—				—				—				—				—				(113,417	)			—				(113,417	)
Total comprehensive loss																															(22,051,378	)
Shares received from sale of
INTAC Legacy Businesses			—				—				—				(500,000	)			(18,400,000	)			—				—				(18,400,000	)
Issuance of shares to
investors, net			426,881				427				7,842,338				800,000				27,386,842				—				—				35,229,607
Restricted stock grants			6,386				5				(5	)
Stock-based compensation expense			—				—				4,787,756												—				—				4,787,756
Balance at December 31, 2008			5,363,878			$	5,363			$	98,655,210				—				—			$	(1,126	)		$	(74,183,025	)		$	24,476,422
Comprehensive loss:
Net loss			—				—				—				—				—				—				(11,881,276	)			(11,881,276	)
Foreign currency translation			—				—				—				—				—				41,226				—				41,226
Total comprehensive loss																															(11,840,050	)
Restricted stock grants			8,000				8				(8	)			—				—				—				—				—
Forfeited restricted stock			(2,049	)			(2	)			2
Stock-based compensation expense			—				—				1,780,168				—				—				—				—				1,780,168
Balance at December 31, 2009			5,369,829			$	5,369			$	100,435,372				—			$	—			$	40,100			$	(86,064,301	)		$	14,416,540