Document
Remark Holdings, Inc.Smaller Reporting Company10-QJune 30, 20182018Q2FALSE34,787,7810001368365--12-310.0010.0011,000,0001,000,0000.0010.001100,000,000100,000,00033,145,19928,406,02633,145,19928,406,0260034112122935110P3M0040,00010.002,961,7744.961,000,0008.0012.00200013683652018-01-012018-06-30xbrli:shares00013683652018-08-13iso4217:USD00013683652018-06-3000013683652017-12-31iso4217:USDxbrli:shares00013683652018-04-012018-06-3000013683652017-04-012017-06-3000013683652017-01-012017-06-3000013683652016-12-3100013683652017-06-300001368365us-gaap:CommonStockMember2017-01-012017-06-300001368365us-gaap:CommonStockMembermark:CommonStockPurchaseAgreementWithAspireCapitalFundLLCMember2016-11-090001368365us-gaap:CommonStockMembermark:CommonStockPurchaseAgreementWithAspireCapitalFundLLCMember2016-11-092016-11-090001368365mark:FirstAmendmentToCommonStockPurchaseAgreementWithAspireCapitalFundLLCMemberus-gaap:CommonStockMember2017-09-182017-09-180001368365mark:FirstAmendmentToCommonStockPurchaseAgreementWithAspireCapitalFundLLCMemberus-gaap:CommonStockMember2018-06-300001368365us-gaap:LoansPayableMember2016-09-200001368365us-gaap:CommonStockMember2018-01-012018-06-300001368365us-gaap:MinimumMember2018-01-012018-06-300001368365us-gaap:MaximumMember2018-01-012018-06-300001368365mark:TransactionServicesMember2018-04-012018-06-300001368365mark:TransactionServicesMember2018-01-012018-06-300001368365mark:DataPlatformServicesMember2018-04-012018-06-300001368365mark:DataPlatformServicesMember2018-01-012018-06-300001368365mark:AdvertisingAndOtherMember2018-04-012018-06-300001368365mark:AdvertisingAndOtherMember2018-01-012018-06-30xbrli:pure0001368365mark:ChinaBrandingGroupLimitedMembermark:FinancingWarrantMember2018-01-012018-06-300001368365mark:ChinaBrandingGroupLimitedMembermark:FinancingWarrantMember2017-01-012017-12-310001368365mark:ChinaBrandingGroupLimitedMembermark:AcquisitionWarrantMember2018-01-012018-06-300001368365mark:ChinaBrandingGroupLimitedMembermark:AcquisitionWarrantMember2017-01-012017-12-31mark:future_event00013683652017-01-012017-12-310001368365mark:FormerOwnerOfSubsidiaryMember2018-01-080001368365mark:FormerOwnerOfSubsidiaryMember2018-01-082018-01-0800013683652018-01-100001368365mark:FormerOwnerOfSubsidiaryMember2018-01-100001368365mark:LenderMember2018-01-100001368365mark:FormerOwnerOfSubsidiaryMember2018-01-102018-01-100001368365mark:LenderMember2018-01-102018-01-100001368365mark:Vegas.comLLCMember2017-12-310001368365mark:Vegas.comLLCMember2018-01-012018-06-300001368365mark:Vegas.comLLCMember2018-06-300001368365mark:SharecareMember2018-06-300001368365mark:AllinoneCloudNetTechnologyCoMember2018-06-300001368365mark:AllinoneCloudNetTechnologyCoMember2018-06-012018-06-300001368365us-gaap:VehiclesMember2018-01-012018-06-300001368365us-gaap:VehiclesMember2018-06-300001368365us-gaap:VehiclesMember2017-12-310001368365mark:ComputersandEquipmentMember2018-06-300001368365mark:ComputersandEquipmentMember2017-12-310001368365us-gaap:FurnitureAndFixturesMember2018-06-300001368365us-gaap:FurnitureAndFixturesMember2017-12-310001368365us-gaap:ComputerSoftwareIntangibleAssetMember2018-06-300001368365us-gaap:ComputerSoftwareIntangibleAssetMember2017-12-310001368365us-gaap:SoftwareDevelopmentMember2018-06-300001368365us-gaap:SoftwareDevelopmentMember2017-12-310001368365us-gaap:LeaseholdImprovementsMember2018-06-300001368365us-gaap:LeaseholdImprovementsMember2017-12-310001368365us-gaap:MinimumMembermark:ComputersandEquipmentMember2018-01-012018-06-300001368365us-gaap:MaximumMembermark:ComputersandEquipmentMember2018-01-012018-06-300001368365us-gaap:FurnitureAndFixturesMemberus-gaap:MinimumMember2018-01-012018-06-300001368365us-gaap:FurnitureAndFixturesMemberus-gaap:MaximumMember2018-01-012018-06-300001368365us-gaap:ComputerSoftwareIntangibleAssetMemberus-gaap:MinimumMember2018-01-012018-06-300001368365us-gaap:MaximumMemberus-gaap:ComputerSoftwareIntangibleAssetMember2018-01-012018-06-300001368365us-gaap:LeaseholdImprovementsMemberus-gaap:MinimumMember2018-01-012018-06-300001368365us-gaap:LeaseholdImprovementsMemberus-gaap:MaximumMember2018-01-012018-06-300001368365mark:DomainNamesMember2018-06-300001368365mark:DomainNamesMember2017-12-310001368365us-gaap:CustomerRelationshipsMember2018-06-300001368365us-gaap:CustomerRelationshipsMember2017-12-310001368365us-gaap:OperatingAndBroadcastRightsMember2018-06-300001368365us-gaap:OperatingAndBroadcastRightsMember2017-12-310001368365us-gaap:TechnologyBasedIntangibleAssetsMember2018-06-300001368365us-gaap:TechnologyBasedIntangibleAssetsMember2017-12-310001368365us-gaap:OtherIntangibleAssetsMember2018-06-300001368365us-gaap:OtherIntangibleAssetsMember2017-12-310001368365us-gaap:TrademarksAndTradeNamesMember2018-06-300001368365us-gaap:TrademarksAndTradeNamesMember2017-12-310001368365us-gaap:LicensingAgreementsMember2018-06-300001368365us-gaap:LicensingAgreementsMember2017-12-310001368365mark:TravelandEntertainmentSegmentMemberus-gaap:OperatingSegmentsMember2017-12-310001368365us-gaap:CorporateAndOtherMemberus-gaap:OperatingSegmentsMember2017-12-310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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 June 30, 2018
Commission File Number 001-33720
http://api.tenkwizard.com/cgi/image?quest=1&rid=23&ipage=12412378&doc=10
Remark Holdings, Inc.


Delaware 33-1135689 
State of Incorporation IRS Employer Identification Number 
3960 Howard Hughes Parkway, Suite 900
Las Vegas, NV 89169
702-701-9514 
Address, including zip code, of principal executive offices Registrant’s telephone number, including area code 
 

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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post 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 August 13, 2018, a total of 34,787,781 shares of our common stock were outstanding.



TABLE OF CONTENTS


PART I 
Item 1. 

Item 2. 
Item 3. 
Item 4. 
PART II 
Item 1. 
Item 1A. 
Item 2. 
Item 3. 
Item 4. 
Item 5. 
Item 6. 

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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.

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PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
REMARK HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(dollars in thousands, except per share amounts)
June 30, 2018December 31, 2017
(Unaudited) 
Assets 
Cash and cash equivalents $7,008 $22,632 
Restricted cash 9,406 11,670 
Trade accounts receivable, net 6,559 3,673 
Prepaid expense and other current assets 7,330 5,518 
Notes receivable, current 100 290 
Total current assets 30,403 43,783 
Restricted cash 2,250  
Notes receivable  100 
Property and equipment, net 12,740 13,387 
Investment in unconsolidated affiliates 2,030 1,030 
Intangibles, net 21,237 23,946 
Goodwill 20,099 20,099 
Other long-term assets 1,195 1,192 
Total assets $89,954 $103,537 
Liabilities and Stockholders’ Equity 
Accounts payable $23,433 $17,857 
Accrued expense and other current liabilities 14,688 18,795 
Deferred merchant booking 8,989 9,027 
Contract liability 4,623 3,691 
Note payable 3,000 3,000 
Current maturities of long-term debt, net of unamortized discount and debt issuance cost at December 31, 2017 11,500 38,085 
Total current liabilities 66,233 90,455 
Long-term debt, less current portion and net of unamortized discount and debt issuance cost 26,578  
Warrant liability 10,597 89,169 
Other liabilities 3,548 3,501 
Total liabilities 106,956 183,125 
Commitments and contingencies (Note 13)
Preferred stock, $0.001 par value; 1,000,000 shares authorized; none issued   
Common stock, $0.001 par value; 100,000,000 shares authorized; 33,145,199 and 28,406,026 shares issued and outstanding; each at June 30, 2018 and December 31, 2017, respectively 33 28 
Additional paid-in-capital 293,164 220,117 
Accumulated other comprehensive income 130 115 
Accumulated deficit (310,329)(299,848)
Total stockholders' deficit (17,002)(79,588)
Total liabilities and stockholders’ deficit $89,954 $103,537 
See Notes to Unaudited Condensed Consolidated Financial Statements
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REMARK HOLDINGS, INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)
(dollars in thousands, except per share amounts)

Three Months Ended June 30, Six Months Ended June 30, 
2018201720182017
Revenue$20,713 $17,256 $37,437 $32,555 
Cost and expense
Cost of revenue (excluding depreciation and amortization)6,132 3,965 10,164 6,629 
Sales and marketing6,776 5,774 13,671 11,649 
Technology and development843 884 1,745 1,792 
General and administrative11,180 8,359 34,497 16,685 
Depreciation and amortization2,746 2,894 5,464 5,755 
Other operating expense81 57 147 102 
Total cost and expense27,758 21,933 65,688 42,612 
Operating loss(7,045)(4,677)(28,251)(10,057)
Other income (expense)
Interest expense(1,255)(1,181)(2,661)(2,199)
Other income, net44 1 55 20 
Change in fair value of warrant liability10,055 1,760 18,665 8,329 
Other gain (loss)554 (21)523 (52)
Total other income, net9,398 559 16,582 6,098 
Income (loss) before income taxes2,353 (4,118)(11,669)(3,959)
Benefit from (provision for) income taxes1,026 (190)995 (374)
Net income (loss)$3,379 $(4,308)$(10,674)$(4,333)
Other comprehensive income (loss)
Foreign currency translation adjustments(183)(4)15 (28)
Comprehensive income (loss)$3,196 $(4,312)$(10,659)$(4,361)
Weighted-average shares outstanding, basic and diluted32,933 22,637 32,666 22,553 
Net income (loss) per share, basic and diluted$0.10 $(0.19)$(0.33)$(0.19)

See Notes to Unaudited Condensed Consolidated Financial Statements
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REMARK HOLDINGS, INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Cash Flows
(dollars in thousands)

Six Months Ended June 30, 
20182017
Net cash used in operating activities $(14,247)$(2,034)
Cash flows from investing activities: 
Proceeds from disposition of assets 625  
Purchases of property, equipment and software (2,294)(1,785)
Acquisition of unconsolidated affiliate (151) 
Net cash used in investing activities (1,820)(1,785)
Cash flows from financing activities: 
Proceeds from issuance of common stock, net 951 1,315 
Proceeds from debt issuance  3,000 
Payment of loan fees and debt issuance cost (522) 
Payments of capital lease obligations  (179)
Net cash provided by financing activities 429 4,136 
Net change in cash, cash equivalents and restricted cash (15,638)317 
Cash, cash equivalents and restricted cash: 
Beginning of period 34,302 18,548 
End of period $18,664 $18,865 
Supplemental cash flow information: 
Cash paid for interest $2,105 $1,997 
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
$849 $ 
See Notes to Unaudited Condensed Consolidated Financial Statements

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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. Our common stock is listed on the Nasdaq Capital Market under the ticker symbol MARK.

 
Liquidity Considerations
 
During the six months ended June 30, 2018, and in each fiscal year since our inception, we have incurred net losses which have resulted in an accumulated deficit of $310.3 million as of June 30, 2018. Additionally, our operations have historically used more cash than they have provided. As of June 30, 2018, our cash and cash equivalents balance was $7.0 million, and we had a negative working capital balance of $35.8 million. Our revenue during the six months ended June 30, 2018 was $37.4 million.

During the six months ended June 30, 2017, we issued a total of 382,308 shares of our common stock to private investors in exchange for approximately $1.3 million in cash. We did not make similar issuances of our common stock during the six months ended June 30, 2018, although we did receive cash from stock option exercises.

On November 9, 2016, we entered into a common stock purchase agreement (as amended, the “2016 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 may sell to Aspire Capital 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. On September 18, 2017, we entered into a First Amendment to the 2016 Aspire Purchase Agreement, which provides that the parties may mutually agree to increase the number of shares of our common stock that may be purchased per business day pursuant to the terms of the 2016 Aspire Purchase Agreement to 2,000,000 shares. As of June 30, 2018, Aspire Capital has purchased $12.8 million of shares of our common stock under the 2016 Aspire Purchase Agreement. On July 2, 2018, we entered into a new common stock purchase agreement with Aspire Capital, which we describe in more detail in Note 16.

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, 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 June 30, 2018 are described in Note 11.

We cannot provide assurance that revenue generated from our businesses will be sufficient to sustain our operations in the long term; therefore, we are actively assessing the sale of certain non-core assets (such as our recently-sold personal-finance-related web domains), considering sales of minority interests in certain of our operating businesses, and evaluating potential acquisitions that would provide additional revenue. However, we may need to obtain additional capital through equity financing, debt financing, or by divesting of certain assets or businesses. 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.


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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 our historical track record and projections, we believe that we will be able to meet our ongoing requirements through June 30, 2019 (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 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 of our liquidity requirements.


Comparability

We reclassified an amount in the December 31, 2017 Consolidated Balance Sheet to conform to the current presentation as of June 30, 2018. Specifically, we reclassified liabilities associated with gift cards and similar items from contract liability to other current liabilities as we continue to clarify our disclosures related to the newly-adopted revenue standard.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

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

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


Consolidation

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

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.

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


Changes to Significant Accounting Policies - Revenue Recognition

On January 1, 2018, we adopted Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers, 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 the opening balance of Accumulated deficit (the amount was not material). We have not retrospectively adjusted 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 six months ended June 30, 2018, were not materially different than the amounts we would have reported under the accounting standards previously in effect.

We recognize revenue when we transfer control 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 of 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 result of our application 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, primarily using an agency model. To a lesser extent, we use a merchant model when we directly provide tour services to customers.

Under the agency model, 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.). We recognize revenue from transactions under this model on a net basis (i.e., the amount charged to our customers less the amounts we pay to the service providers).

Under the merchant model, we provide tour services directly to our customers. Our obligation to provide the tour services is satisfied at the point in time that we finish providing the tour. For transactions occurring under this model, we recognize revenue on a gross basis.

Under either model, 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. 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.

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Data Platform Services

Our KanKan business generates our data platform services revenue. Our financial product uses our proprietary data intelligence software to screen potential loan candidates and provide only high-quality loan candidates to affiliates of banks and other lending institutions in China. We earn a commission for our service and we recognize that commission at the point in time at which a loan is issued by the lending institutions to a loan candidate provided by us in an amount we determine by multiplying the commission rate specified in our contracts with the affiliates of the banks and other lending institutions by the amount of such loans issued to loan candidates we have provided.

Per our contracts with the affiliates of the banks and other lending institutions, we may be required to reimburse the affiliates of such lending institutions for a certain percentage of any loan defaults. We have determined that the portion of such contracts potentially requiring us to reimburse our customers represents a guarantee, the accounting for which is not within the scope of ASC 606. As a result, we account for such guarantee using other GAAP and record an initial liability equal to the total potential amount that we could be required to reimburse upon default, which approximates fair value. We initially record the liability in Accrued expense and other current liabilities in our consolidated balance sheets. As we are released from our obligation to perform under the guarantee, we record the amount of reduction in the guarantee liability as data platform services revenue. We have not yet recorded material amounts of revenue resulting from being released from our guarantee obligation.

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.

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, and early adoption is permitted. We are currently evaluating the impact that application of ASU 2016-02 will have on our consolidated financial statements, results of operations and cash flows; however, we expect the impact to be material, as we will be recording assets and liabilities related to most of our leases, including our leases for office
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space, which we currently account for as operating leases.

We have reviewed all recently issued accounting pronouncements. The pronouncements that we have already adopted 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 six months ended June 30, 2018 (in thousands):

Revenue category Three Months Ended June 30, 2018 Six Months Ended June 30, 2018 
Transaction services $15,802 $29,653 
Data platform services 3,369 4,552 
Advertising and other 1,542 3,232 
Revenue $20,713 $37,437 


Significant 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 the six months ended June 30, 2018. We recognized revenue of $3.0 million during the six months ended June 30, 2018, which was included in the beginning balance of Contract liability at January 1, 2018.


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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 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:

June 30, 2018December 31, 2017
CBG Financing Warrants 
Expected volatility 60.00 %60.00 %
Risk-free interest rate 2.55 %1.96 %
Expected remaining term (years) 2.242.73
CBG Acquisition Warrants 
Expected volatility 60.00 %60.00 %
Risk-free interest rate 2.74 %2.25 %
Expected remaining term (years) 5.235.72


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 June 30, 2018, we estimated that two future equity financing events would potentially occur within the subsequent twelve months.

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

Change in volatility Increase Decrease 
CBG Financing Warrants $265 $325 
CBG Acquisition Warrants 1,035 1,035 
Change in stock price 
CBG Financing Warrants $265 $325 
CBG Acquisition Warrants 635 575 


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

Six Months Ended June 30, 2018Year Ended December 31, 2017
Balance at beginning of period $89,169 $25,030 
Warrant exercises (59,907) 
Increase (decrease) in fair value (18,665)64,139 
Balance at end of period $10,597 $89,169 


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 six months ended June 30, 2018 in the balance of the liability associated with the Earnout Payments (in thousands):

Balance at beginning of period $1,930 
Change in fair value of contingent consideration (included in Other loss) 40 
Balance at end of period $1,970 


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


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 NOTE 5. RESTRICTED CASH

Regarding our restricted cash, $2.25 million relates to the Financing Agreement and secures our obligations under that agreement. 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):
June 30, 2018December 31, 2017
Cash and cash equivalents $7,008 $22,632 
Restricted cash reported in current assets 9,406 11,670 
Restricted cash reported in long-term assets 2,250 — 
Total cash, cash equivalents and restricted cash $18,664 $34,302 


NOTE 6. INVESTMENT IN UNCONSOLIDATED AFFILIATES

In 2009, we co-founded a U.S.-based venture, 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 June 30, 2018, we owned approximately five percent 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 June 30, 2018, 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 Consolidated Statements of Operations and Comprehensive Income (Loss).


 NOTE 7. PREPAID EXPENSE AND OTHER CURRENT ASSETS

The following table presents the components of prepaid expense and other current assets (in thousands):
June 30, 2018December 31, 2017
Prepaid expense $2,759 $2,036 
Deposits 3,121 1,960 
Inventory, net 648 234 
Other current assets 802 1,288 
Total $7,330 $5,518 


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NOTE 8. PROPERTY AND EQUIPMENT
Property and equipment consist of the following (in thousands, except estimated lives):
Estimated Life
(Years)
June 30, 2018December 31, 2017
Vehicles 5$1,360 $447 
Computers and equipment 2 - 121,931 1,635 
Furniture and fixtures 2 - 9218 220 
Software 3 - 521,662 20,773 
Software development in progress 1,800 1,935 
Leasehold improvements 1 - 10557 328 
Total property, equipment and software $27,528 $25,338 
Less accumulated depreciation (14,788)(11,951)
Total property, equipment and software, net $12,740 $13,387 


For the six months ended June 30, 2018 and 2017, depreciation (and amortization of software) expense was $2.9 million and $2.7 million, respectively.


NOTE 9. GOODWILL AND OTHER INTANGIBLE ASSETS

The following table summarizes intangible assets by category (in thousands):
June 30, 2018December 31, 2017
Gross Amount Accumulated
Amortization 
Net Amount Gross Amount Accumulated
Amortization 
Net Amount 
Finite-lived intangible assets 
Domain names $2,000 $(1,320)$680 $2,591 $(1,663)$928 
Customer relationships 23,186 (12,407)10,779 23,486 (10,539)12,947 
Media content and broadcast rights 2,485 (1,185)1,300 2,485 (936)1,549 
Acquired technology 578 (505)73 578 (461)117 
Other intangible assets 68 (68) 68 (68) 
$28,317 $(15,485)$12,832 $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 129 129 129 129 
Total intangible assets $36,722 $21,237 $37,613 $23,946 


Total amortization expense was $2.6 million and $3.1 million for the six months ended June 30, 2018 and 2017, respectively.

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The following table summarizes the changes in goodwill during the six months ended June 30, 2018 and the year ended December 31, 2017 (in thousands):

Six Months Ended June 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 


NOTE 10. INCOME TAX

Our effective tax rate (“ETR”) from continuing operations was 8.5% for the six months ended June 30, 2018. The quarterly ETR has not significantly differed from our historical annual ETR. The ETR primarily results from recording a benefit associated with a partial 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 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 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.


NOTE 11. 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.


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Long-Term Debt

The following table presents long-term debt (in thousands) as of :
June 30, 2018December 31, 2017
Loan due September 2020 $35,500 $35,500 
Unamortized original issue discount (898)(836)
Unamortized debt issuance cost (24)(79)
Carrying value of Loan 34,578 34,585 
Exit fee payable in relation to Loan 3,500 3,500 
Total long-term debt $38,078 $38,085 
Less: current portion (11,500)(38,085)
Long-term debt, less current portion and net of debt issuance cost $26,578 $ 


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 changes, increased the Loan by $8.0 million to a total aggregate principal amount of $35.5 million. As of June 30, 2018, after amendments described below, the Loan bore interest at three-month LIBOR (with a floor of 1%) plus 8.5% per annum, payable monthly, and had a maturity date of September 30, 2020. As of June 30, 2018, the applicable interest rate on the Loan was approximately 11% 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”), 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.

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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 make extension payments on the first business day of each such month. The extension payments are $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.

The Financing Agreement, as amended, and the Security Agreement contain representations, warranties, affirmative and negative covenants (including financial covenants with respect to quarterly EBITDA levels of Vegas.com, quarterly revenue generated by KanKan and the value of our assets), events of default, indemnifications and other provisions customary for financings of this type. The occurrence of any event of default under the Financing Agreement may result in the Loan amount outstanding and unpaid interest thereon, becoming immediately due and payable.


NOTE 12. OTHER LIABILITIES

The following table presents the components of other liabilities (in thousands):
June 30, 2018December 31, 2017
Deferred rent $1,718 $1,820 
Early lease termination liability 1,343  
Contingent consideration liability, net of current portion  940 
Deferred tax liability, net 452 741 
Other 35  
Total $3,548 $3,501 


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):

Six Months Ended June 30, 2018 
Balance at beginning of period $ 
Establishment of early lease termination liability 2,295 
Payment of rent and other costs (558)
Receipt of amounts due under subleases 69 
Other 3 
Balance at end of period $1,809 


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NOTE 13. COMMITMENTS AND 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 Payments related to the VDC Acquisition.


NOTE 14. STOCKHOLDERS' EQUITY AND NET LOSS PER SHARE

Equity Issuances 

During the six months ended June 30, 2017, we issued a total of  382,308 shares of our common stock to private investors in exchange for approximately $1.3 million in cash. We did not make similar issuances of our common stock during the six months ended June 30, 2018.


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 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 June 30, 2018, and changes during the six 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 9,397,056 $3.80 
Granted 1,545,500 7.56 
Exercised (371,135)2.61 
Forfeited, cancelled or expired (33,076)4.33 
Outstanding at June 30, 2018 10,538,345 $4.39 8.0$4,747 
Options exercisable at June 30, 2018 9,731,934 $4.47 7.9$3,776 


We granted an option to purchase 1.3 million shares of our common stock at an exercise price of $7.81 per share to Kai-Shing Tao, our Chief Executive Officer and Chairman of the Board, under the 2017 Incentive Plan, which our stockholders approved in January 2018. We recorded the entire $11.6 million of compensation expense associated with this award during the three months ended March 31, 2018 because Mr. Tao fully vested in the award at the time we received stockholder approval.

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The following table summarizes activity under our equity incentive plans related to China Cash Bonuses as of June 30, 2018, and changes during the six 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 1,352,375 6.03 
Exercised (7,875)4.28 
Forfeited, cancelled or expired (37,000)4.91 
Outstanding at June 30, 2018 1,574,000 $5.70 9.6$116 
Options exercisable at June 30, 2018 157,250 $3.89 8.4$57 


During the six months ended June 30, 2018, we did not award restricted stock under our equity incentive plans.

We incurred share-based compensation expense of $0.4 million and $0.3 million, respectively, during the three months ended June 30, 2018 and 2017, and of $12.0 million and $0.6 million, respectively, during the six months ended June 30, 2018 and 2017.


Net Income (Loss) per Share 
 
For the three and six months ended June 30, 2018 and 2017, there were no reconciling items related to either the numerator or denominator of the loss per share calculation, except that for the second quarter of 2018 the denominator changed as a result of applying the treasury stock method to outstanding in-the-money stock options; however, the change in the denominator did not lead to a dilution of basic earnings per share.

Securities which would have been anti-dilutive to a calculation of diluted earnings per share for the three and six months ended June 30, 2018 and 2017, except for the second quarter of 2018, 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 2,961,774 shares of our common stock at an exercise price of $4.96 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 per share.


NOTE 15. SEGMENT INFORMATION

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

Our chief operating decision makers use Adjusted EBITDA as the primary measure of profitability for evaluating the operational performance of our reportable segments. Adjusted EBITDA represents operating income (loss) plus depreciation and amortization expense, share-based compensation expense, impairments and net other income, less other loss. For our Travel & Entertainment segment, Adjusted EBITDA includes an allocation of rent expense, which allocation we base on usage of
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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.

The following table presents certain financial information, including a disaggregation of revenue, regarding our business segments and other entities for the three and six months ended June 30, 2018 and 2017 (in thousands):
Travel & Entertainment Technology & Data Intelligence Corporate Entity and Other Consolidated 
Three Months Ended June 30, 2018 
Revenue $16,826 $3,369 $518 $20,713 
Adjusted EBITDA $2,002 $(1,974)$(3,312)$(3,284)
Three Months Ended June 30, 2017 
Revenue $15,288 $878 $1,090 $17,256 
Adjusted EBITDA $1,763 $(670)$(2,575)$(1,482)
Six Months Ended June 30, 2018 
Revenue $31,724 $4,552 $1,161 $37,437 
Adjusted EBITDA $2,169 $(3,492)$(8,864)$(10,187)
Six Months Ended June 30, 2017 
Revenue $29,481 $1,009 $2,065 $32,555 
Adjusted EBITDA $2,367 $(1,150)$(4,955)$(3,738)


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The following table reconciles Adjusted EBITDA to Loss before income taxes (in thousands):

Three Months Ended June 30, Six Months Ended June 30, 
2018 2017 2018 2017 
Adjusted EBITDA $(3,284)$(1,482)$(10,187)$(3,738)
Depreciation and amortization (2,746)(2,894)(5,464)(5,755)
Share-based compensation expense (417)(321)(12,022)(596)
Other income (44)(1)(55)(20)
Other loss (gain) (554)21 (523)52 
Operating loss $(7,045)$(4,677)$(28,251)$(10,057)
Other income (expense) 
Interest expense (1,255)(1,181)(2,661)(2,199)
Other income 44 1 55 20 
Change in fair value of warrant liability 10,055 1,760