Remark Media
Remark Media, Inc. (Form: 10-K, Received: 03/31/2014 16:42:57)

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-K

 

 

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended December 31, 2013

 

OR

 

 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from _____ to _____

 

Commission file number 001-33720

________________________________________

 

REMARK MEDIA, INC.

(Exact name of Registrant as specified in its charter)

 

 

 

 

Delaware

 

33-1135689

(State or other jurisdiction of

 

(I.R.S. Employer

incorporation or organization)

 

Identification No.)  

 

 

 

3930 Howard Hughes Parkway, Suite400

Las Vegas, Nevada 89169

 

 

(Address of principal executive offices, including zip code)

 

 

 

 

 

 

 

 

 

 

702-701-9514

(Registrant’s telephone number, including area code)

 

5 Concourse Parkway NE, Suite 2400

Atlanta, Georgia 30328

(Former name, former address, or former fiscal year, if changed since last report)

 

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

 

 

 

 

Title of each class

 

Name of each exchange on which registered

Common Stock, $0.001 Par Value

 

NASDAQ Capital Market

 

Securities registered pursuant to Section 12(g) of the Act:   None.

 

Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes   No x

 

Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

Yes   No x

 

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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, as amended, 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 x 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 (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes x No

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.

 

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Act (Check one):  

 

Large accelerated filer

 

Accelerated filer

Non-accelerated filer

 

Smaller reporting company x

(Do not check if a smaller reporting company)

 

 

 

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

 

At March 31, 2014, 11, 288,759 shares of the r egistrant’s common stock, $0.001 par value per share, were outstanding.  The aggregate market value of the common stock held by non-affiliates of the registrant was approximately $35,181,821 as of December 31, 2013, based on the closing price of the Common Stock on that date on the NASDAQ Capital Market. Shares of common stock held by each executive officer and director and by each person who owns 10% or more of the outstanding common stock have been excluded in that such person might be deemed to be an affiliate. This determination of affiliate status might not be conclusive for other purposes.

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Table of Contents

 

 

 

 

 

 

Page

 

 

 

PART I

 

 

 

Item 1.  

Business

4

Item 1A.  

Risk Factors

9

Item 1B.  

Unresolved Staff Comments

17

Item 2.  

Properties

17

Item 3.  

Legal Proceedings

17

Item 4.  

    Mine Safety Disclosures

17

 

 

 

PART II

 

 

 

Item 5.  

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

18

Item 6.  

Selected Financial Data

18

Item 7.  

Management’s Discussion and Analysis of Financial Condition and Results of Operations

18

Item 7A.  

Quantitative and Qualitative Disclosures about Market Risk

27

Item 8.  

Financial Statements and Supplementary Data

28

Item 9.  

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

58

Item 9A.  

Controls and Procedures

58

Item 9B.  

Other Information

58

 

 

 

PART III

 

 

 

Item 10.  

Directors, Executive Officers and Corporate Governance

59

Item 11.  

Executive Compensation

59

Item 12.  

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

59

Item 13.  

Certain Relationships and Related Transactions, and Director Independence

59

Item 14.  

Principal Accounting Fees and Services

59

 

 

 

PART IV

 

 

 

Item 15.  

Exhibits and Financial Statement Schedules

61

 

 

 

SIGNATURES  

62

 

 

 

INDEX TO EXHIBITS  

63

 

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PART I

 

SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS

 

Our disclosure and analysis in this report concerning our operations, cash flows and financial position, including, in particular, the likelihood of our success in expanding our business and our assumptions regarding the regulatory environment and international markets, include forward-looking statements.  Statements that are predictive in nature, that depend upon or refer to future events or conditions, or that include words such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “estimate,” “may” and similar expressions are forward-looking statements.  Although these statements are based upon reasonable assumptions, they are subject to risks and uncertainties that are described more fully in this report in the section titled “Part I, Item 1A. Risk Factors.”  These forward-looking statements represent our estimates and assumptions only as of the date of this filing and are not intended to give any assurance as to future results.  As a result, undue reliance should not be placed on any forward-looking statements.  We assume no obligation to update any forward-looking statements to reflect actual results, changes in assumptions or changes in other factors, except as required by applicable securities laws.

 

ITEM 1.  BUSINESS

 

OVERVIEW

  

Who We Are    

 

Remark Media, Inc.  (“Remark Media” or the “Company”) is a global digital media company focusing on the 18-to-34 year old de mographic in primarily the United States and Asia . The Company is headquartered in Las Vegas , Nevada, with additional operations in Beijing , China and Sao Paulo , Brazil . Remark Media is listed on The NASDAQ Capital Market under the symbol "MARK" .

 

The Company provides unique and dynamic digital media experiences across multiple verticals, with a focus on compelling content, trusted brands, and valuable resources for consumers.

 

History

 

Remark Media was incorporated in Delaware in March 2006 as a wholly owned subsidiary of HowStuffWorks, Inc. to develop businesses using exclusive digital publishing rights to HowStuffWorks’ content in China and Brazil.  The Company merged with INTAC International, Inc. (“IN TAC”) in 2007 to accelerate obtaining Internet licenses and to benefit from INTAC’s knowledge of the Chinese markets, relationships, and core competencies.  In 2007 and 2008, the Company launched Brazilian and Chinese editions, respectively, of HowStuffWorks.com, utilizing strategies tailored to the needs of each localized market.  Remark Media still owns and operates these businesses.

 

In 2008, Remark Media decided to further leverage its web-publishing infrastructure by expanding its operations into the U.S. market through the acquisition of DailyStrength, Inc. (“DailyStrength”).  DailyStrength’s website offered content authored by medical professionals and the ability for users and members to launch health-related discussion groups using leading community tools to interact with others.

 

In 2009, the Company co-founded Sharecare, a U.S.-based venture between: Dr. Mehmet Oz, a leading cardiac surgeon, health expert and host of “The Dr. Oz Show”; HARPO Productions, producer of “The Oprah Winfrey Show”; Discovery Communications, the world’s largest non-fiction media company; Jeff Arnold, WebMD founder and Discovery Communications’ former Chief of Global Digital Strategy; Sony Pictures Television; and Remark Media.  Sharecare was created to build a web-based platform that simplifies the search for health and wellness information by organizing a vast array of health-related questions and providing multiple answers from experts, organizations, publishers, and caregivers representing various points of view. As a part of the transactions, the Company received an equity stake in Sharecare, 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 license to use Sharecare’s web platform for its own businesses.  As Sharecare’s technology development partner, the Company began development of the platform for Sharecare in July 2009, and Sharecare.com was launched in October 2010. The Company continued to provide services to Sharecare through December 31, 2011, at which time its agreement with Sharecare expired. As of December 31, 2013, Remark Media owns approximately 8.19% of Sharecare’s common stock and has representation on its Board of Directors.  Accordingly, the Company considers Sharecare a related party.  Further information about Sharecare is available at http://sharecare.com . The Company does not incorporate any information on the Sharecare.com site into this Form 10-K. The Company does not expect to provide any further significant development services to Sharecare. Remark Media maintains the licensed rights to use the web publishing and social media platform it built for Sharecare for its own businesses outside of the healthcare industry.

 

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In 2010, Remark Media launched Curiosity Online for Discovery Communications ( http://curiosity.com ), and provided website development services for the site through November 2011. The Company’s service agreement with Discovery concluded in December 2011. 

 

In 2012, Remark Media began building a portfolio of personal finance digital media websites and services.  The Company entered into an agreement to acquire Banks.com, Inc. (“Banks.com”) in February 2012, and completed the acquisition in June 2012.  Banks.com’s properties include the personal finance websites Banks.com and US Tax Center at www.irs.com , and personal finance services FileLater.com and MyStockFund.com. In February 2014, Remark Media acquired TaxExtension.com to expand its suite of financial portals.

 

Remark Media entered the 18-to-34 year old lifestyle vertical in 2013, with the acquisition of Pop Factory, LLC (“Pop Factory”) in March 201 3.  Pop Factory is a beach lifestyle digital media brand providing websites, branded merchandise, and mobile content.  In 2013, Remark Media introduced a refreshed brand and a new website at www.bikini.com, with a focus on providing sophisticated and informative content, social media and services for fun in the sun destinations, style, and health and fitness.  To support the acquisition of Pop Factory and its entry into the new vertical, Remark Media raised $4 million in a convertible debt financing in April 2013. In November 2013, Remark Media launched its e-commerce segment .

 

The Company intends to make additional acquisitions and product launches in the 18-to-34 year old lifestyle vertical, which it believes holds significant growth opportunity in the near-term.  The 18-to-34 demographic is the first age group to have grown up with the Internet and social media, and is an increasingly meaningful user base that is redefining how media is consumed.  They represent a disproportionally large percentage of the consumers viewing online videos, engaging in social networking, owning tablets, and using smartphones, according to Nielsen research. 

 

DESCRIPTION OF BUSINESSES

 

Remark Media, Inc.  is a global digital media company focusing on the 18-to-34 year old demographic in primarily the United States and Asia with properties focused on Young Adult Lifestyle : Bikini.com; Personal Finance: Banks.com, US Tax Center at www.irs.com , FileLater.com, TaxExtension.com, and MyStockFund.com; and International: BoWenWang and ComoTudoFunciona. We will both organically develop new business through our assets and look to make acquisitions in verticals attractive to this demographic such as film, music, fashion, travel, and on-line gaming. The Company is headquartered in Las Vegas, Nevada and has operations in Beijing, China and São Paulo, Brazil. Remark Media is listed on The NASDAQ Capital Market under the symbol "MARK".  

 

Brands

 

Our Brands segment consists of those digital media properties that we own and operate.  It presently includes our translated and localized editions of HowStuffWorks.com in China and Brazil; our personal finance vertical, including Banks.com, US Tax Center at www.irs.com , FileLater.com, TaxExtension.com, and MyStockFund.com; and our new young adult  lifestyle vertical, including Bikini.com.  We intend to expand our 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.  

 

 

HowStuffWorks International

 

ComoTudoFunciona  (hsw.com.br) is Brazil’s online source for credible, unbiased and easy-to-understand explanations of how the world actually works.  The Portuguese-language site is the exclusive digital publisher in Brazil of translated and localized content from the leading Discovery Communications brand HowStuff Works .  

 

BoWenWang  (www.bowenwang.cn) is an information and reference website that provides China with encyclopedic knowledge and easy-to-understand explanations of how the world works.  The website is published from Beijing in the Chinese language.  Launched in June 2008, BoWenWang features a combination of original content authored by the Company, translated and localized articles from the leading Discovery Communications brand HowStuffWorks, and content from World Book, Inc. 

 

Personal Finance

 

Banks.com is an action-oriented resource for people interested in financial institutions and products.  In addition to providing relevant and timely news and information about banking, investing and loans, Banks.com allows users to compare rates and take action on financial products such as mortgages and savings accounts.

 

US Tax Center at www.irs.com offers information about tax matters a ffecting U.S. readers, and provides them with access to tax related information and services.

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FileLater.com and TaxExtenion.com are e-commerce businesses providing taxpayers with an online platform to file business and personal tax extensions with the IRS and receive acknowledgment of that filing from the IRS in a matter of minutes.

 

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

 

Young Adult Lifestyle

 

Bikini.com   is a digital beach lifestyle brand including its flagship website at www.bikini.com, branded merchandise, and mobile content .  In November 2013, Remark Media launched its e-c ommerce website .  

 

Sales & Marketing

 

The primary business model for our Brands business is the sale of advertising, sponsorships and related products and services.  By focusing on providing high-quality digital properties to end users in the United States, Brazil and China we aim to establish a user base attractive to advertisers.  We primarily sell advertising based on the quantity of views delivered to advertisers or the success of various advertising-related metrics, such as clicks or specified user actions.  We have sales operations in the United States to service our advertisers and intend to conduct sales for our owned and operated websites through a direct sales force and strategic partnerships.

 

Much of our mark eting efforts are in fostering word-of-mouth momentum by providing high-quality brands , in addition to using public relations efforts and search engine optimization practices.  We also intend to enter into partnerships with local businesses to provide awareness of and tr affic to our brands

 

Competition

 

Online publishing is a rapidly evolving market and we encounter significant competition in each market in which we own and operate websites.  Competitors for our Brands business include:

 

·

United States: traditional Internet companies like Yahoo! and AOL, and web portals that focus on specific category verticals such as Demand Media, WebMD and About.com;

·

China: national In ternet portals such as Baidu, Sina, sohu.com and tom.com; and

·

Brazil:  national websites such as Terra and Globo.

 

These competitors operate websites that compete with us for both end users and advertising revenue. 

 

The online financial services market continues to evolve rapidly and we expect it to remain highly competi tive. Our MyStockFund.com website competes with full commission, discount and online brokerage firms. Some of these competitors provide Internet trading and banking services, investment advisor services, touchtone telephone and voice response banking services, electronic bill payment services and a host of other financial products. Our tax preparat ion and tax extension websites compete with the much larger firms such as Intuit and H&R Block.

 

We also face intense competition in attracting and retaining qualified employees.  Our ability to compete effectively will depend upon our ability to attract new employees and retain and motivate our existing employees while efficiently managing compensation-related costs.

 

Intellectual Property

 

We license many technologies used in our businesses as well as hold licenses to content owned by HowStuffWorks.  We rely upon trademark, copyright and trade secret laws in various jurisdictions, as well as confidentiality procedures and contractual provisions to protect our proprietary assets and brands.  We do not own any patent or copyright registrations.  We hold various trademarks for our brands, and we have additional applications pending.

 

Government Regulation

 

The application of new and existing laws and regulations to the Internet or other online services could also have a material adverse effect on our business, prospects, financial condition and results of operations. Several federal laws that could have an impact on our business have already been adopted. The Digital Millennium Copyright Act is intended to reduce the liability of online service providers for listing or linking to third party web properties that include materials that infringe copyrights or rights of others. The Children’s Online Privacy Protection Act is intended to restrict the distribution of certain

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materials deemed harmful to children and impose additional restrictions on the ability of online services to collect user information from minors. In addition, the Protection of Children from Sexual Predators Act requires online services providers to report evidence of violations of federal child pornography laws under certain circumstances. The foregoing legislation may impose significant additional costs on our business or subject us to additional liabilities, if we were not to comply fully with their terms, whether intentionally or not. We intend to fully comply with the laws and regulations that govern our industry, and we employ internal resources and incur outside professional fees to establish, review and maintain policies and procedures to reduce the risk of noncompliance.

 

Privacy concerns relating to the disclosure of consumer financial information have drawn increased attention from federal and state governments. For example, the IRS generally prohibits the use or disclosure by tax return preparers of taxpayers’ information without the prior written consent of the taxpayer. In addition, other regulations require financial service providers to adopt and disclose consumer privacy policies and provide consumers with a reasonable opportunity to “opt-out” of having personal information disclosed to unaffiliated third-parties for marketing purposes. Although we have procedures to protect against identity theft, breaches of our clients’ privacy may occur. To the extent the measures we have taken prove to be insufficient or inadequate, we may become subject to litigation or administrative sanctions, which could result in significant fines, penalties or damages and harm to our brand and reputation. In addition, changes in these federal and state regulatory requirements could result in more stringent requirements and could result in a need to change business practices, including how information is disclosed. Establishing systems and processes to achieve compliance with these new requirements may increase costs and/or limit our ability to pursue certain business opportunities.

 

We post our privacy policy and practices concerning the use and disclosure of any user data on our web properties and our distribution applications. Any failure by us to comply with posted privacy policies, Federal Trade Commission requirements or other domestic or international privacy-related laws and regulations could result in proceedings by governmental or regulatory bodies that could potentially harm our businesses, results of operations and financial condition. In this regard, there are a large number of legislative proposals before the United States Congress and various state legislative bodies regarding privacy issues related to our businesses. It is not possible to predict whether or when such legislation may be adopted, and certain proposals, if adopted, could harm our business through a decrease in user registrations and revenue. These decreases could be caused by, among other possible provisions, the required use of disclaimers or other requirements before users can utilize our services.

 

There are a growing number of legislative proposals before Congress and various state legislatures regarding privacy issues related to the Internet generally, and some of these proposals apply specifically to paid search businesses and ownership rights of Internet domain properties. We are unable to determine if and when such legislation may be adopted. If certain proposals were to be adopted, our business could be harmed by increased expenses or lost revenue opportunities, and in other unforeseen ways.

 

We anticipate that new laws and regulations affecting us will be implemented in the future. Those new laws, in addition to new applications of existing laws, could expose us to substantial liabilities and compliance costs.  In addition, because our services are available over the Internet in multiple states, certain states may claim that we are required to qualify to do business in such state.

 

As part of our initiative to make  www.banks.com  a preferred destination for personal finance and consumer banking information and services, we have focused our efforts on enhancing the content and usability of the site. Our subsidiary MyStockFund Securities, Inc. is a broker-dealer registered with the SEC and in all 50 states, the District of Columbia, and Puerto Rico, and a member of a self-regulatory organization, the Financial Industry Regulatory Authority (“FINRA”). Broker-dealers are subject to federal and state laws and regulations covering all aspects of the securities business, including sales and trading practices, securities offerings, publication of research reports, use of customers’ funds and securities, minimum net capital requirements, record-keeping and retention, anti-money laundering, privacy laws, and the conduct of their directors, officers, employees and other associated persons. Violations of the federal and state laws and regulations governing a broker-dealers actions could result in civil and criminal liability and administrative liability in the form of censures, fines, the issuance of cease-and-desist orders, revocation of licenses or registrations, the suspension or expulsion from the securities industry of such broker-dealer or its officers or employees, or other similar consequences by both federal and state securities administrators.

 

The government of the P eople’s Republic of China has at times taken measures to restrict digital platforms, publishers or specific content themes from consumption by its citizens. We invest significant efforts into ensuring that our published content in China is consistent with our most current understanding of prevailing Chinese laws, regulations, and policies; and to date our published content in China has been met with successful distribution and no action or inquiry from the Chinese government. However, our business could be harmed by unforeseen regulatory restrictions or policy changes in China regarding digital content.

 

 

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Employees

 

As of December 31, 2013, we had 24 employees.

 

Our Relationship with Discovery Communications, Inc.

 

On December 17, 2007, following HowStuffWorks’ contribution of digital publishing rights to the Company, HowStuffWorks merged with Discovery Communications, Inc. (the “Discovery Merger”), and became a wholly owned subsidiary of Discovery.  The merger agreement between Discovery and HowStuffWorks provided that payment to the former HowStuffWorks shareholders for a significant portion of its ownership of our common stock would not be paid at the October 2007 closing of the transaction, but instead would be available to be paid in three semi-annual installments.  The installments were planned to begin in October 2008 and occurred in December 2012. 

 

Available Information

 

Remark Media’s website address is www.remarkmedia.com .   Information on our website is not incorporated by reference into th e Form 10-K and should not be considered a part of this report.  We make available free of charge through our website our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports in addition to other SEC reports as soon as reasonably practicable after such material is electronically filed with or furnished to the SEC.

 

 

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ITEM 1A.  RISK FACTORS

 

This report contains forward-looking statements that involve risks and uncertainties.  Our actual results could differ materially from those discussed in this report.  Factors that could cause or contribute to these differences include, but are not limited to, those discussed below and elsewhere in this report and in any documents incorporated in this report by reference.

 

RISKS RELATING TO OUR SERVICES & BRANDS

 

We continue to evolve our business strategy and develop new brands and services, and prospects are difficult to evaluate.

 

We are in varying development stages of our business, so our prospects must be considered in light of the many risks, uncertainties, expenses, delays, and difficulties frequently encountered by companies in their early stages of development.  Additionally, we have limited operating history of our owned websites in the United States market. Some of the risks and difficulties we expect to encounter include our ability to:

 

·

manage and implement new business strategies;

·

successfully commercialize and monetize our assets;

·

successfully attract advertisers for our owned and operated websites ;

·

continue to raise additional working capital;

·

manage our expense structure as a U.S. public company including, without limitation, compliance with the Sarbanes Oxley and Dodd Frank Acts;

·

manage  operating expenses;

·

establish and take advantage of strategic relationships;

·

manage and adapt to rapidly changing and expanding operations ;

·

respond effectively to competitive developments; and

·

attract, retain and motivate qualified personnel . .

Because of our lack of operating history in the United States and the early stage of development of our business, we cannot be certain that our business strategy will be successful or that it will successfully address these risks.  Any failure by us to successfully implement our new business plans could have a material adverse effect on our business, financial condition, results of operations and cash flows.

 

If we do not effectively manage our growth, our operating performance will suffer and our financial condition could be adversely affected.

 

Substantial future growth will be required in order for us to realize our business objectives.   To the extent we are capable of achieving this growth, it will place significant demands on our managerial, operational and financial resources.  Additionally, this growth will require us to make significant expenditures, establish, train and manage a larger work force, and allocate valuable management resources. We must manage any such growth through appropriate systems and controls in each of these areas.  If we do not manage the growth of our business effectively, our business, financial condition, results of operations and cash flows could be materially and adversely affected.

 

The expansion of our Brands segments into new category verticals subjects us to additional business, legal, financial and competitive risks.

 

A key component of our business strategy is to grow our network of owned and operated websites to cover a variety of category verticals to address consumer interests and needs. In doing so we will encounter a number of risks, including increased capital requirements, growth in our workforce, new competitors and development of new strategic relationships. We cannot ensure that our strategy will result in increased revenue or operating profit. Furthermore, growth into new areas may require changes to our cost structure, modifications to our infrastructure and exposure to new regulatory and legal risks .

Our quarterly results of operations might fluctuate due to seasonality, which could adversely affect our growth rate and in turn the market price of our securities.

Our quarterly results have fluctuated in the past and will likely fluctuate in the future due to seasonal fluctuations in the level of Internet usage and interest in various topics of our Brands.  Prolonged or severe decreases in usage during certain seasonal periods may adversely affect our growth rate and in turn the market price of our securities.  In addition, we expect the revenues associated with our websites a t   www.irs.com , www.taxextension.com,   and www.filelater.com to be largely seasonal in nature, with peak revenues occurring during January through April, corresponding to the U.S. tax season.

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If we are unable to attract and retain visitors to our web business in a cost-effective manner, our business, financial condition and results of operations will be adversely affected.

 

Our primary strategy for attracting and retaining users to our websites is to provide content and community-focused digital experiences. The success of these efforts depends, in part, upon our ability to create and distribute high-quality content as well as to innovate and evolve our content and social media technology platforms at scale in a cost-effective manner. Failure to do so could adversely affect user experiences and reduce traffic to our owned and operated websites, which would adversely affect our business, financial condition, results of operations and cash flows. Additionally, our strategy could be flawed and might not result in the ability to attract and retain users in a cost-effective manner. A second strategy we utilize to attract traffic is the search engine optimization, (“SEO”), of our websites and the content published on them.  SEO involves architecting websites with the objective of ranking well in unpaid search engine results. Our ability to successfully manage SEO efforts across our owned and operated websites is dependent on our timely and effective modification of SEO practices implemented in response to periodic changes in search engine algorithms and methodologies and changes in search query trends and our ability to offer websites and content responsive to ever-changing consumer interests and trends. Our failure to successfully manage our SEO strategy could result in a substantial decrease in traffic to our owned and operated websites, or an inability to attract traffic to new websites that we launch which would adversely affect our business, financial condition, results of operations and cash flows.

 

Even if we succeed in attracting traffic to our owned and operated websites, we may not be successful in monetizing the traffic. Additionally, the costs of attracting and retaining users to our websites may exceed our ability to generate revenues from such activities, which would have an adverse effect on our business, financial condition, results of operations and cash flows.

 

As a creator and a distributor of digital content, we face potential liability for legal claims based on the nature and content of the materials that we create or distribute, or that are accessible via our owned and operated websites.

 

As a creator and distributor of original content and third-party provided content, we face potential liability for legal claims, including defamation, negligence, unlawful practice of a licensed profession, copyright or trademark infringement or other legal theories based on the nature, creation or distribution of this information, and under various laws, including the Lanham Act, the Digital Millennium Copyright Act and the Copyright Act. We may also be exposed to similar liability in connection with content that is posted to our owned and operated websites by users and other third parties through comments, profile pages, discussion forums and other social media features. In addition, it is also possible that visitors to our owned and operated websites could make claims against us for losses incurred in reliance upon information provided on our owned and operated websites. Any of these claims could result in significant costs to investigate and defend, regardless of the merit of the claims. If we are not successful in our defense, we may be forced to pay substantial damages. While we run our content through a rigorous quality control process, there is no guarantee that we will avoid future liability and potential expenses for legal claims, which could affect our business, financial condition, results of operations and cash flows.

We may be subject to liability for information displayed by advertisers on our websites, which may affect our business.

Laws relating to the liability of providers of online services for activities of their advertisers and for the content of their advertisers’ listings are currently unsettled. It is unclear whether we could be subjected to claims for defamation, negligence, copyright or trademark infringement or claims based on other theories relating to the information we publish on our websites. These kinds of claims have been brought, sometimes successfully, against online services as well as other print publications in the past. We may not successfully avoid liability for unlawful activities carried out by advertisers displayed on our websites. If we are subjected to such lawsuits, it may adversely affect our business.

In addition, much of the information on websites in our personal finance vertical   that is provided by advertisers and collected from third parties relates to the rates, costs and features for various loan, depositary, personal credit and investment products offered by financial institutions, mortgage companies, investment companies, insurance companies and others participating in the consumer financial marketplace. We are exposed to the risk that some advertisers may provide us, or directly post on our websites, (i) inaccurate information about their product rates, costs and features, or (ii) rates, costs and features that are not available to all consumers. This could cause consumers to lose confidence in the information provided by advertisers on our websites, and cause certain advertisers to become dissatisfied with our websites, and result in lawsuits being filed against us.

New regulations governing the Internet and e-commerce may negatively affect our business.

Any new legislation or regulation, or the application of existing laws and regulations to the Internet or other online services , could have a material adverse effect on our business, prospects, and financial conditions and results of operations.

The Federal Trade Commission has recently reviewed the way in which search engines disclose paid search practices to Internet users. In 2002, the FTC issued guidance recommending that all search engine companies ensure that all paid search

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results are clearly distinguished from non-paid results, that the use of paid search is clearly and conspicuously explained and disclosed and that other disclosures are made to avoid misleading users about the possible effects of paid search listings on search results. The adoption of laws or regulations relating to placement of paid search advertisements or user privacy, defamation or taxation may inhibit the growth in use of the Internet, which in turn, could decrease the demand for our services and increase our cost of doing business or otherwise have a material adverse effect on our business, prospects, financial condition and results of operations.

The application of new and existing laws and regulations to the Internet or other online services has had a material adverse effect on our business, prospects, financial condition and results of operations in the past. For example, on April 17, 2007, the U.S. House of Representatives passed H.R. 1677,  The Taxpayer Protection Act of 2007 (“H.R. 1677”). Section 8 of H.R. 1677 would have amended Section 333, Title 31 of the U.S. Code to include Internet domain addresses in the prohibition on certain use of the U.S. Department of the Treasury names and symbols. Although the legislation was never passed by the Senate or signed into law and the bill ceased with the ending of the 110th Congress in January 2009, there is no guarantee that similar legislation won’t be introduced and passed into law by the current or future Congress. While the ultimate impact of any such proposed legislation is not presently determinable, if enacted, such legislation may adversely impact our overall operations. We own the Internet domain address  US Tax Center at www.irs.com , which is an acronym commonly associated with the Internal Revenue Service, a division of the U.S. Department of the Treasury. While the bill was never passed into law, if enacted, the passage of such legislation could have severely adversely affected our use of our Internet domain address  US Tax Center at www.irs.com   as well as our overall operations. In the event a bill such as H.R. 1677 were to become law, we intend to be continue to be diligent in our communications with the Internal Revenue Service and Congress in an effort to mitigate any potential negative effects of such legislation.

We are subject to the extensive regulations that govern a broker-dealer.

 

MyStockFund Securities, Inc., one of our websites (MyStockFund.com) , is a broker-dealer registered with the SEC and in all 50 states, the District of Columbia, and Puerto Rico, and a member of a self-regulatory organization, the Financial Industry Regulatory Authority (“FINRA”). Broker-dealers are subject to federal and state laws and regulations covering all aspects of the securities business, including sales and trading practices, securities offerings, publication of research reports, use of customers’ funds and securities, minimum net capital requirements, record-keeping and retention, anti-money laundering, privacy laws, and the conduct of their directors, officers, employees and other associated persons. Violations of the federal and state laws and regulations governing a broker-dealers actions could result in civil and criminal liability and administrative liability in the form of censures, fines, the issuance of cease-and-desist orders, revocation of licenses or registrations, the suspension or expulsion from the securities industry of such broker-dealer or its officers or employees, or other similar consequences by both federal and state securities administrators. 

 

We face intense competition from larger, more established companies, and we may not be able to compete effectively, which could reduce demand for our services.   

 

We compete for Internet advertising revenues with the personal finance sections of general interest sites such as Bankrate.com, Yahoo!Finance .com , and Smartmoney.com, and we will compete for Internet advertising revenues with numerous websites focusing on the young adult demographic.

 

Nearly all our competitors have longer operating histories, larger customer bases, greater brand recognition and significantly greater financial, marketing and other resources than we do. Our competitors may secure more favorable revenue arrangements with advertisers, devote greater resources to marketing and promotional campaigns, adopt more aggressive growth strategies and devote substantially more resources to website and systems development than we do. In addition, the Internet media and advertising industries continue to experience consolidation, including the acquisitions of companies offering finance related content and services and paid search services. Industry consolidation has resulted in larger, more established and well-financed competitors with a greater focus. If these industry trends continue, or if we are unable to compete in the Internet media and paid search markets, our financial results may suffer.  

 

Additionally, larger companies may implement policies and/or technologies into their search engines or software that make it less likely that consumers can reach our websites and less likely that consumers will click-through on sponsored listings from our advertisers. The implementation of such technologies could result in a decrease in our revenues. If we are unable to successfully compete against current and future competitors, our operating results will be adversely affected.  

   

Historically, a few of our advertising networks   and direct advertisers have provided a substantial portion of our revenue; the loss of one of these partners may have a material adverse effect on our operating results.   

 

We cannot assure you that, should agreements with our advertising networks, strategic sales and marketing partners, and /or direct advertisers fail to be renew ed or should the contracts be terminated or modified in advance of their expiration, we will

11


 

be able to timely replace the sponsored listings they provide us. We have had similar agreements in the past that have failed to be renew e d or been modified prior to their termination where our financial results were harmed.  

 

We may not succeed in marketing and monetizing our assets to potential customers or developing strategic partnerships for the distribution of our products and services.

 

Our plans to market and monetize our assets in the United States are still relatively new, and we have limited experience in owning and operating websites in the United States.  We may not be successful in establishing a customer base of our owned and operated websites .  If we are not successful in developing, releasing and/or marketing these owned and operated websites and services on a profitable basis, our results of operations would be materially and adversely affected.  

 

 

RISKS RELATING TO OUR COMPANY

 

We may not have sufficient liquidity to support our operations.   

 

As of December 31, 2013, the Company’s total cash and cash equivalents balance was approximately $1. 3 million.   The Company has incurred net losses and generated substantial negative cash flow from operations in the twelve months ended December 31, 2013 and in each fiscal year since its inception and has an accumulated deficit of $111.7 million as of December 31, 2013. 

   

The Company intends to fund its future operations through revenue growth in its Brands segment, particularly i ts personal finance and 18-to-34 year old lifestyle properties.  However, abse n t any acquisitions of new businesses, the addition of new customers, or the material increase in revenue from its existing customers, current revenue growth may not be sufficient to sustain the Company's operations in the long term. As such, the Company may need to obtain additional equity financing and/or divest of certain assets or businesses, neither of which can be assured on commercially reasonable terms, if at all. In addition, any equity financing that might be obtained could substantially dilute existing stockholders. There is no certainty that the Company will be successful at raising capital, nor is there certain ty around the amount of funds that may be raised. For further details regarding liquidity, refer to our "Liquidity and Capital Resources" section of the "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in this Form 10-K.

 

In addition, the success of the Company will be subject to performance of the markets and investor sentiment regarding the macro and micro economic conditions under which we operate including stock market volatility. There can be no assurance that the Company will be successful at generating more revenues or selling any of its assets. Any failure by the Company to successfully implement these plans would have a material adverse effect on the Company’s business, including the possible inability to continue operations. 

 

Based on the Company’s current financial projections, the new Term Loan Agreements, conversion of the old Term Loan Agreements, and the reduction in expenses, all discussed above, the Company believes it has sufficient existing cash resources to fund operations through December 2014.   However, projecting operating results is inherently uncertain.   Accordingly, the Company’s cash resources could be fully utilized prior to December 2014. 

 

The market price of our stock is likely to be volatile and various factors could negatively affect the market price or market for our common stock.   

   

The market for and price of our common stock could be affected by the following factors:   

 

·

general market and economic conditions;

·

our common stock has been thinly traded; and 

·

minimal third party research is available regarding our company.

Additionally, the terms of the Discovery Merger provided that payment to HowStuffWorks stockholders for a significant portion of HowStuffWorks’ ownership of our common stock would not be paid at the October 2007 closing of the transaction and instead are payable to HowStuffWorks’ former stockholders in three semi-annual installments.  Discovery has distributed all such shares of Remark Media to the HowStuffWorks’ former stockholders.  Accordingly, the amount of shares of our common stock Discovery owns has decreased.  All of our rights to publish HowStuffWorks content will remain effective regardless of the number of shares Discovery owns in the future.  As a result of such distributions, relative to the daily market trading volumes for our common stock, such stockholders may sell a significant number of shares.  These factors could also affect our common stock, and depress the market price for our common stock or limit the market for resale of our common stock.  The market price of our common stock has been volatile, particularly in the recent stock market turmoil, and is also based on other factors outside of our control.  

 

12


 

The an ticipated benefits of the acquisitions may not be realized fully or at all or may take longer to realize than expected.   

 

The acquisitions of Banks.com and Pop Factory involved the integration of companies that have previously operated independently with principal offices in different distinct locations. Significant manage ment attention and resources have been and will be required to integrate the companies. Delays in this process could adversely affect the combined company's business, financial results, financial condition, and stock price following the merger. Even if the combined company were able to integrate the business operations successfully, there can be no assurance that this integration will result in the realization of the full benefits of synergies, innovation and operational efficiencies that may be possible from this integration and that these benefits will be achieved within a reasonable period of time.    

 

We have a history of operating losses and if we do not reach profitability, we may not be able to fund and operate our businesses.

 

Although Remark Media was founded in 2006, our business strategy is still evolving, and we have a limited operating history. We are in varying development stages of our businesses, including online publishing and international and domestic digital markets, with a limited operating history upon which investors and others can evaluate our current business and prospects.  We have had operating losses in each year of our operations. If we are not able to reach profitability, we may not be able to fund our operations in the future.

 

During 2013, we significantly increased our re venues compared to 2012 from $0.5 million to $2.0 million. The increase was principally due to the acquisitions of Pop Factory and Banks.com. The Company has also implemented multiple cost saving measures in 2013. However, we cannot be certain that our business strategy will be successful or that it will successfully address these risks.  Any failure by us to successfully implement our new business plans would have a material adverse effect on our business, financial condition, results of operations and cash flows.

 

Acquisitions, business combinations and other transactions present integration risk and may have negative consequences for our business and our stockholders.

 

We plan to continuously monitor certain strategic acquisition opportunities.  The process of integrating acquired businesses into our existing operations may result in unforeseen difficulties and liabilities and may require a disproportionate amount of resources and management attention.  Difficulties that we encounter in integrating the operations of acquired businesses could have a material adverse effect on our business, financial condition, results of operations and cash flows.  Moreover, we may not realize any of the anticipated benefits of an acquisition and integration costs may exceed anticipated amounts .

 

Our investment in Sharecare’s equity securities involves a substantial degree of risk.

 

Sharecare is a recently formed company with limited history of operations.  Its prospects must be considered in light of the many risks, uncertainties, expenses, delays and difficulties encountered by companies in their early stages of development.  Moreover, Sharecare operates in the highly competitive Internet industry and might not achieve profitability or consumer acceptance in the near term, if ever. Our investment in Sharecare’s equity securities is illiquid and might fail to appreciate and might decline in value or become worthless.  It is unlikely our Sharecare equity securities will pay current dividends, and our ability to realize a return on our investment, as well as to recover our investment, will be dependent on the success of Sharecare.  

 

Even if Sharecare is successful, our ability to realize the value of our investment might be limited.  Because it is a private company, there is no public market for Sharecare’s securities, and the Sharecare securities are subject to restrictions on resale that might prevent us from selling these securities during periods in which it would be advantageous to do so.  As a result, we might have to wait for a liquidity event, such as a public offering or the sale of Sharecare, to realize the value of our investment, if any.  A liquidity event is not expected in the near term.

 

We accounted for our investment in Sharecare under the equity method of accounting through November 2012, under which we record our proportionate share of Sharecare’s net income or loss.  As of December 2012, we moved to the cost method.  It is likely that Sharecare will need to raise additional capital, or make additional acquisitions, and our equity position in Sharecare may be diluted if Sharecare issues additional equity, options, or warrants.  If Sharecare makes a capital call of its existing equity holders, our position may be diluted if we choose not to contribute additional capital. Our interest ownership in the common stock of Sharecare was 8.19% at December 31, 2013.

 

If we do not scale and adapt our business to technological needs of increased traffic and technological changes, it could cause inefficiencies or disruptions on our websites and loss of users, contributors, and advertisers.

 

As our business grows, our technological and network infrastructure must keep in-line with our traffic and advertiser needs. Future demand is difficult to forec ast and we may not be able to adequately handle large increases unless we spend substantial amounts to augment our ability to handle increased traffic. Additionally, the implementation of increased network

13


 

capacity contains some execution risks and may lead to ineffectiveness or inefficiency. This could lead to a diminished experience for our consumers and advertisers and damage our reputation and relationship with them, leading to lower marketability and negative effects on our operating results. Moreover, the pace of innovative change in network technology is fast and if we do not keep up, we may lag behind competitors. The costs of upgrading and improving technology could be substantial and negatively affect our business, financial condition, results of operations and cash flows.

 

We are vulnerable to failures of third party network and technology providers who may fail to provide adequate services in the future. This could cause technical problems or failure of our websites or traffic, which could inhibit our revenues or damage our reputation and relationships with users, advertisers, and content providers.

 

We rely on many third party businesses for technological, network, and expert services. Our ability to operate successfully depends on the successful operation of these third party businesses, which carry their own risks. If one of our third party vendors fails to deliver expected services, our websites and business could suffer operating problems or temporary failures. If there is a problem or failure with our websites, it could hurt our ability to advertise and damage our reputation with consumers and advertisers.

 

We utilize third party services to host our websites. If one of these third parties experiences a failure, it could cause the failure of our websites, which may cause material adverse effects to our business. Additionally, a termination of our hosting agreements or failure to renew on favorable terms could affect our business. Shifting hosting services could require management focus and time and potentially disrupt operations of our websites.

 

In addition, as operators of content websites reliant on user traffic to sell advertising, our users must have adequate and functioning Internet access. Technical problems with Internet access providers such as cable, DSL satellite or mobile companies may inhibit user access to our websites and slow traffic. Such events as power outages caused by blackouts, brown outs, storm outages or other power issues could also cause loss of user access to our websites.

 

Our network operations may be vulnerable to hacking, viruses and other disruptions, which may make our products and services less attractive and reliable.

 

User traffic to our owned and operated websites could decline if any well-publicized compromise of our security occurs.  “Hacking” involves efforts to gain unauthorized access to information or systems or to cause intentional malfunctions or loss or corruption of data, software, hardware or other computer equipment.  Hackers, if successful, could misappropriate proprietary information or cause disruptions in our service.  We may be required to expend capital and other resources to protect our owned and operated websites against hackers.  If our security measures are breached as a result of third party action, employee error or otherwise, we could incur liability and our reputation would be damaged, which could lead to the loss of current and potential customers. If we experience any breaches of our network security or sabotage, we might be required to expend significant capital and other resources to remedy, protect against or alleviate these and related problems, and we may not be able to remedy these problems in a timely manner, or at all. Because techniques used by outsiders to obtain unauthorized network access or to sabotage systems change frequently and generally are not recognized until launched against a target, we may be unable to anticipate these techniques or implement adequate preventative measures. We cannot ensure that any measures we may take will be effective.  In addition, the inadvertent transmission of computer viruses could expose us to a material risk of loss or litigation and possible liability, as well as materially damage our reputation and decrease our user traffic.

  

Unauthorized use of our intellectual property by third parties, and the expenses incurred in protecting our intellectual property rights, may adversely affect our business.

 

We regard our copyrights, service marks, trademarks, trade secrets and other intellectual property as critical to our success.  Unauthorized use of our intellectual property by third parties may adversely affect our business and reputation.  We rely on trademark and copyright law, trade secret protection and confidentiality agreements with our employees, customers, business partners and others to protect our intellectual property rights.  Despite our precautions, it is possible for third parties to obtain and use our intellectual property without authorization.  Furthermore, the validity, enforceability and scope of protection of intellectual property in Internet related industries are uncertain and still evolving.  In particular, the laws of the PRC and Brazil are uncertain or do not protect intellectual property rights to the same extent as do the laws of the United States.  Moreover, litigation may be necessary in the future to enforce our intellectual property rights, to protect our trade secrets or to determine the validity and scope of the proprietary rights of others.  Future litigation could result in substantial costs and diversion of resources.

 

We may be subject to intellectual property infringement claims, which may force us to incur substantial legal expenses and, if determined adversely against us, materially disrupt our business.

 

We cannot be certain that our brands and services will not infringe valid patents, copyrights or other intellectual property rights held by third parties.  We may in the future be subject to legal proceedings and claims from time to time relating to the

14


 

intellectual property of others in the ordinary course of our business.  In particular, if we are found to have violated the intellectual property rights of others, we may be enjoined from using such intellectual property, and may incur licensing fees or be forced to develop alternatives.  We may incur substantial expenses in defending against these third party infringement claims, regardless of their merit.  Successful infringement claims against us may result in substantial monetary liability or may materially disrupt the conduct of our business.

 

If we are not able to attract and retain key management, we may not succes sfully integrate the acquired assets into our historical business or achieve our other business objectives.

 

We will depend upon the contributions of our sen ior management, including our Chief Executive Officer and Chief Financial Officer, for our future business success. The loss of the service of any of the key members of our senior management may significantly delay or prevent the integration of the contributed assets and other business objectives.

  

We could incur asset impairment charges for intangible assets or other long-lived assets.

 

We have intangible assets and other long-lived assets, therefore future lower than anticipated financial performance or changes in estimates and assumptions, which in many cases require significant judgment, could result in impairment charges.  We test intangible assets that are determined to have an indefinite life for impairment during the fourth quarter of each fiscal year, and assess whether factors or indicators, such as unfavorable variances from established business plans, significant changes in forecasted results or volatility inherent to external markets and industries, become apparent that would require an interim test.  Adverse changes in the operating environment and related key assumptions used to determine the fair value of our indefinite lived intangible assets or declines in the value of our common stock may result in future impairment charges for a portion or all of these assets.  In December 2012, we recorded an impairment charge of $0.4 million resulting from abandoning certain projects in our Content and Platform Services business.  In September 2011, we recorded an impairment charge of $0.4 million resulting from our analysis of a triggering event tied to the strategic reductions in investment in our China operations to better align expenses to the revenues being generated at that time.  If any of the assumptions used in the analysis change in the future, an impairment charge for a portion or all of the assets may be required.  In addition, in December 2010, we recorded an impairment charge of $0.5 million, primarily because of changes in our assumptions as to the time and cost required to obtain licenses to operate in China similar to the ones we currently hold. An additional impairment charge could have a material adverse effect on our business, financial position and results of operations, but would not be expected to have an impact on our cash flows or liquidity. As of December 31, 2013, we evaluated our portfolio of intangible assets and other long-lived assets for impairment and determined that no impairment was deemed necessary.

  

 

Our Information Technology Infrastructure is c loud -based.

 

In December 2013, we converted from hardware storage in data room to a cloud-based infrastructure. Like many companies using the cloud, we continually strive to meet industry information security standards relevant to our business. We continuously perform vulnerability assessments, review log/access,  perform system maintenance, and manage network perimeter protection. A breach of external perimeter may lead to the loss of confidential information.

 

RISKS RELATING TO OUR COMMON STOCK

 

Our stock price has fluctuated considerably and is likely to remain volatile, in part due to the limited market for our common stock

 

Our common stock is currently listed on the NASDAQ Capital Market .   F ro m  J anuary 1 ,   2013 ,   through   Marc h   30 ,   2014 ,   t h e   hig h   a n d   l o w   s ales   p rices   f o r   o ur commo n   stoc k   w er e   $ 6.10   an d   $ 1.12 ,   respectively.   Ther e   i s   a   limited   publi c   m arket   fo r   ou r   co mm o n   stock,   an d   w e   cannot provid e   assurances   that   a   m or e   active trading   m arket   w ill develop. As a result of low trading volume in our common stock, th e   p urchase  o r   s ale   o f   a   relativel y   smal l   numbe r   o f   s hares   could   resul t   in   significant   share     price     fluctuation s .

 

The concentration of our stock ownership may limit individual stockholder ability to influence corporate matters.

 

HowStuffWorks, a subsidiary of Discovery,  beneficially owns a 6.53 % of our outstanding common stock and is a party of a stockholders’ agreemen t Our Chairman and Chief Executive Officer, Kai-Shing Tao may be deemed to beneficially own 3,890,402 shares or 34% of our common stock including 3,556,372 beneficially owned by Digipac, LLC, of which he is the manager and a member. The interests of these stockholders may not always coincide with the interest s of other stockholders, and they may act in a manner that advances their best interests and not necessarily those of other stockholders, and might affect the prevailing market price for our securities.

 

15


 

If these stockholders act together, they may be able to exert significant control over our management and affairs requiring stockholder approval, including approval of significant corporate actions. This concentration of ownership may have the effect of delaying or preventing change in control and might adversely affect the market price of our common stock. This concentration of ownership may not be in the best interests of all of our stockholders.

 

Provisions in our corporate charter documents and under Delaware law could make an acquisition of the Company more difficult, which acquisition may be beneficial to stockholders.

 

Provisions in our certificate of inc orporation and by-laws, as well as provisions of the General Corporation Law of the State of Delaware ("DGCL"), may discourage, delay or prevent a merger, acquisition or other change in control o f   t h e   C o m pany ,   even   if   s uch   a   c hang e   in   control   w ould   b e   b eneficial   to   o u r   s tockholders. T hes e   p rovisions   include   t he following:

 

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;

w e   have   authorized   undesignated   preferred   stock,   the   terms   of   which   may   be   established   and   shares   of   which   may   be issued   without   stockholder   approval .

 

Additionally, Section 2013 of the DGCL prohibits a person who owns in excess of 15% of our outstanding voting stock from merging or combining with us for a period of three years after the date of the transaction in which the person acquired in excess of 15% of our outstanding voting stock, unless the merger or combination is approved in a prescribed manner. We have not opted out of the restriction under Section 2013, as permitted under DGCL.

 

 

The concentration of our stock ownership, as well as our Amended and Restated Certificate of Incorporation, Amended and Restated Bylaws, stockholders agreement and Delaware law contain provisions that may make our acquisition more difficult without the approval of our board of directors, which could discourage, delay or prevent a transaction involving our change of control.

 

As of December 31, 2013, Kai-Shing Tao, the Company's Chairman and Chief Executive Officer, together, with all of his managed and controlled entities, including Digipac, LLC and Pacific Star Management, LP, holds approximately 34% of our outstanding shares of common stock. As a result, it will be difficult for our other stockholders to approve a takeover of us without cooperation of Mr. Tao.  In addition, Digipac, LLC issued a $3.5 million convertible promissory note on January 29, 2014 that may convert both the unpaid, accrued interest and principal at a rate of $5.03 into shares of the Company's common stock. As of March 31, 2014, if Digipac elected to convert its outstanding principal and accrued interest into shares of common stock - which also have registration and piggyback rights - the transaction would result in an additional 703 thousand of common stock, representing an additional 4% of equity interest and increasing his ownership position from 34% to 38%.    

 

Furthermore, our Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws contain anti-takeover provisions, including but not limited to the following provisions:

 

·

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.

 

In addition, the stockholders agreement gives HowStuffWorks the right to designate nominees to our Board of Directors.

 

These anti-takeover defenses could discourage, delay or prevent a transaction involving a change of control of us.  These provisions could also discourage proxy contests and make it more difficult for individual investors and other stockholders to cause us to take other corporate actions individual investors and other stockholders desire.

 

Section 203 of the Delaware General Corporation Law may also delay, defer or prevent a change in control that our stockholders might consider to be in their best interest.  We are subject to Section 203 of the Delaware General Corporation Law which, subject to certain exceptions, prohibits “business combinations” between a publicly-held Delaware corporation

16


 

and an “interested stockholder,” which is generally defined as a stockholder who becomes a beneficial owner of 15% or more of a Delaware corporation’s voting stock for a three-year period following the date that such stockholder became an interested stockholder.  Section 203 could have the effect of delaying, deferring or preventing a change in control of us that our stockholders consider to be in their best interest.

 

A significant number of additional shares of our common stock may be issued upon the exercise or conversion of existing securities, which issuances would substantially dilute existing stockholders and may depress the market price of our common stock

 

As o f December 31, 2013, we had convertible notes and accrued interest convertible into 2,521,929 shares   of common stock , and options and warrants to purcha se approximately 284,329 shares of common stock outstanding. The issuance of these shares of common stock would substantially dilute the proportionate ownership and voting power of existing stockholders, and their issuance, or the possibility of their issuance, may depress the market price of our common stock.

 

 

If we fail to meet all listing requirements, we might not be able to remain listed on The NASDAQ Stock Market.

 

On May 21, 2013, The NASDAQ Stock Market (“NASDAQ”) notified the Company that it did not comply with Listing Rule 5550(b) (the “Rule”), which requires a minimum $2,500,000 stockholders’ equity, $35,000,000 market value of listed securities, or $500,000 net income from continuing operations.  As a result of the conversion of certain convertible notes into equity; on November 12, 2013, the Company believes it has regained compliance with the stockholders’ equity requirement for continued listing set forth in Listing Rule 5550(b). There can be no assurance that we will be able to continue to satisfy the requirements to maintain a continued listing on The NADAQ Capital Market.

 

ITEM 1B.  UNRESOLVED STAFF COMMENTS  

 

None.

 

ITEM 2.  PROPERTIES  

 

 

Our corporate headquarters are located at 3930 Howard Hughes Parkway, Suite 400, Las Vegas, Nevada 89169, which consists of approximately 10,915 square feet of leased space. Remaining obligations under the lease are approximately $0.5 million, and the lease termi nates in 2016. We also leased approximately 11,818 square feet of lease d space in Concourse Six office space, Suite 1500, Atlanta, Georgia, 30328, which we have subleased for the remainder of the term of June 30, 2016.

 

ITEM 3.  LEGAL PROCEEDINGS  

 

We are not subject to any material pending legal proceeding, nor are we aware of any material threatened claims against us. 

 

ITEM 4.  MINE SAFETY DISCLOSURES

 

Not applicable.

 

17


 

PART II

    

ITEM 5.  MARKET FOR THE REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

 

Our common stock has been traded on the NASDAQ Capital Market under the symbol “MARK” since January 3, 2012, following the change of our corporate name to Remark Media, Inc.  Previously, our common stock traded under the symbol “HSWI” on the NASDAQ Global Market from October 2, 2007, until May 30, 2011, and on the NASDAQ Capital Market from May 31, 2011 until January 3, 2012. The following table sets forth the high and low sales prices of our common stock, as reported on the NASDAQ Capital Market.    

 

 

 

 

 

 

 

 

 

 

 

 

 

 

High

 

Low

Year ended December 31, 2013

 

 

 

 

 

First Quarter

$

2.05 

 

$

1.12 

Second Quarter

 

3.78 

 

 

1.55 

Third Quarter

 

4.57 

 

 

2.24 

Fourth Quarter

 

6.10 

 

 

3.45 

 

 

 

 

 

 

Year ended December 31, 2012

 

 

 

 

 

First Quarter

$

6.15 

 

$

6.02 

Second Quarter

 

3.58 

 

 

3.40 

Third Quarter

 

1.95 

 

 

1.66 

Fourth Quarter

 

1.74 

 

 

1.53 

 

Holders of Record

 

As of March 31, 20 14 , the last sale price of our common stock on the NASDAQ Capital Market was $5.5 1 per share .  As of March 31, 2014 ,   there were approximately 138 stockholders of record.

 

Dividend Policy

 

We have neither paid nor declared dividends on our common stock since our inception and do not plan to pay dividends in the foreseeable future.  Any earnings that we may realize will be retained to finance our growth.

 

Equity Compensation Plans

 

The information required by Item 5 of Form 10-K regarding equity compensation plans is incorporated herein by reference to “Item 12.  Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.”

 

ITEM 6.  SELECTED FINANCIAL DATA

 

Not applicable .

 

ITEM 7.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION   AND RESULTS OF OPERATIONS

 

The following Management’s Discussion and Analysis of our Financial Condition and Results of Operations should be read in conjunction with the consolidated financial statements and notes thereto included as part of this Form 10-K.  Our disclosure and analysis in this report concerning our operations, cash flows and financial position, including, in particular, the likelihood of our success in expanding our business, the likelihood of our success in achieving the desired be nefits from the Banks.com and Pop Factory acquisitions and our assumptions regarding the regulatory environment and international markets, include forward-looking statements.  Statements that are predictive in nature, that depend upon or refer to future events or conditions, or that include words such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “estimate,” “may” and similar expressions are forward-looking statements.  Although these statements are based upon reasonable assumptions, they are subject to risks and uncertainties. These forward-looking statements represent our estimates and assumptions only as of the date of this filing and are not intended to give any assurance as to future results.  As a result, undue reliance should not be placed on any forward-looking statements.  We assume no obligation to update any forward-looking statements to reflect actual results, changes in assumptions or changes in other factors, except as required by applicable securities laws. 

 

Business Overview and Recent Developments

 

18


 

Remark Media, Inc. (“Remark Media” or the “Company”) is a global digital media company focused on developing, owning and operating next-generation digital platforms that combine traditional web publishing, social media and e-commerce with the goal of revolutionizing the way people search and exchange information over the Internet.

 

The Company’s current leading brands, BoWenWang (bowenwang.com.cn) and ComoTudoFunciona (hsw.com.br), provide readers in China and Brazil with thousands of articles about how the world around them works, serving as destinations for credible, easy-to-understand reference information. Remark Media is the exclusive digital publisher in China and Brazil for translated content from HowStuffWorks.com, a subsidiary of Discovery Communications, and in China for certain content from World Book, Inc., publisher of World Book Encyclopedia. Revenue in these international subsidiaries has not yielded any significant revenues in 2012 or to date in 2013.

 

On February 26, 2012, the Company entered into an agreement and plan of merger with Banks.com, Inc. (“Banks.com”), pursuant to which Banks.com became a wholly owned subsidiary of Remark Media (the “Banks.com Merger”). Banks.com is a leading financial services portal operating a unique breadth and depth of financial products and services. Upon the closing of the merger on June 28, 2012, Remark Media issued approximately 702,267 shares of Common Stock to the shareholders of Bank.com, plus $300,000 in cash, as consideration for the merger. Also, on the effective date of the merger, the Company paid $131,250 in settlement of a promissory note in the amount of $125,000, which matured on June 28, 2012 and related unpaid interest.

 

On February 27, 2012, the Company entered into definitive equity financing agreements with accredited and institutional investors to raise funds in the amount of $4.25 million through a private placement. In connection with the transaction, the Company issued to investors common stock priced at $4.50 per share. Investors also received warrants to acquire shares of common stock at an exercise price of $6.81 per share, in the amount of 25% of the number of shares of common stock that the investors purchased. On February 29, 2012, the Company received $4.25 million in cash and issued to the investors a total of 944,777 shares of common stock and warrants to acquire an additional 236,194 shares of common stock.  

 

On November 13, 2012, the Company entered into a Services Agreement with TheStreet Inc. (Nasdaq: TST) (“TheStreet”) in which Remark Media granted TheStreet an exclusive right to sell and serve advertisement and e-commerce on certain of Remark Media’s personal finance websites. TheStreet will also support the websites by providing personal finance content, various promotion and advertisements on TheStreet’s websites, and marketing support. The Company and The Street e lected to terminate the agreement effective May 31, 2013.

 

On November 23, 2012, the Company entered into a $1.8 million Term Loan Agreement, at a 6.67% annual interest rate with a lender controlled by and in part owned by Mr. Kai-Shing Tao, the Company’s Chairman and Chief Executive Officer.  Mr. Tao has been a director of the Company since 2007.  The Term Loan is secured by substantially all the tangible and intangible assets of the Company, excluding its shares of common stock of Sharecare.  The principal and accrued interest under the Term Loan Agreement is convertible into Common Stock of the Company at the rate of $1.30 per share, which represents an approximately 33% premium to the average closing prices of the Company’s common stock for the ten days prior to entrance into the agreement and an approximately 53% premium to the closing price of the Company’s common stock on the day of entrance into the agreement.  This Term Loan Agreement was approved by the Audit Committee of the Board, which believes the related party transaction was negotiated as an arms-length transaction.  The full balance is due November 2014. 

 

On March 29, 2013, Remark Media acquired Pop Factory, LLC ("Pop Factory") , the owner and o perator of Bikini.com, a beach lifestyle digital media brand providing websites, branded merchandise, and mobile content, for total cash consideration of $2,375,000.  In connection with the purchase, the two founders, who had remained executives of Pop Factory, entered into one year employment agreements with Pop Factory and noncompetition agreements with the Company.

 

On April 2, 2013, the Company entered into a $4.0 million Senior Secured Convertible Promissory Note (“Promissory Note”), at a 6.67% annual interest rate for the first year and 8.67% for the second year, with a lender controlled by and in part owned by Mr. Kai-Shing Tao, the Company’s Chairman and Chief Executive Officer.  The Promissory Note is secured pursuant to the Term Loan Agreement detailed above, as amended by Amendment Number One (“Amendment”) to that Term Loan Agreement, dated April 2, 2013.  The principal and accrued interest under the Promissory Note is convertible into Common Stock of the Company at the rate of $2.00 per share, which represents an approximately 11% premium to the average closing prices of the Company’s common stock for the ten days prior to entrance into the agreement and an approximately 8% premium to the closing price of the Company’s common stock on the day of entrance into the agreement.  This Promissory Note and Amendment were approved by the Audit Committee of the Board, which believes the related party transaction was negotiated as an arms-length transaction.  The proceeds from this Promissory Note and Amendment was used to acquire Pop Factory and will be used to fund future acquisitions and the ongoing operations of the business, in conjunction with revenue growth in the Brands segment.  The full balance is due April 2015. 

On November 12, 2013 , Digipac, LLC notified the Company that it wished to convert the entire principal amounts of both the November 2012 Note and the April 2013 Note, and all accrued and unpaid interest thereon, into shares of the Company’s

19


 

common stock, effective as of the same day.  This conversion resulted in the issuance of 3,556,672 shares of the Company’s common stock to Digipac, LLC, and the extinguishing of a total of $5.8 million in debt issued by the Company and the approximately $281,236 in accrued and unpaid interest.

On November 13, 2013, the Company entered into a $2.5 million Term Loan Agreement, at 6.67% annual interest rate for the first year and 8.67% for the second year, with a lender controlled by and in part owned by Mr. Kai-Shing Tao, the Company's Chairman and Chief Executive Officer. The Term Loan Agreement is secured pursuant to the Term Loan Agreement detailed above, as amended by Amendment No. 2 to that Term Loan Agreement, dated April 2, 2013. The principal and accrued interest under the Term Loan Agreement is convertible into Common Stock of the Company at the rate of $3.75 per share, which was the closing price of the Company's common stock on the date of entrance  into the agreement. The balance is due November 2015.

 

On January 29, 2014, the Company entered into a $3.5 million Term Loan Agreement ("January 2014 Note"), at 6.67% annual interest for the first year and 8.67% for the second year, with the lender controlled by and in part owned by Mr. Kai-Shing Tao, the Company's Chairman and Chief Executive Officer, and in part owned by Mr. Douglas Osrow, the Company's Chief Financial Officer. The principal and accrued interest under the Term Loan Agreement is convertible into Common Stock of the Company at a rate of $5.03 (the "Conversion Price") - which was the stock price immediately prior to the effective date of the agreement - if all or a portion of is elected by Digipac. The Company may also convert the all or a portion of the principal and accrued interest of the January 2014 Note into Common Stock at the conversion price if the weighted average price of Common Stock is equal to at least the 150% of the conversion price for at least 30 to 40 trading days immediately prior to the date of the Company's election. The January 2014 Note provides that the Company and Digipac will negotiate and enter into a registration rights agreement providing Digipac with demand and piggyback rights with respect to the shares of Common Stock underlying the January 2014 Note.

 

Our Strategy 

 

This year, we are focusing on creating an 18-to-34 year old, young adult lifestyle digital media vertical, and commenced the development in March 2013 with the acquisition of Pop Factory, the owner and operator of Bikini.com. We have redeveloped the websit e and add ed retail e-commerce for swimwear and accessories in November 2013. On January 15, 2014, the Company's wholly owned subsidiary, Banks.com, completed an asset acquisition of domain names www.taxextension.com, www.taxextensions.com, and www.onlinetaxextension.com - which provide web-based tax extension services. Additionally, we intend to continue to acquire other complimentary digital media properties.

 

During 2012, we focused on the development and growth of our personal finance digital media vertical by   acquiring Banks.com, Inc., which brought us the portfolio of personal finance properties includ ing Banks.com, US Tax Center at www.irs.com , FileLater.com, and MyStockFund.com.

 

 

Our Operations   

 

Domestic 

 

The Banks.com acquisition was successfully completed on June 28, 2012.  Assets obtai ned through the Banks.com acquisition serve to build a network of personal finance digital media businesses. These include Bank s.com, the US Tax Center at www.irs.com , FileLater .com , and MyStockFund .com .

 

In 2013, we acquired Pop Factory , and relaunched the brand and website as a beach lifestyle destination with a focus on fashion, style, fitness, travel and fun for 18-to-34 year old w omen. In November 2013, we add ed retail e-commerce to Bikini.com, allowing end users to purchase swimwear and accessories.

 

We continue to invest in technology and product development to support these businesses.

 

Although Remark Media is no longer providing services for Sharecare, the Company maintains equity ownership in the venture.  As of December 31 , 2013, we own approximately 8.19 % of Sharecare’s common stock and had representation on Sharecare’s board of directors.  Through November 30, 2012, t he Company accounted for its equity interest in Sharecare under the equity method of accounting.  Under this method, the Company recorded its proportionate share of Sharecare’s net income or loss based on Sharecare’s financial results.  As of December 1, 2012, the Company changed to the cost method of accounting due to a lower percentage of ownership, nonparticipation in the policy-making processes, and limited existence of technology dependency. 

 

International 

 

20


 

We believe that the value of our international assets will be recognized over a longer-term horizon, as online advertising markets develop for Brazil and China and the websites’ traffic fundamentals improve. In the near term, we are focused on leveraging the traffic that our BoWenWang and ComoTudoFunciona websites receive in China and Brazil, respectively. We believe there are significant opportunities in the gaming, travel, and other consumer verticals that our content platforms provide us broad access to develop.

 

BoWenWang  ( http://www.bowenwang.com.cn ) is an information and reference website that provides China with encyclopedic knowledge and easy-to-understand explanations of how the world works.  The website is published from Beijing in the Chinese language.  Launched in June 2008, BoWenWang features a combination of original content authored by the Company, translated and localized articles from the leading Discovery Communications brand HowStuffWorks, and content from World Book, Inc.  Revenue generated from the operations based in China was minimal during the years   ended December 31 , 2013 and 2012.  We do not expect to see meaningful growth in our China operations in the near term without an increased investm ent .

 

ComoTudoFunciona  ( http://hsw.com.br ) is Brazil’s online source for credible, unbiased and easy-to-understand explanations of how the world actually works.  The Portuguese-language site is the exclusive digital publisher in Brazil of translated and localized content from the leading Discovery Communications brand HowStuffWorks, and is published from Remark Media’s São Paulo operations.  We recognized minimal revenues from Brazil during the years ended December 31 , 2013 and 2012, respectively. We do not expect to see meaningful growth in our Brazil operations in the near term without an increased investm ent .

 

Further, we have established media distribution relationships in Asia with a focus on China. We were appointed the official digital distributor in China, Taiwan, Hong Kong, Macao, and South Korea of the live internet broadcast of the Clash in Cotai / Pacquiao vs. Rios boxing event, promoted by Las Vegas Sands and Top Rank, occurring in Macau, China on November 23, 2013. We provided digital and social media, marketing, streaming operations, and establishing brand partners and sponsors for the event. Related to this event, we are the exclusive content partner for China’s first streaming video boxing channel, which we operate in conjunction with PPTV, a leading Chinese streaming video platform. We are in the process of developing additional rich media opportunities to deliver original sports and entertainment content to the evolving Chinese media market through our strategic relationships in Asia and, more specifically, in China.

 

 

21


 

 

  Results of Operations – Year Ended December 31, 2013 Compared to Year Ended December 31, 2012

 

The following table sets forth our consolidated results of operations for the years ended December 31, 2013 and 2012.    

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Twelve Months Ended December 31,

 

 

2013

 

2012

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating revenue

 

 

 

 

 

 

Brands

 

$

2,048,304 

 

$

500,890 

         Total revenue

 

 

2,048,304 

 

 

500,890 

 

 

 

 

 

 

 

Operating expenses

 

 

 

 

 

 

Sales and marketing

 

 

388,361 

 

 

91,467 

Content, technology and development

 

 

566,883 

 

 

75,720 

General and administrative

 

 

6,312,880 

 

 

6,150,269 

Impairment loss

 

 

 -

 

 

412,979 

Depreciation and amortization expense

 

 

666,395 

 

 

232,574 

         Total operating expenses

 

 

7,934,519 

 

 

6,963,009 

 

 

 

 

 

 

 

Operating loss

 

 

(5,886,615)

 

 

(6,462,119)

 

 

 

 

 

 

 

Other income (expense)

 

 

 

 

 

 

 Gain on change in fair value of derivative  liability

 

 

(491,638)

 

 

930,132 

    Interest expense

 

 

(364,332)

 

 

(64,838)

    Other income (expense)

 

 

(66)

 

 

12,970 

         Total other income (expense)

 

 

(856,036)

 

 

878,264 

 

 

 

 

 

 

 

Loss before gain (loss) from equity-method investments

 

 

(6,742,651)

 

 

(5,583,855)

 

 

 

 

 

 

 

Change of interest gain of equity-method investments

 

 

 -

 

 

2,494,990 

Proportional share in loss of equity-method investment

 

 

(222,707)

 

 

(2,948,206)

 

 

 

(222,707)

 

 

(453,216)

 

 

 

 

 

 

 

Net loss before benefit from income taxes

 

 

(6,965,358)

 

 

(6,037,071)

 

 

 

 

 

 

 

Income tax (expense) benefit

 

 

 -

 

 

(1,531)

 

 

 

 

 

 

 

Net loss

 

$

(6,965,358)

 

$

(6,038,602)

 

 

 

 

 

 

 

Net loss per share

 

 

 

 

 

 

Net loss per share, basic and diluted

 

$

(0.90)

 

$

(0.91)

 

 

 

 

 

 

 

Basic and diluted weighted average shares outstanding

 

$

7,732,748 

 

 

6,605,563 

 

 

 

 

 

 

 

Comprehensive loss

 

 

 

 

 

 

Net loss

 

$

(6,965,358)

 

$

(6,038,602)

Cumulative translation adjustments

 

 

(8,713)

 

 

(11,511)

Total comprehensive loss

 

$

(6,974,071)

 

$

(6,050,113)

 

 

 

22


 

   

Segment Data

 

We monitor and analyze our financial results on a segment basis for reporting and management purposes, as presented in Note 6 to the accompanying consolidated financial statements.  Operating segments are components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and assess performance.   

 

Our Brands segment consists of our websites in Brazil and China and generates revenues from advertisers based in the respective countries. This segment also includes the busines ses acquired through the Banks.com acquisition completed on June 28, 2012 and Pop Fact ory acquisition completed on March 29, 2013. On January 15, 2014, we expanded our personal finance portfolio by acquiring the tax extension domains. The operating results for services performed under the Sharecare and Discovery services agreements are included in the Content and Platform Services segment. However, the Sharecare services agreement was terminated in December 2011. The 2012 activity relates to an impairment of the remaining long-lived assets within that segment.

 

Revenues

 

For the t welve months ended December 2013 and 2012 , we generate d revenue of $2.0 million and $0 . 5   million , respectively. The increase from the prior year's period relates primarily to the revenues from Banks.com and Pop Factory.

 

Sales and Marketing 

 

Sales and marketing expenses were $0.4 million and $0.1 million in 2013 and 2012, respectively. The marketing efforts to drive traffic to the sites have increased slightly from year-to-year because of the increase in number of sites through Banks.com and Pop Factory acquisitions .

 

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 year ended December 31 , 201 3 and 2012, the expense was $0.6 and $0.1 million, respectively. The increase relates to our capital investment in software projects, editorial work outsourced to third parties, and software maintenance related to our websites.

 

General and Administrative Expenses 

 

Our total general and administrative   expenses were approximately $ 6.3 million and $6.2 million for the year s ended December 31, 2013 and 2012, respectively. The increase principally relates to the legal expenses incurred for due diligence services..

 

Impairment Loss

 

Impairment loss was $0.4 million for the year ended Decembe r 31, 2012 - d ue to the Company’s abandonment of certain projects in the Content and Platform Services business.  No impai rment loss was recognized for the year ended December 31, 2013.

 

Depreciation and Amortization

 

Depreciation a nd amortization expense was $0.7 million and $0.2 million for the year s ended December 31 , 2013 and 2012 , respectively .  The increase is primarily due to amortization of the software capitalized in 2012 and amortization of intangible assets from the Banks.com and Pop Factory acquisitions.

 

Gain (Loss) on Change in Fair Value of Derivative Liability

 

The loss on change in fair value of the derivative liability was a pproximately $0.5 million for the year ended December 31, 2013. The gain on change in fair value of derivative liability was approximately $0.9 million for the year ended December 31, 2012. Since the February 27, 2012 transaction date, the loss on change in fair value of derivative liabi lity increased principally from the higher probability rate of a future financing event being dilutive.

 

 

 

23


 

Interest Expense 

 

Interest expense for the year ending December 31, 2013 and 2012   was $0.4 million and $0.1 million , respect ively. The increase primarily relates to inter est accrued on the November 2012 Note and April 2013 Note - both of which were converted in November 2013. 

 

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 year ended December 31 , 2012, we recorded a gain of $2.5 million as a result of the change in interest ownership in Sharecare.  Addition ally, we recorded a loss of $2.9 million for the year ended December 31, 2012 , representing the Company’s share in Sharecare’s income.  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.

 

Liquidity and Capital Resources

 

As of December 31, 2013, the Company’s total cash and cash equivalents balance was approximately $1.3 million.   The Company has incurred net losses and generated substantial negative cash flow from operations in the twelve months ended December 31, 2013 and in each fiscal year since its inception and has an accumulated deficit of $111.7 million as of December 31, 2013.  The Company had minimal revenues in 2012 due to the termination of certain agreements in the Content and Platform Services segment at the end of 2011 and its transition to owning and operating its own digital media properties. Since that time, the Company has been focused on building and acquiring wholly owned digital media properties for its Brands segment. The Company's revenues in 2013 were $2.0 million which was a $1.5 million increase from 2012. The increase was due to the acquisition of Pop Factory and the personal finance portfolio.

   

On November 23, 2012, the Company entered into a $1.8 million Term Loan Agreement, at a 6.67% annual interest rate with a lender controlled by and in part owned by Mr. Kai-Shing Tao, the Company’s Chairman and Chief Executive Officer.  Mr. Tao has been a director of the Company since 2007.  The Term Loan is secured by substantially all the tangible and intangible assets of the Company, excluding its shares of common stock of Sharecare. The principal and accrued interest under the Term Loan Agreement is convertible into Common Stock of the Company at the rate of $1.30 per share, which represents an approximately 33% premium to the average closing prices of the Company’s common stock for the ten days prior to entrance into the agreement and an approximately 53% premium to the closing price of the Company’s Common Stock on the day of entrance into the agreement.  The full balance is due November 2014. 

 

On April 2, 2013, the Company entered into a $4.0 million Promissory Note, at a 6.67% annual interest rate for the first year and 8.67% for the second year, with a lender controlled by and in part owned by Mr. Kai-Shing Tao, the Company’s Chairman and Chief Executive Officer.  The Promissory Note is secured pursuant to the Term Loan Agreement detailed above, as amended by Amendment Number One to that Term Loan Agreement, dated April 2, 2013.  The principal and accrued interest under the Promissory Note is convertible into Common Stock of the Company at the rate of $2.00 per share, which represents an approximately 11% premium to the average closing prices of the Company’s common stock for the ten days prior to entrance into the agreement and an approximately 8% premium to the closing price of the Company’s common stock on the day of entrance into the agreement.  The full balance is due April 2015. 

 

On November 12, 2013, Digipac, LLC notified the Company that it wished to convert the entire principal amounts of both the November 2012 Note and the April 2013 Note, and all accrued and unpaid interest thereon, into shares of the Company's common stock, effective as of the same day. This conversion resulted into the issuance of 3,556,672 shares of the Company's common stock to Digipac, LLC and the extinguishing of the total of $5.8 million in debt issued by the Company and the approximately $281,236 in accrued and unpaid interest.

 

On November 13, 2013, the Company entered into a $2.5 million Term Loan Agreement, at 6.67% annual interest rate with a lender controlled by and in part owned by Mr. Kai-Shing Tao, the Company's Chairman and Chief Executive Officer. Mr. Tao has been a director of the Company since 2007. The Term Loan Agreement is secured pursuant to the November 2012 Note and April 2013 Note, as amended by Amendment No. 2 to that Term Loan Agreement, dated April 2, 2013. The principal and interest under the Term Loan Agreement is convertible into Common Stock of the Company at a rate of $3.75 per share, which is the closing price of the Company's common stock on the date of entrance into the agreement. The balance is due on November 13, 2015.

 

On January 29, 2014, Remark Media, Inc. (the “Company”) issued a Senior Secured Convertible Term Note in the original principal amount of $3,500,000 (the “January 2014 Note”) to Digipac, LLC (“Digipac”) in exchange for $3,500,000 in cash.  The January 2014 Note bears 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 its issuance.  The Company may prepay all or a portion of the January 2014 Note at any time upon at least 15

24


 

days’ prior written notice to Digipac.  The Company’s issuance of the January 2014 Note was authorized and approved by the Audit Committee of the Company’s Board of Directors (the “Board”), as well as by the full Board.

 

At the time of the issuance of the January 2014 Note, Digipac held 3,556,672 shares of the Company’s common stock (“Common Stock”) and approximately an additional 675,925 shares of the Common Stock were issuable upon the conversion of the unpaid principal and accrued but unpaid interest under a Senior Secured Convertible Term Note of the Company dated November 13, 2013 in the original principal amount of $2,500,000 held by Digipac.  Kai-Shing Tao, the Company’s Chairman of the Board and Chief Executive Officer, is the manager and a member of Digipac, and as a result has the power to vote and dispose of the securities held by Digipac.  Douglas Osrow, the Company’s Chief Financial Officer, also is a member of Digipac.

 

At any time, Digipac may elect to convert all or any portion of the outstanding principal amount and accrued but unpaid interest under the January 2014 Note into shares of Common Stock at a conversion price of $5.03 per share (the “Conversion Price”).  The Company also may elect to convert all or any portion of the outstanding principal amount and accrued but unpaid interest under the January 2014 Note into Common Stock at the Conversion Price if the volume weighted average price of the Common Stock is equal to at least 150% of the Conversion Price for at least 30 of the 40 trading days immediately prior to the date of the Company’s election.  The January 2014 Note also provides 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 the January 2014 Note.

 

The foregoing description of the January 2014 Note is not complete and is qualified in its entirety by reference to the full text of the January 2014 Note, which is filed herewith as Exhibit 4.1 and incorporated herein by reference.

 

On January 29, 2014, in connection with the issuance of the January 2014 Note, the Company and Digipac entered into Amendment Number Three to Security Agreement (the “Third Amendment”).  The Third Amendment amends that certain Security Agreement dated as of November 23, 2012 by and between the Company and Digipac (the “Security Agreement”) to include the Company’s obligations under the January 2014 Note as obligations secured by the Security Agreement.  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.

 

Finally the Company has taken steps to reduce operating costs, primarily general and administrative expenses through the closing of the Atlanta and Miami offices and instituting a ceiling on cash compensation .  

 

The Company intends to fund its future operations through revenue growth in its Brands segment, particularly i ts personal finance and young adult year old lifestyle properties.  Additionally, the Company is actively engaged in evaluating future acquisitions to provide revenue growth and the sale of certain non-core assets to provide capital.

 

Absent any acquisitions of new businesses, the addition of new customers, or the material increase in revenue from its existing customers, current revenue growth may not be sufficient to sustain the Company’s operations in the long term. As such, the Company may need to obtain additional equity financing and/or divest of certain assets or businesses, neither of which can be assured on commercially reasonable terms, if at all. In addition, any equity financing that might be obtained would substantially dilute existing stockholders.  There is no certainty that the Company will be successful at raising capital, nor is there certainty around the amount of funds that may be raised. In addition, the success of the Company will be subject to performance of the markets and investor sentiment regarding the macro and micro economic conditions under which we operate including stock market volatility. There can be no assurance that the Company will be successful at generating more revenues or selling any of its assets. Any failure by the Company to successfully implement these plans would have a material adverse effect on the Company’s business, including the possible inability to continue operations. 

 

Based on the Company’s current financial projections, the new Term Loan Agreements, conversion of the old Term Loan Agreements, and the reduction in expenses, all discussed above, the Company believes it has sufficient existing cash resources to fund operations through December 2014.   

 

25


 

 

The table below summarizes the change in our statement of cash flows for the years ended December 31, 2013 and 2012:

 

 

 

 

 

 

 

 

 

 

Year Ended December 31,

 

2013

 

2012

 

 

 

 

 

 

Net cash used in operating activities

$

(3,743,737)

 

$

(4,949,938)

Net cash used in investing activities

 

(2,778,262)

 

 

(824,238)

Net cash provided by financing activities

 

6,428,192 

 

 

5,598,006 

 

 

 

 

 

 

Net decrease in cash and cash equivalents

$

(93,807)

 

$

(176,170)

 

  

Cash flows used in operating activities

 

The net cash used in operating activities was $3.7 million for the year ended December 31, 2013 compared to $4.9 million for the year ended December 31, 2012.  The decrease is principally due to increase in revenues and continued   cost containment initiatives.

 

Cash used in investing activities

 

During the year ended December 31, 2013, the net cash used in investing activities was $2.8 million compared to $0.8 million for the year ended December 31, 2012 .  The increase in cash used in investing activities for 2013   is primarily due to the payment o f the cash consideration of $2.4 million related to the Pop Factory acquisition consummated on March 29, 2013.

 

Cash flows from financing activities

 

For the year ended December 31, 2013, the net cash provided by financing activities was $6.4 million, which primarily consisted of the net cash proceeds of $6.5 million provided by the convertible note financing in April 2013 and November 2012 - both of which were converted in November 2013.  For the year ended December 31, 2012, net cash used in financing activities was $3.9 million which was related to proceeds received from equity financing and $1.8 million in proceeds received from the convertible note financing in November 2012.  

 

Critical Accounting Policies

 

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States.  We believe that our critical accounting policies, revenue recognition, stock-based compensation and long-lived assets including goodwill, equity investments, and other intangible assets may involve a higher degree of judgment and complexity.

 

Revenue Recognition

 

The Company gen erally recognizes revenue when persuasive evidence of an arrangement exists; services have been provided; fees are fixed or determinable; and collectability is reasonably assured.   

The Company generally recognizes revenue from its network of domestic and international websites. Revenue is recognized as visitors are exposed to or react to advertisements on its websites, or purchase goods or services. Revenue from advertising is generated in the form of sponsored links and display ads. This includes both pay-per-performance ads and paid-for-impression advertising. In the pay-per-performance model, revenue is generally earned based on the number of clicks or other actions taken associated with such ads; in the paid-for-impression model, revenue is derived from the display of ads.

 

 

Stock-Based Compensation

 

Under the 2006 Equity Incentive Plan adopted April 13, 2006, and the 2010 Equity Plan adopted June 15, 2010, as modified on December 30, 2011 (the “Plans”), Remark Media authorized a total of 1,325,000 shares for grant as part of a long-term incentive plan to attract, retain and motivate its eligible executives, employees, officers, directors and consultants.  Options to purchase common stock under the Plans have been granted to our officers and employees with an exercise price equal to the fair market value of the underlying shares on the date of grant.  Additionally in 2009, 2010, 2011, 2012, and 2013 we granted restricted shares to certain members of our Board of Directors and executives.  As of December 31, 2013 , no options have been exercised under the Plan.     We recognize expense based on the fair value of our stock-based compensation awards.

26


 

 

We have elected to use the Black-Scholes options pricing model to determine the grant date fair value of stock option awards.  We measure stock-based compensation based on the fair values of all stock-based awards on the dates of grant, and recognize stock-based compensation expense using the straight-line method over the vesting periods.  Stock-bas ed compensation expense was $0.6 million and $0.8 million for the years ended December 31, 2013 and 2012, respectively.

 

Impairment of Property and Equipment

 

Property and equipment is tested for impairment whenever events or changes in circumstances indicate that its carrying amount may not be recoverable.  Such events include significant adverse changes in the business climate, the impact of significant customer losses, unanticipated current period operating or cash flow losses, forecasted continuing losses or a current expectation that an asset group will be disposed of before the end of its useful life.  Recoverability of property and equipment is measured by a comparison of the carrying amounts to future net undiscounted cash flows the assets are expected to generate.  For purposes of recognition and measurement of an impairment loss, property and equipment are grouped with other assets at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets.  In December 2012, the Company abandoned certain software development projects associated with its Content and Platform Services business.  As a result, the Company recorded a $0.4 million impairment charge in the fourth quarter of 2012. No impairment charge has been recognized on our property and equipment as of December 31, 2013.

 

Impairment of Investments

 

Investments are reviewed to determine if events have occurred which would indicate that a decrease in value has occurred which is other than temporary.  Evidence of a loss in value might include, but would not necessarily be limited to, absence of an ability to recover the carrying amount of the investment or inability of the investee to sustain an earnings capacity that would justify the carrying amount of the investment. We monitor our assets for potential impairment on an ongoing basis.  No impairment charge has been recognized on our investment balances as of December 31, 2013 or 2012.

 

Goodwill and Indefinite-Lived Intangible Assets Impairment

 

In December 2013 and 2012, the Company performed a qualitative assessment of the carrying value of goodwill and indefinite-lived intangible assets under the Step Zero process. The Step Zero process determines whether it is more likely than not that the fair value is less than the carrying amount.  After consideration of the Company’s market capitalization and the fact that the majority of these assets are comprised of the Banks.com acquisition in June 2012 and Pop Factory acquisition in March 2013, and the fair value of the Company's position in Sharecare; the Company determined there were no impairment charges of goodwill or indefinite-lived intangibles in 2013. 

 

Derivative Liability for Warrants to Purchase Common Stock

 

The Company's derivative liability for warrants represents the fair value of warrants issued in connection with the equity financing related to the Banks.com acquisition on February 27, 2012 ("Equity Financing"). These warrants are presented as liabilities based on certain exercise price reductions provisions. The liability, which is recorded at the fair value on the balance sheet, is calculated using the Monte Carlo simulation valuation method. The change in the fair value of these warrants is recognized as other income or expense in the consolidated statement of operations.

 

Recent Accounting Pronouncements

 

We are subject to recent accounting pronouncements, as described in detail in Note 2 to our consolidated financial statements included in Item 8 herein.

 

Off-Balance Sheet Arrangements

 

None.

 

 

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK  

 

Not applicable.

 

 

27


 

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA  

 

 

 

CONSOLIDATED FINANCIAL STATEMENTS

 

 

 

 

 

For supplemental quarterly financial information, see Note 14, Quarterly Financial Data (unaudited), of the Notes to Consolidated Financial Statements. 

 

 

28


 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and

Stockholders of Remark Media, Inc.:

We have audited the accompanying consolidated balance sheets of Remark Media, Inc. and subsidiaries (the Company) as of December 31, 2013 and 2012 , and the related consolidated statements of operations and comprehensive loss, stockholders’ equity, and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States of America). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opini on on the effectiveness of the C ompany’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2013 and 2012 , and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. 

 

 

 

 

/s/ Cherry Bekaert LLP

 

 

Atlanta, GA

 

 

 

March 31, 2014

 

 

 

 

 

 

29


 

 

REMARK MEDIA, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31,

 

 

December 31,

 

 

2013

 

 

2012

Assets

 

 

 

 

Current assets

 

 

 

 

 

Cash and cash equivalents

$

1,260,723 

 

$

1,355,332 

Trade accounts receivable, net

 

100,583 

 

 

101,865 

Prepaid expenses and other current assets

 

358,264 

 

 

503,256 

Total current assets

 

1,719,570 

 

 

1,960,453 

 

 

 

 

 

 

Property and equipment, net

 

213,192 

 

 

400,526 

Investment in unconsolidated affiliate

 

229,929 

 

 

452,636 

Licenses to operate in China

 

100,000 

 

 

100,000 

Intangibles assets, net

 

3,502,411 

 

 

1,754,108 

Goodwill

 

1,823,048 

 

 

1,584,976 

Other long-term assets

 

133,605 

 

 

106,476 

Total assets

$

7,721,755 

 

$

6,359,175 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

Current liabilities

 

 

 

 

 

Accounts payable

$

1,025,738 

 

$

516,623 

Advances from shareholder

 

85,745 

 

 

85,745 

Accrued expenses and other current liabilities

 

731,578 

 

 

459,548 

Derivative liability

 

769,284 

 

 

277,646 

Current portion of capital lease obligations

 

177,452 

 

 

117,549 

Total current liabilities

 

2,789,797 

 

 

1,457,111 

 

 

 

 

 

 

Long-term liabilities

 

 

 

 

 

Deferred tax liabilities

 

25,000 

 

 

25,000 

Other long-term liabilities

 

 -

 

 

282,791 

Capital lease obligations, less current portion

 

151,029 

 

 

294,214 

Long-term debt with related party

 

2,500,000 

 

 

1,800,000 

Total liabilities

 

5,465,826 

 

 

3,859,116 

 

 

 

 

 

 

Commitments and contingencies (Note 13)

 

 

 

 

 

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, 10,979,372 and 7,113,744 issued and outstanding at December 31, 2013 and December 31, 2012, respectively

 

10,979 

 

 

7,114 

Additional paid-in-capital

 

114,025,752 

 

 

107,300,077 

Accumulated other comprehensive income (loss)

 

(3,343)

 

 

5,370 

Accumulated deficit

 

(111,777,459)

 

 

(104,812,502)

Total stockholders’ equity

 

2,255,929 

 

 

2,500,059 

Total liabilities and stockholders’ equity

$

7,721,755 

 

$

6,359,175 

 

 

 

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

 

 

30


 

REMARK MEDIA, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Years Ended December 31,

 

 

2013

 

2012

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating revenue

 

 

 

 

 

 

Brands

 

$

2,048,304 

 

$

500,890 

         Total revenue

 

 

2,048,304 

 

 

500,890 

 

 

 

 

 

 

 

Operating expenses

 

 

 

 

 

 

Sales and marketing

 

 

388,361 

 

 

91,467 

Content, technology and development

 

 

566,883 

 

 

75,720 

General and administrative

 

 

6,312,880 

 

 

6,150,269 

Impairment loss

 

 

 -

 

 

412,979 

Depreciation and amortization expense

 

 

666,395 

 

 

232,574 

         Total operating expenses

 

 

7,934,519 

 

 

6,963,009 

 

 

 

 

 

 

 

Operating loss

 

 

(5,886,615)

 

 

(6,462,119)

 

 

 

 

 

 

 

Other income (expense)

 

 

 

 

 

 

 (Loss) Gain on change in fair value of derivative  liability

 

 

(491,638)

 

 

930,132 

    Interest expense

 

 

(364,332)

 

 

(64,838)

    Other income (expense)

 

 

(66)

 

 

12,970 

         Total other income (expense)

 

 

(856,036)

 

 

878,264 

 

 

 

 

 

 

 

Loss before gain (loss) from equity-method investments

 

 

(6,742,651)

 

 

(5,583,855)

 

 

 

 

 

 

 

Change of interest gain of equity-method investments

 

 

 -

 

 

2,494,990 

Proportional share in loss of equity-method investment

 

 

(222,707)

 

 

(2,948,206)

 

 

 

(222,707)

 

 

(453,216)

 

 

 

 

 

 

 

Loss before income taxes

 

 

(6,965,358)

 

 

(6,037,071)

 

 

 

 

 

 

 

Income tax expense

 

 

 -

 

 

(1,531)

 

 

 

 

 

 

 

Net loss

 

$

(6,965,358)

 

$

(6,038,602)

 

 

 

 

 

 

 

Net loss per share

 

 

 

 

 

 

Net loss per share, basic and diluted

 

$

(0.90)

 

$

(0.91)

 

 

 

 

 

 

 

Basic and diluted weighted average shares outstanding

 

$

7,732,748 

 

 

6,605,563 

 

 

 

 

 

 

 

Comprehensive loss

 

 

 

 

 

 

Net loss

 

$

(6,965,358)

 

$

(6,038,602)

Cumulative translation adjustments

 

 

(8,713)

 

 

(11,511)

Total comprehensive loss

 

$

(6,974,071)

 

$

(6,050,113)

 

 

 

 

 

 

 

The accompanying notes are an integral part of these consolidated financial statements

 

 

 

 

 

 

31


 

 

REMARK MEDIA, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Years Ended December 31, 2013 and 2012 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

Other

 

 

 

 

Total

 

 

 

 

 

 

Paid-in

 

Comprehensive

 

Accumulated

 

Stockholders'

 

Common Stock

 

Capital

 

Income (Loss)

 

Deficit

 

Equity

 

Shares

 

Amount

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of December 31, 2011

5,422,295 

 

 

5,422 

 

 

101,444,780 

 

 

16,881 

 

 

(98,773,900)

 

 

2,693,183 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 -

 

 

 -

 

 

 -

 

 

 -

 

 

(6,038,602)

 

 

(6,038,602)

Foreign currency translation adjustments

 -

 

 

 -

 

 

 -

 

 

(11,511)

 

 

 -

 

 

(11,511)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Restricted stock

12,000 

 

 

12 

 

 

(12)

 

 

 -

 

 

 -

 

 

 -

February 12, 2012 stock sale

944,777 

 

 

945 

 

 

2,642,328 

 

 

 -

 

 

 -

 

 

2,643,273 

Banks.com stock issuance

702,267 

 

 

702 

 

 

2,387,006 

 

 

 -

 

 

 -

 

 

2,387,708 

Stock-based compensation

 -

 

 

 -

 

 

826,008 

 

 

 -

 

 

 -

 

 

826,008 

Warrants exercised

32,405 

 

 

33 

 

 

(33)

 

 

 -

 

 

 -

 

 

 -

Balance as of December 31, 2012

7,113,744 

 

$

7,114 

 

$

107,300,077 

 

$

5,370 

 

$

(104,812,102)

 

$

2,500,059 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 -

 

 

 -

 

 

 -

 

 

 -

 

 

(6,965,358)

 

 

(6,965,358)

Foreign currency translation adjustments

 -

 

 

 -

 

 

 -

 

 

(8,713)

 

 

 -

 

 

(8,713)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Conversion of notes

3,556,672 

 

 

3,557 

 

 

5,998,104 

 

 

 -

 

 

 -

 

 

6,001,663 

Restricted stock

308,956 

 

 

308 

 

 

(308)

 

 

 -

 

 

 -

 

 

 -

Employee Stock-based compensation

 -

 

 

 -

 

 

704,615 

 

 

 -

 

 

 -

 

 

704,615 

Consulting Stock-based compensation

 -

 

 -

 -

 

 

23,264 

 

 

 -

 

 -

 -

 

 

23,264 

Balance as of December 31, 2013

10,979,372 

 

$

10,979 

 

$

114,025,752 

 

$

(3,343)

 

$

(111,777,459)

 

$

2,255,529 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

 

 

32


 

REMARK MEDIA, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Years Ended December 31,

 

 

2013

 

2012

Cash Flows from operating activities:

 

 

 

 

 

Net loss

 

$

(6,965,358)

 

$

(6,038,602)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

Loss (Gain) on change in fair value of derivative  liability

 

 

491,638 

 

 

(930,132)

Depreciation and amortization

 

 

666,395 

 

 

232,574 

Impairment loss

 

 

 -

 

 

412,979 

Employee Stock-based compensation

 

 

704,615 

 

 

826,008 

Consulting Stock-based compensation

 

 

23,264 

 

 

 -

Deferred income taxes

 

 

 -

 

 

 -

Loss on exit activity

 

 

98,974 

 

 

 -

Loss in equity-method investments

 

 

222,707 

 

 

453,216 

(Gain)/loss on disposal of assets

 

 

114,339 

 

 

 -

Changes in operating assets and liabilities (net affect of acquisition):

 

 

 

 

 

 

Accounts receivable

 

 

1,282 

 

 

7,782 

Accounts receivable from affiliates

 

 

 -

 

 

302,129 

Prepaid expenses and other assets

 

 

117,263 

 

 

(14,691)

Accounts payable, accrued expenses and other liabilities

 

 

781,145 

 

 

(201,201)

Net cash used in operating activities

 

 

(3,743,737)

 

 

(4,949,938)

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

Purchases of property, equipment and software

 

 

(120,471)

 

 

(516,623)

Cash paid for acquisition

 

 

(2,375,000)

 

 

(317,503)

Other, net

 

 

(282,791)

 

 

9,888 

Net cash used in investing activities

 

 

(2,778,262)

 

 

(824,238)

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

Proceeds from issuance of stock and warrants

 

 

 -

 

 

3,850,451 

Proceeds from Convertible Note with related party

 

 

6,500,000 

 

 

1,800,000 

Payments of debt issue costs

 

 

 -

 

 

 -

Payments on capital leases

 

 

(71,808)

 

 

(52,445)

Net cash provided by financing activities

 

 

6,428,192 

 

 

5,598,006 

 

 

 

 

 

 

 

Net change in cash and cash equivalents

 

 

(93,807)

 

 

(176,170)

Impact of currency translation on cash

 

 

(802)

 

 

 -

Cash and cash equivalents at beginning of year

 

 

1,355,332 

 

 

1,531,502 

Cash and cash equivalents at end of year

 

$

1,260,723 

 

$

1,355,332 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

Other non-cash financing and investing activities:

 

 

 

 

 

 

    Stock issued for Banks.com acquisition

 

$

 -

 

$

2,387,708 

    Conversion of related party notes payable

 

 

5,998,104 

 

 

 -

    Stock issuance costs in the form of warrants

 

 

 -

 

 

133,567