You should read our discussion and analysis of our financial condition and
results of operations for the three months ended March 31, 2021 in conjunction
with our unaudited condensed consolidated financial statements and notes thereto
set forth in Part I, Item 1 of this Quarterly Report on Form 10-Q. Such
discussion and analysis includes forward-looking statements that involve risks
and uncertainties and that are not historical facts, including statements about
our beliefs and expectations. You should also read "  Special Note Regarding
Forward-Looking Statements  " in the section following the table of contents of
this report.


OVERVIEW

We are a diversified global technology company with leading artificial intelligence ("AI") and data-analytics solutions, as well as a portfolio of digital media properties.




Our AI Business

Through our proprietary data and AI platform, our Remark AI business (currently
known in the Asia-Pacific region as KanKan) generates revenue by delivering
AI-based vision products, computing devices and software-as-a-service solutions
for businesses in many industries. In addition to the other work that we have
ramped up, we continue partnering with top universities on research projects
targeting algorithm, artificial neural network and computing architectures which
we believe keeps us among the leaders in technology development. Our research
team continues to participate in various computer vision competitions at which
it wins or ranks near or at the top.

We continue to market Remark AI's innovative AI-based solutions to customers in the retail, urban life cycle and workplace and food safety markets.



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

Urban Life Cycle Solutions. We offer and have installed several solutions in
what we call the urban life cycle category. Our urban life cycle solutions
include our AI community system which assists in building "smart" communities by
enhancing community security and safety. We also have AI solutions that help to
make schools "smart" by (i) providing an accurate and convenient method for
student check-in and check-out, (ii) providing an autonomous method of campus
monitoring that enhances students' safety by, for example, monitoring students
for elevated body temperatures that could indicate viral infections such as
influenza or COVID-19, detecting trespassers, detecting dangerous behaviors or
physical accidents that could result in injury, and (iii) monitoring the school
kitchen for safety violations.

In traffic management, our solutions assist in monitoring traffic for various
violations by automatically detecting, capturing, and obtaining evidence
regarding violations such as speeding, running red lights, driving against the
flow of traffic and even using counterfeit registration plates. Additionally,
our solutions provide constant road-condition monitoring, providing control
centers with real-time information on traffic conditions such as areas of
congestion or other traffic anomalies.

Workplace and Food Safety Solutions. The monitoring and detection capabilities
of our solutions ensure that workers are practicing established food safety
protocols, wearing the proper personal protective equipment, and complying with
local health codes. From commercial kitchens to factories to construction work
zones, our safety-compliance algorithms manage regulatory functions, review
hygienic and equipment status while checking and alerting management regarding
violations.

                 Table of Contents      20      Financial Statement Index


--------------------------------------------------------------------------------

Our Biosafety Business



We built a new product line of high-quality, highly-effective thermal imaging
solutions that leverage our innovative software. We currently focus our efforts
predominantly in the U.S. market.

Remark AI Thermal Kits. We sell our Remark AI Thermal Kits to customers needing
the ability to scan crowds and areas of high foot traffic for indications that
certain persons with elevated temperatures may require secondary screening.
Though the kits are semi-customizable, they generally consist primarily of a
thermal imaging camera, a calibrating device, a computer to monitor the video
feed, supporting equipment and our AI software. Once set up and calibrated, the
kits scan a large number of people each minute, providing both thermally
enhanced and standard video feeds that allow our customers to evaluate high
volumes of people at large gatherings.

Remark AI Thermal Pads. Our Remark AI rPad thermal imaging devices, usually
mounted on a wall or a single-post stand, are designed for customers needing the
ability to scan individuals on a one-by-one basis in situations where rapid,
high-volume scanning is not necessary, such as at a customer's office entrances
where employees can be scanned as they enter for indications of an elevated
temperature that may require secondary screening. In addition to thermal
scanning, we can customize our AI software embedded in the rPad to perform
additional safety and security functions including identifying persons for
authorized entry.


Other Businesses

We also maintain a digital media portfolio which, in addition to operating
businesses, includes an approximately 4.2% ownership in the issued stock of
Sharecare, Inc., an established health and wellness platform with more than 100
million users, which has now raised in excess of $425 million of total capital.
We continue to evaluate opportunities to monetize and maximize the value of this
asset for our shareholders. In addition to AI-based products revenue from our
Remark AI business, activities such as online merchandise sales generated from
Bikini.com, our e-commerce website selling swimwear and accessories in the
latest styles, also contributed to our consolidated revenue in the current-year
and prior-year periods, while advertising also contributed to revenue in
prior-year periods.


Overall Business Outlook

Our innovative AI and data analytics solutions continue to gain worldwide
awareness and recognition through media exposure, comparative testing, product
demonstrations and word of mouth resulting from positive responses and increased
acceptance. We intend to expand our business not only in the Asia-Pacific
region, where we believe there still are fast-growth AI market opportunities for
our solutions, but also in the United States and Europe, where we see a
tremendous number of requests for AI products and solutions in the workplace and
public safety markets, especially in response to the COVID-19 pandemic. However,
the COVID-19 pandemic may also present challenges to our business, as could
economic and geopolitical conditions in some international regions, and we do
not yet know what will be the ultimate effects on our business. We continue to
pursue large business opportunities, but anticipating when, or if, we can close
these opportunities is difficult. Quickly deploying our software solutions in
the market segments we have identified, in which we may face a number of large,
well-known competitors, is also difficult.


Business Developments During 2021



During the first quarter of 2021, we continued working to expand our biosafety
business within the U.S., with proof-of concept projects underway, and though
our ability to more quickly expand has been slowed by the pace at which
businesses are re-opening as pandemic restrictions ease and, in some cases, by
regulatory approvals necessary before our potential customers can award
contracts, our customers and potential customers continue to show strong
interest in our products. Our expectation, therefore, that revenue from the
biosafety business will continue to increase as business re-openings and
decision-making processes speed up remains unchanged. In China, project
completions continued on a steady pace, except as affected by the seasonal
closures related to Chinese New Year.
                 Table of Contents      21      Financial Statement Index


--------------------------------------------------------------------------------


The COVID-19 pandemic continues to have some impact on our business; it has
caused a broad shift towards remote working arrangements for many businesses
worldwide and injected uncertainty and delay into decision-making processes for
such businesses. Varying degrees of preventative measures are still in place
around the world, including travel restrictions, shelter-in-place orders, school
closings, closures of non-essential businesses and other quarantine measures. As
a result, our business and financial results may be adversely impacted by the
COVID-19 pandemic for the duration of 2021 and possibly longer, and we are
unable to predict the duration or degree of such impact with any certainty. For
example, there is surge in COVID-19 infections in India, and other countries are
still struggling to contain the spread of the virus, all of which could lead to
additional preventative measures including a reintroduction of quarantines in
places that have relaxed such quarantines after the initial outbreak.

The following table presents our revenue categories as a percentage of total consolidated revenue during the three months ended March 31, 2021.


                                                   Three Months Ended March 

31,


                                                                                2021      2020
       AI-based products and services                                           92  %     75  %
       Advertising and other                                                     8  %     25  %



CRITICAL ACCOUNTING POLICIES



During the three months ended March 31, 2021, we made no material changes to our
critical accounting policies as we disclosed them in Part II, Item 7 of our 2020
Form 10-K.


                 Table of Contents      22      Financial Statement Index


--------------------------------------------------------------------------------

RESULTS OF OPERATIONS



The following table summarizes our operating results for the three months ended
March 31, 2021, and the discussion following the table explains material changes
in the operating results for the three months ended March 31, 2021 compared to
the three months ended March 31, 2020.


(dollars in thousands)                        Three Months Ended March 31,                                Change
                                               2021                    2020                Dollars                 Percentage
Revenue                                $           4,406          $        431          $     3,975                          922  %

Cost of revenue                                    2,752                    21                2,731                       13,005  %
Sales and marketing                                1,001                   416                  585                          141  %
Technology and development                         1,550                   648                  902                          139  %
General and administrative                         2,697                 2,740                  (43)                          (2) %
Depreciation and amortization                         66                    90                  (24)                         (27) %

Interest expense                                    (235)                 (461)                 226                          (49) %
Other income                                           1                     -                    1
Gain on lease termination                              -                 1,538               (1,538)                        (100) %
Change in FV of warrant liability                 (1,610)                   57               (1,667)                      (2,925) %
Other gain (loss)                                     43                   (73)                 116                         (159) %




Revenue and Cost of Revenue. During the three months ended March 31, 2021, we
completed more AI-related projects in China than we did in the comparable period
of 2020, a period which was affected by the combined effects of the COVID-19
pandemic, the ongoing U.S.-China trade war and working capital constraints.
Additionally, during the three months ended March 31, 2021, our biosafety
business contributed $0.3 million more revenue than in the comparable period of
2020, and we completed an advertising project that added $0.3 million of
revenue, while there was no such activity in the comparable period of 2020.

Cost of revenue during the three months ended March 31, 2021 primarily increased
in conjunction with the ramping up of work on our larger contracts in China,
with the advertising project contributing to a small portion of the increase in
cost of revenue.

Sales and marketing. The increase resulted from an additional payment we made to
our China Business Partner to present a combination of their hardware and our
KanKan AI software to large potential clients in response to requests for
proposals that could result in lucrative contracts on AI projects to modernize
such potential clients' facilities and operations.

Technology and development. Our increased activities to continuously improve the
biosafety product line developed towards the end of the first quarter of 2020
and to develop new products led to a $0.7 million increase in expense.
Additionally, the increase in our common stock price at March 31, 2021 as
compared to the price of our common stock on December 31, 2020 caused a $0.2
million increase in share-based compensation expense related to our outstanding
liability-classified China Cash Bonuses. Stock price is an input to the model we
use to estimate the fair value of the China Cash Bonuses, and changes in stock
price can cause large fluctuations in our estimates of fair value.

Interest expense. Our prepayment of a large portion of our debt in 2020 when we
completed the sale of Vegas.com resulted in less debt principal outstanding and,
therefore, the decrease in interest expense for the three months ended March 31,
2021.

                              Table of Contents      23



--------------------------------------------------------------------------------

Gain on lease termination. During March 2020, we reduced right of use assets and
operating lease liabilities relating to one of our leases which was terminated,
which resulted in a gain on lease termination of $1.5 million. We did not have
any lease terminations during the three months ended March 31, 2021.

Change in fair value of warrant liability. The change in the fair value of our
warrant liability maintains direct relationships with the change in the price of
our common stock as of the balance sheet date and the expected volatility in the
price of our common stock. The increase in our common stock price between
December 31, 2020 and March 31, 2021 contributed to the increase in the fair
value of our warrant liability during such period, while the decrease in our
common stock price between December 31, 2019 and March 31, 2020 was small in
scale and it caused the decrease in the fair value of our warrant liability
during such period. Our increase in our estimate of the expected volatility of
our stock price that we use as an input to the model used to estimate the fair
value of the warrants also contributed to the increase in the fair value of our
warrant liability during the three months ended March 31, 2021.


LIQUIDITY AND CAPITAL RESOURCES

Overview



During the three months ended March 31, 2021, and in each fiscal year since our
inception, we have incurred net losses which have resulted in an accumulated
deficit of $366.0 million as of March 31, 2021. Additionally, our operations
have historically used more cash than they have provided. Net cash used in
continuing operating activities was $5.5 million during the three months ended
March 31, 2021. As of March 31, 2021, our cash and cash equivalents balance was
$0.9 million, and we had a negative working capital balance of $11.1 million and
total stockholders' deficit of $13.7 million.

On April 12, 2017, we issued a short-term note payable in the principal amount
of $3.0 million to a private lender in exchange for cash in the same amount. The
agreement, which does not have a stated interest rate, required us to repay the
note plus a fee of $115 thousand on the maturity date of June 30, 2017. The note
is accruing interest at $500 per day on the unpaid principal until we repay the
note in full. As of March 31, 2021, we owed $1.5 million in principal and
$0.5 million accrued interest on such note.

On February 10, 2021, we entered into a senior secured promissory note (the
"Note") with certain of our subsidiaries as guarantors (the "Guarantors") and
Jefferson Remark Funding LLC (the "Lender"), pursuant to which the Lender
extended credit to us consisting of a one-year term loan in the principal amount
of $5.0 million. The Note bears interest at 15% per annum, which shall be
payable on the last business day of each calendar quarter commencing on March
31, 2021. The entire principal balance, as well as any unpaid accrued interest
thereon, is due and payable in full on February 10, 2022. To secure the payment
and performance of the obligations under the Note, we, together with the
Guarantors, have granted to the Lender a first-priority lien on, and security
interest in, all assets of Remark and the Guarantors, subject to certain
customary exceptions. The Note contains representations, warranties, events of
default, indemnifications and other provisions customary for financings of this
type. The occurrence of any event of default under the Note may result in the
principal amount outstanding and unpaid interest thereon becoming immediately
due and payable. As of March 31, 2021, we owed $5.0 million in principal and
$0.1 million accrued interest on such note.

Our history of recurring operating losses, working capital deficiencies and negative cash flows from operating activities give rise to substantial doubt regarding our ability to continue as a going concern.



We intend to fund our future operations and meet our financial obligations
through revenue growth as well as through sales of our thermal-imaging products.
We cannot, however, provide assurance that revenue, income and cash flows
generated from our businesses will be sufficient to sustain our operations in
the twelve months following the filing of this Form 10-Q. As a result, we are
actively evaluating strategic alternatives including debt and equity financings
and potential sales of investment assets or operating businesses.

Conditions in the debt and equity markets, as well as the volatility of investor
sentiment regarding macroeconomic and microeconomic conditions (in particular,
in response to the COVID-19 pandemic), will play primary roles in determining
whether we can successfully obtain additional capital. We cannot be certain that
we will be successful at raising additional capital.

                              Table of Contents      24



--------------------------------------------------------------------------------

A variety of factors, many of which are outside of our control, affect our cash
flow; those factors include the effects of the COVID-19 pandemic, regulatory
issues, competition, financial markets and other general business conditions.
Based on financial projections, we believe that we will be able to meet our
ongoing requirements for at least the next 12 months with existing cash, cash
equivalents and cash resources, and based on the probable success of one or more
of the following plans:

•develop and grow new product line(s)

•monetize existing assets

•obtain additional capital through equity issuances.



However, projections are inherently uncertain and the success of our plans is
largely outside of our control. As a result, there is substantial doubt
regarding our ability to continue as a going concern, and we may fully utilize
our cash resources prior to May 17, 2022.


Cash Flows - Continuing Operating Activities



During the three months ended March 31, 2021, we used $2.7 million more cash in
continuing operating activities than we did during the same period of the prior
year. The increase in cash used in continuing operating activities is a result
of the timing of payments related to elements of working capital.


Cash Flows - Continuing Investing Activities

We engaged in an immaterial amount of investing activities during the three months ended March 31, 2021, and the change in investing activities from the comparable period of the prior year was not material.

Cash Flows - Financing Activities



During the three months ended March 31, 2021, we did not receive any cash
proceeds from issuances of shares of our common stock, whereas the same period
of 2020 included stock sale proceeds of $4.6 million. We also received debt
proceeds of $4.8 million during the three months ended March 31, 2021, while we
did not issue debt instruments in the same period of the prior year.


Off-Balance Sheet Arrangements

We currently have no off-balance sheet arrangements.

Recently Issued Accounting Pronouncements

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

© Edgar Online, source Glimpses