10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended March 31, 2023

Commission File Number 001-33720

Remark Holdings, Inc.

Delaware	33-1135689
State of Incorporation	IRS Employer Identification Number

800 S. Commerce St.

Las Vegas, NV 89106

Address, including zip code, of principal executive offices

702-701-9514

Registrant’s telephone number, including area code

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

Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock, $0.001 par value per share	MARK	The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☑    No  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).    Yes  ☑    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☑	Smaller reporting company	☑
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    ☐

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

As of May 19, 2023, a total of 14,350,058 shares of our common stock were outstanding.

TABLE OF CONTENTS

PART I
Item 1.	Financial Statements	1
	Condensed Consolidated Balance Sheets	1
	Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss	2
	Unaudited Condensed Consolidated Statements of Stockholders’ Equity (Deficit)	3
	Unaudited Condensed Consolidated Statements of Cash Flows	4
	Notes to Unaudited Condensed Consolidated Financial Statements	5
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	27
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	36
Item 4.	Controls and Procedures	36
PART II
Item 1.	Legal Proceedings	37
Item 1A.	Risk Factors	37
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	37
Item 3.	Defaults Upon Senior Securities	37
Item 4.	Mine Safety Disclosures	37
Item 5.	Other Information	37
Item 6.	Exhibits	38
	Signature	39

Table of Contents i

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

The matters discussed in this Quarterly Report on Form 10-Q (this “Form 10-Q”) include “forward-looking statements” about the plans, strategies, objectives, goals or expectations of Remark Holdings, Inc. and subsidiaries (“Remark”, “we”, “us”, “our”). You will find forward-looking statements principally in the sections entitled Risk Factors and Management’s Discussion and Analysis of Financial Condition and Results of Operations. Such forward-looking statements are identifiable by words or phrases indicating that Remark or management “expects,” “anticipates,” “plans,” “believes,” or “estimates,” or that a particular occurrence or event “will,” “may,” “could,” “should,” or “will likely” result, occur or be pursued or “continue” in the future, that the “outlook” or “trend” is toward a particular result or occurrence, that a development is an “opportunity,” “priority,” “strategy,” “focus,” that we are “positioned” for a particular result, or similarly-stated expectations. You should not place undue reliance on these forward-looking statements, which speak only as of the date of this report or such other report, release, presentation, or statement.

In addition to other risks and uncertainties described in connection with the forward-looking statements contained in this report and other periodic reports filed with the Securities and Exchange Commission (“SEC”), there are many important factors that could cause actual results to differ materially. Such risks and uncertainties include general business conditions, changes in overall economic conditions, our ability to integrate acquired assets, the impact of competition and other factors which are often beyond our control.

This should not be construed as a complete list of all of the economic, competitive, governmental, technological and other factors that could adversely affect our expected consolidated financial position, results of operations or liquidity. Additional risks and uncertainties not currently known to us or that we currently believe are immaterial also may impair our business, operations, liquidity, financial condition and prospects. We undertake no obligation to update or revise our forward-looking statements to reflect developments that occur or information that we obtain after the date of this report.

Table of Contents ii

PART I FINANCIAL INFORMATION

ITEM 1.    FINANCIAL STATEMENTS

REMARK HOLDINGS, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(dollars in thousands, except share and per share amounts)

	March 31, 2023		December 31, 2022
	(Unaudited)
Assets
Cash	$	364	$	52
Trade accounts receivable, net	2,719		3,091
Inventory, net	309		308
Deferred cost of revenue	7,485		7,463
Prepaid expense and other current assets	1,275		1,374
Total current assets	12,152		12,288
Property and equipment, net	1,660		1,699
Operating lease assets	135		180
Other long-term assets	226		269
Total assets	$	14,173	$	14,436
Liabilities
Accounts payable	$	9,751	$	9,602
Advances from related parties	1,077		1,174
Obligations to issue common stock	4,984		1,892
Accrued expense and other current liabilities	7,139		7,222
Contract liability	481		308
Notes payable	16,488		14,607
Total current liabilities	39,920		34,805
Operating lease liabilities, long-term	30		56
Total liabilities	39,950		34,861
Commitments and contingencies
Stockholders’ Deficit
Preferred stock, 0.001 par value; 1,000,000 shares authorized; zero issued	—		—
Common stock, 0.001 par value; 175,000,000 shares authorized; 13,633,992 and 11,539,564 shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively	14		12
Additional paid-in-capital	372,071		368,945
Accumulated other comprehensive loss	(1,177)		(859)
Accumulated deficit	(396,685)		(388,523)
Total stockholders’ deficit	(25,777)		(20,425)
Total liabilities and stockholders’ deficit	$	14,173	$	14,436

See Notes to Unaudited Condensed Consolidated Financial Statements

Table of Contents 1

REMARK HOLDINGS, INC. AND SUBSIDIARIES

Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)

(dollars in thousands, except per share amounts)

	Three Months Ended March 31,
	2023		2022
Revenue, including amounts from China Business Partner (See Note 15)	$	826	$	4,667
Cost and expense
Cost of revenue (excluding depreciation and amortization)	455		4,270
Sales and marketing	366		148
Technology and development	169		455
General and administrative	2,833		3,939
Depreciation and amortization	46		41
Total cost and expense	3,869		8,853
Operating loss	(3,043)		(4,186)
Other income (expense)
Interest expense	(1,544)		(2,186)
Finance cost related to obligations to issue common stock	(3,576)		—
Loss on investment	—		(19,056)
Other gain (loss), net	1		(1)
Total other expense, net	(5,119)		(21,243)
Loss before income taxes	(8,162)		(25,429)
Provision for income taxes	—		—
Net loss	$	(8,162)	$	(25,429)
Other comprehensive income
Foreign currency translation adjustments	(318)		2
Comprehensive loss	$	(8,480)	$	(25,427)
Weighted-average shares outstanding, basic and diluted	13,004,071		10,515,777
Net income (loss) per share, basic and diluted	$	(0.63)	$	(2.42)

See Notes to Unaudited Condensed Consolidated Financial Statements

Table of Contents 2 Financial Statement Index

REMARK HOLDINGS, INC. AND SUBSIDIARIES

Unaudited Condensed Consolidated Statements of Stockholders’ Equity (Deficit)

(in thousands, except number of shares)

	Three Months Ended March 31, 2023
	Common Stock Shares	Common Stock Par Value		Additional Paid-In Capital		Accumulated Other Comprehensive Income (Loss)		Accumulated Deficit		Total
Balance at December 31, 2022	11,539,564	$	12	$	368,945	$	(859)	$	(388,523)	$	(20,425)
Net loss	—	—		—		—		(8,162)		(8,162)
Share-based compensation	—	—		143		—		—		143
Common stock issued upon note payable conversion	2,094,428	2		2,983		—		—		2,985
Foreign currency translation	—	—		—		(318)		—		(318)
Balance at March 31, 2023	13,633,992	$	14	$	372,071	$	(1,177)	$	(396,685)	$	(25,777)
	Three Months Ended March 31, 2022
	Common Stock Shares	Common Stock Par Value		Additional Paid-In Capital		Accumulated Other Comprehensive Income (Loss)		Accumulated Deficit		Total
Balance at December 31, 2021	10,515,777	$	11	$	364,333	$	(270)	$	(333,040)	$	31,034
Net loss	—	—		—		—		(25,429)		(25,429)
Share-based compensation	—	—		514		—		—		514
Foreign currency translation	—	—		—		2		—		2
Balance at March 31, 2022	10,515,777	$	11	$	364,847	$	(268)	$	(358,469)	$	6,121

See Notes to Unaudited Condensed Consolidated Financial Statements

Table of Contents 3 Financial Statement Index

REMARK HOLDINGS, INC. AND SUBSIDIARIES

Unaudited Condensed Consolidated Statements of Cash Flows

(dollars in thousands)

	Three Months Ended March 31,
	2023		2022
Cash flows from operating activities:
Net loss	$	(8,162)	$	(25,429)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation, amortization and impairments	46		41
Share-based compensation	156		429
Cost of extending note payable	750		1,095
Finance cost related to obligations to issue common stock	3,576		—
Accrued interest included in note payable	1,139		—
Loss on investment	—		19,056
Provision for doubtful accounts	6		—
Other	(9)		43
Changes in operating assets and liabilities:
Accounts receivable	84		(1,052)
Inventory	(1)		(146)
Deferred cost of revenue	(22)		(4,176)
Prepaid expense and other assets	176		2,281
Operating lease assets	47		(52)
Accounts payable, accrued expense and other liabilities	(1)		(666)
Contract liability	162		(142)
Operating lease liabilities	(27)		30
Net cash used in operating activities	(2,080)		(8,688)
Cash flows from investing activities:
Proceeds from sale of investment	—		1,849
Purchases of property, equipment and software	(4)		(10)
Payment of amounts capitalized to software in progress	—		(949)
Net cash provided by (used in) investing activities	(4)		890
Cash flows from financing activities:
Proceeds from obligations to issue common stock - ELOC	1,000		—
Proceeds from obligations to issue common stock - Debentures	1,500		—
Advances from related parties	259		—
Repayments of advances from related parties	(355)		—
Repayments of debt	(8)		(3,698)
Net cash provided by (used in) financing activities	2,396		(3,698)
Net change in cash	312		(11,496)
Cash:
Beginning of period	52		14,187
End of period	$	364	$	2,691
Supplemental cash flow information:
Cash paid for interest	$	250	$	1,092

See Notes to Unaudited Condensed Consolidated Financial Statements

Table of Contents 4 Financial Statement Index

REMARK HOLDINGS, INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

For the Three Months Ended March 31, 2023 and 2022

NOTE 1. ORGANIZATION AND BUSINESS

Organization and Business

Remark Holdings, Inc. and its subsidiaries (“Remark”, “we”, “us”, or “our”) constitute a diversified global technology business with leading artificial intelligence (“AI”) and data-analytics solutions. The common stock of Remark Holdings, Inc. is listed on the Nasdaq Capital Market (“Nasdaq”) under the ticker symbol MARK.

We primarily sell AI-based products and services. We currently recognize substantially all of our revenue from China, with additional revenue from sales in the U.S.

Corporate Structure

We are a holding company incorporated in Delaware and not a Chinese operating company. As a holding company, we conduct most of our operations through our subsidiaries, each of which is wholly owned. We have historically conducted a significant part of our operations through contractual arrangements between our wholly-foreign-owned enterprise (“WFOE”) and certain variable interest entities (“VIEs”) based in China to address challenges resulting from laws, policies and practices that may disfavor foreign-owned entities that operate within industries deemed sensitive by the Chinese government. We were the primary beneficiary of the VIEs because the contractual arrangements governing the relationship between the VIEs and our WFOE, which included an exclusive call option agreement, exclusive business cooperation agreement, a proxy agreement and an equity pledge agreement, enabled us to (i) exercise effective control over the VIEs, (ii) receive substantially all of the economic benefits of the VIEs, and (iii) have an exclusive call option to purchase, at any time, all or part of the equity interests in and/or assets of the VIEs to the extent permitted by Chinese laws. Because we were the primary beneficiary of the VIEs, we consolidated the financial results of the VIEs in our consolidated financial statements in accordance with generally accepted accounting principles (“GAAP”).

We terminated all of the contractual arrangements between the WFOE and the VIEs and exercised our rights under the exclusive call option agreements between the WFOE and the VIEs such that, effective as of September 19, 2022, we obtained 100% of the equity ownership of the entities we formerly consolidated as VIEs and which we now consolidate as wholly-owned subsidiaries.

The following diagram illustrates our corporate structure, including our significant subsidiaries, as of the date of this Form 10-Q. The diagram omits certain entities which are immaterial to our results of operations and financial condition.

Table of Contents 5 Financial Statement Index

We are subject to certain legal and operational risks associated with having a significant portion of our operations in China. Chinese laws and regulations governing our current business operations, including the enforcement of such laws and regulations, are sometimes vague and uncertain and can change quickly with little advance notice. The Chinese government may intervene in or influence the operations of our China-based subsidiaries at any time and may exert more control over offerings conducted overseas and/or foreign investment in China-based issuers, which could result in a material change in our operations and/or the value of our securities. In addition, any actions by the Chinese government to exert more oversight and control over offerings that are conducted overseas and/or foreign investment in China-based issuers could significantly limit or completely hinder our ability to offer or continue to offer our securities to investors and cause the value of such securities to

Table of Contents 6 Financial Statement Index

significantly decline or become worthless. In recent years, the Chinese government adopted a series of regulatory actions and issued statements to regulate business operations in China, including those related to the use of variable interest entities, cybersecurity, data security, export control and anti-monopoly concerns. As of the date of this Form 10-Q, we have neither been involved in any investigations on cybersecurity review initiated by any Chinese regulatory authority, nor received any inquiry, notice or sanction. As of the date of this Form 10-Q, no relevant laws or regulations in China explicitly require us to seek approval from the China Securities Regulatory Commission (“CSRC”) for any securities listing. As of the date of this Form 10-Q, we have not received any inquiry, notice, warning or sanctions regarding our planned overseas listing from the CSRC or any other Chinese governmental authorities relating to securities listings. However, since these statements and regulatory actions are newly published, official guidance and related implementation rules have not all been issued. It is highly uncertain what potential impact such modified or new laws and regulations will have on our ability to conduct our business, accept investments or list or maintain a listing on a U.S. or foreign exchange.

As of the date of this Form 10-Q, we are not required to seek permissions from the CSRC, the Cyberspace Administration of China (the “CAC”), or any other entity that is required to approve our operations in China. Nevertheless, Chinese regulatory authorities may in the future promulgate laws, regulations or implement rules that require us or our subsidiaries to obtain permissions from such regulatory authorities to approve our operations or any securities listing.

Holding Foreign Companies Accountable Act

The Holding Foreign Companies Accountable Act (the “HFCA Act”) was enacted on December 18, 2020. The HFCA Act states that if the Securities and Exchange Commission (the “SEC”) determines that a company has filed audit reports issued by a registered public accounting firm that has not been subject to inspection by the Public Company Accounting Oversight Board (the “PCAOB”) for three consecutive years beginning in 2021, the SEC shall prohibit such shares from being traded on a national securities exchange or in the over the counter trading market in the United States. On December 2, 2021, the SEC adopted amendments to finalize rules implementing the submission and disclosure requirements in the HFCA Act. The rules apply to registrants that the SEC identifies as having filed an annual report with an audit report issued by a registered public accounting firm that is located in a foreign jurisdiction and that the PCAOB is unable to inspect or investigate completely because of a position taken by an authority in a foreign jurisdiction. The Consolidated Appropriations Act, 2023, which was signed into law on December 29, 2022, amended the HFCA Act to reduce the number of consecutive non-inspection years required to trigger the trading prohibition under the HFCA Act from three years to two years.

On December 16, 2021, the PCAOB issued a report on its determination that it is unable to inspect or investigate completely PCAOB-registered public accounting firms headquartered in mainland China and in Hong Kong because of positions taken by Chinese and Hong Kong authorities in those jurisdictions.

On August 26, 2022, the CSRC, the Ministry of Finance of the PRC, and the PCAOB signed a Statement of Protocol (the “Protocol”), taking the first step toward opening access for the PCAOB to completely inspect and investigate registered public accounting firms headquartered in mainland China and Hong Kong.

On December 15, 2022, the PCAOB vacated its 2021 determination that the positions taken by authorities in mainland China and Hong Kong prevented it from inspecting and investigating completely registered public accounting firms headquartered in those jurisdictions. In view of the PCAOB’s decision to vacate its 2021 determination and until such time as the PCAOB issues any new adverse determination, the SEC has stated that there are no issuers at risk of having their securities subject to a trading prohibition under the HFCA Act. Each year, the PCAOB will reassess its determinations on whether it can inspect and investigate completely audit firms in China, and if, in the future, the PCAOB determines it cannot do so, or if Chinese authorities do not allow the PCAOB complete access for inspections and investigations for two consecutive years, companies engaging China-based public accounting firms would be delisted pursuant to the HFCA Act.

Our auditor, Weinberg & Company, an independent registered public accounting firm headquartered in the United States is currently subject to PCAOB inspections and has been inspected by the PCAOB on a regular basis. However, if the PCAOB is unable to inspect the work papers of our accounting firm in the future, such lack of inspection could cause trading in our common stock to be prohibited under the HFCA Act, and as a result, an exchange may determine to delist our common stock. The delisting and the cessation of trading of our common stock, or the threat of our common stock being delisted and prohibited from being traded, may materially and adversely affect the value of our common stock.

Table of Contents 7 Financial Statement Index

Transfer of Cash or Assets

Dividend Distributions

As of the date of this Form 10-Q, none of our subsidiaries have made any dividends or distributions to Remark.

We have never declared or paid dividends or distributions on our common equity. We currently intend to retain all available funds and any future consolidated earnings to fund our operations and continue the development and growth of our business; therefore, we do not anticipate paying any cash dividends.

Under Delaware law, a Delaware corporation’s ability to pay cash dividends on its capital stock requires the corporation to have either net profits or positive net assets (total assets less total liabilities) over its capital. If we determine to pay dividends on any of our common stock in the future, as a holding company, we may rely on dividends and other distributions on equity from our subsidiaries for cash requirements, including the funds necessary to pay dividends and other cash contributions to our stockholders.

Our WFOE’s ability to distribute dividends is based upon its distributable earnings. Current Chinese regulations permit our WFOE to pay dividends to its shareholder only out of its registered capital amount, if any, as determined in accordance with Chinese accounting standards and regulations, and then only after meeting the requirement regarding statutory reserve. If our WFOE incurs debt in the future, the instruments governing the debt may restrict its ability to pay dividends or make other payments to us. Any limitation on the ability of our WFOE to distribute dividends or other payments to us could materially and adversely limit our ability to grow, make investments or acquisitions that could be beneficial to our businesses, pay dividends or otherwise fund and conduct our business. In addition, any cash dividends or distributions of assets by our WFOE to its stockholder are subject to a Chinese withholding tax of as much as 10%.

The Chinese government also imposes controls on the conversion of Chinese Renminbi (“RMB”) into foreign currencies and the remittance of currencies out of China. Therefore, we may experience difficulties in completing the administrative procedures necessary to obtain and remit foreign currency for the payment of dividends from our profits, if any. If we are unable to receive all of the revenues from our operations through our China-based subsidiaries, we may be unable to pay dividends on our common stock.

COVID-19

Our consolidated financial statements for the three months ended March 31, 2023 continued to show the negative impact that the COVID-19 pandemic has had on our business. Preventative measures related to COVID-19 outbreaks may continue to adversely affect our business and financial results, 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. The COVID-19 pandemic caused a broad shift towards remote working arrangements for many businesses worldwide and injected uncertainty and delay into decision-making processes for such businesses. Though the most restrictive preventative measures have been eased in China, city-wide lockdowns, travel restrictions, closures of non-essential businesses and other quarantine measures could be reinstituted at any time. Recovering from the effects of the preventative measures in China that resulted from the Chinese government’s Zero-COVID policy and that significantly limited the operational capabilities of our China-based subsidiaries has taken some time as we and our customers and partners work to ramp up business again. Many cities across large swaths of China, including economically significant regions such as Shanghai, as recently as the end of 2022 were fully or partially locked down for weeks or even months. Such lockdowns have had a material adverse impact on our business, including on the collection of our accounts receivable and our ability to complete projects in China to generate revenue, and may continue to adversely impact our business until customers and potential customers believe they can operate and expand their businesses without fear of lockdowns or other severely restrictive preventative measures.

The full extent of the impact of the pandemic on our business and financial results will depend largely on future developments, including resurgences and further spread of existing or new COVID-19 variants, the duration of any remaining preventative measures implemented by domestic and foreign governments, the impact on capital and financial markets and the related impact on the financial circumstances of our customers, all of which are highly uncertain and cannot be predicted. The pandemic-related situation continues to change rapidly, and additional impacts of which we are not currently aware may arise. We are closely monitoring worldwide developments and are continually assessing the potential impact on our business.

Table of Contents 8 Financial Statement Index

Going Concern

During the three months ended March 31, 2023, and in each fiscal year since our inception, we have incurred operating losses which have resulted in a stockholders’ deficit of $25.8 million as of March 31, 2023. Additionally, our operations have historically used more cash than they have provided. Net cash used in operating activities was $2.1 million during the three months ended March 31, 2023. As of March 31, 2023, our cash balance was $0.4 million.

Our history of recurring operating losses, working capital deficiencies and negative cash flows from operating activities give rise to, and management has concluded that there is, substantial doubt regarding our ability to continue as a going concern. Our independent registered public accounting firm, in its report on our consolidated financial statements for the year ended December 31, 2022, has also expressed substantial doubt about our ability to continue as a going concern. Our consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

We intend to fund our future operations and meet our financial obligations through revenue growth from our AI and data analytics offerings. 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.

Conditions in the debt and equity markets, as well as the volatility of investor sentiment regarding macroeconomic and microeconomic conditions (in particular, as a result of the COVID-19 pandemic, global supply chain disruptions, inflation and other cost increases, and the geopolitical conflict in Ukraine), 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.

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 and based on the probable success of one or more of the following plans:

•develop and grow new product line(s)

•obtain additional capital through debt and/or 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 June 30, 2023.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

We prepared the accompanying unaudited Condensed Consolidated Balance Sheet as of March 31, 2023, with the audited Consolidated Balance Sheet amounts as of December 31, 2022 presented for comparative purposes, and the related unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss, the Condensed Consolidated Statements of Cash Flows and the Condensed Consolidated Statements of Stockholders’ Deficit in accordance with the instructions for Form 10-Q. In compliance with those instructions, we have omitted certain information and footnote disclosures normally included in annual consolidated financial statements prepared in accordance with U.S. GAAP, though management believes the disclosures made herein are sufficient to ensure that the information presented is not misleading.

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

Management believes that we have included all adjustments (including those of a normal, recurring nature) considered necessary to fairly present our unaudited Condensed Consolidated Balance Sheet and our unaudited Condensed Consolidated Statement of Stockholders’ Deficit, each as of March 31, 2023, as well as our unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss and Condensed Consolidated Statements of Cash Flows for all periods presented. You should read our unaudited condensed consolidated interim financial statements and footnotes in conjunction with our

Table of Contents 9 Financial Statement Index

consolidated financial statements and footnotes included within the Annual Report on Form 10-K for the year ended December 31, 2022 (the “2022 Form 10-K”).

Consolidation

We include all of our subsidiaries in our condensed consolidated financial statements, eliminating all significant intercompany balances and transactions during consolidation.

Use of Estimates

We prepare our consolidated financial statements in conformity with GAAP. While preparing our financial statements, we make estimates and assumptions that affect amounts reported and disclosed in the consolidated financial statements and accompanying notes. Accordingly, actual results could differ from those estimates. On an ongoing basis, we evaluate our estimates, including those related to accounts receivable, deferred cost of revenue, share-based compensation, deferred income taxes, and inventory reserve, among other items.

The impact of the COVID-19 pandemic continues to unfold. As a result, many of our estimates and assumptions required increased judgment and carry a higher degree of variability and volatility. As events continue to evolve and additional information becomes available, our estimates may change materially in future periods.

Cash

Our cash consists of funds held in bank accounts.

We maintain cash balances in United States dollars (“USD”), British pounds (“GBP”), RMB and Hong Kong dollars (“HKD”). The following table, reported in USD, disaggregates our cash balances by currency denomination (in thousands):

	March 31, 2023		December 31, 2022
Cash denominated in:
USD	$	238	$	11
RMB	66		19
GBP	5		17
HKD	55		5
Total cash	$	364	$	52

We maintain substantially all of our USD-denominated cash at a U.S. financial institution where the balances are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000. At times, however, our cash balances may exceed the FDIC-insured limit. As of March 31, 2023, we do not believe we have any significant concentrations of credit risk. Cash held by our non-U.S. subsidiaries is subject to foreign currency fluctuations against the USD, although such risk is somewhat mitigated because we transfer U.S. funds to China to fund local operations. If, however, the USD is devalued significantly against the RMB, our cost to further develop our business in China could exceed original estimates.

Table of Contents 10 Financial Statement Index

Fair Value of Financial Instruments

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants (an exit price). When reporting the fair values of our financial instruments, we prioritize those fair value measurements into one of three levels based on the nature of the inputs, as follows:

Level 1:    Valuations based on quoted prices in active markets for identical assets and liabilities;

Level 2:    Valuations based on observable inputs that do not meet the criteria for Level 1, including quoted prices in inactive markets and observable market data for similar, but not identical instruments; and

Level 3:    Valuations based on unobservable inputs, which are based upon the best available information when external market data is limited or unavailable.

The fair value hierarchy requires us to use observable market data, when available, and to minimize the use of unobservable inputs when determining fair value. For some products or in certain market conditions, observable inputs may not be available.

We believe the reported carrying amounts for cash, marketable securities, receivables, prepaids and other current assets, accounts payable, accrued expense and other current liabilities, and short-term debt approximate their fair values because of the short-term nature of these financial instruments.

Foreign Currency Translation

We report all currency amounts in USD. Our overseas subsidiaries, however, maintain their books and records in their functional currencies, which are GBP in the United Kingdom (“U.K.”) and RMB in China.

In general, when consolidating our subsidiaries with non-USD functional currencies, we translate the amounts of assets and liabilities into USD using the exchange rate on the balance sheet date, and the amounts of revenue and expense are translated at the average exchange rate prevailing during the period. The gains and losses resulting from translation of financial statement amounts into USD are recorded as a separate component of accumulated other comprehensive loss within stockholders’ deficit.

We used the exchange rates in the following table to translate amounts denominated in non-USD currencies as of and for the periods noted:

	2023	2022
Exchange rates at March 31st:
GBP:USD	1.237	1.313
RMB:USD	0.146	0.158
HKD:USD	0.127	0.128
Average exchange rate during the three months ended March 31st:
RMB:USD	0.146	0.158
GBP:USD	1.214	1.317

Table of Contents 11 Financial Statement Index

Revenue Recognition

AI-Based Products

We generate revenue by developing AI-based products, including fully-integrated AI solutions which combine our proprietary technology with third-party hardware and software products to meet end-user specifications. Under one type of contract for our AI-based products, we provide a single, continuous service to clients who control the assets as we create them. Accordingly, we recognize the revenue over the period of time during which we provide the service. Under another type of contract, we have performance obligations to provide fully-integrated AI solutions to our customer and we recognize revenue at the point in time when each performance obligation is completed and delivered to, tested by and accepted by our customer.

We recognize revenue when we transfer control of the promised goods or services to our customers, and we recognize an amount that reflects the consideration to which we expect to be entitled in exchange for those goods or services. If there is uncertainty related to the timing of collections from our customer, which may be the case if our customer is not the ultimate end user of our goods, we consider this to be uncertainty of the customer’s ability and intention to pay us when consideration is due. Accordingly, we recognize revenue only when we have transferred control of the goods or services and collectability of consideration from the customer is probable.

When customers pay us prior to when we satisfy our obligation to transfer control of promised goods or services, we record the amount that reflects the consideration to which we expect to be entitled as a contract liability until such time as we satisfy our performance obligation.

For contracts under which we have not yet completed the performance obligation, deferred costs are recorded for any amounts incurred in advance of the performance obligation.

For our contracts with customers, we generally extend short-term credit policies to our customers, typically up to one year for large-scale projects.

We record the incremental costs of obtaining contracts as an expense when incurred.

We offer extended warranties on our products for periods of one to three years. Revenue from these extended warranties is recognized on a straight-line basis over the warranty contract term.

Other

We generate revenue from other sources, such as from advertising and marketing services. We recognize the revenue from these contracts at the point in time when we transfer control of the good sold to the customer or when we deliver the promised promotional materials or media content. Substantially all of our contracts with customers that generate Other revenue are completed within one year or less.

Table of Contents 12 Financial Statement Index

Inventory

We use the first-in first-out method to determine the cost of our inventory, then we report inventory at the lower of cost or net realizable value. We regularly review our inventory quantities on hand and record a provision for excess and obsolete inventory based primarily on our estimated sales forecasts. At March 31, 2023 and December 31, 2022, reserve for inventory was $2.2 million and $2.2 million, respectively.

Refundable Tax Credits

We charge the cost of our research and development efforts to operations as incurred. Our subsidiary in the United Kingdom is entitled to receive certain government assistance in the form of refundable research and development tax credits from taxation authorities, based on qualifying expenditures incurred during the fiscal year. The refundable credits are not dependent on our ongoing tax status or tax position and accordingly are not considered part of income taxes. We record refundable tax credits as a reduction of technology and development expense when we can reasonably estimate the amount and it is more likely than not that such amount will be received. During the three months ended March 31, 2023, we recorded a tax credit of approximately $0.5 million.

Internal Use Software

We acquire or develop applications and other software that help us meet our internal needs with respect to operating our business. For such projects, planning cost and other costs related to the preliminary project stage, as well as costs incurred for post-implementation activities, are expensed as incurred. We capitalize costs incurred during the application development phase only when we believe it is probable the development will result in new or additional functionality. The types of costs capitalized during the application development phase include fees incurred with third parties for consulting, programming and other development activities performed to complete the software. We amortize our internal use software on a straight-line basis over an estimated useful life of three years. If we identify any internal use software to be abandoned, the cost less the accumulated amortization, if any, is recorded as amortization expense. Once we have fully amortized internal use software costs that we capitalized, we remove such amounts from their respective accounts.

Net Income (Loss) per Share

We calculate basic net income (loss) per share using the weighted-average number of common stock shares outstanding during the period. For the calculation of diluted net income (loss) per share, we give effect to all the shares of common stock that were outstanding during the period plus the number of additional common shares that would have been outstanding if all dilutive potential common shares had been issued, using the treasury stock method. Potential common shares are excluded from the computation when their effect is anti-dilutive. Dilutive potential shares of common stock consist of incremental shares of common stock issuable upon exercise of stock options and warrants.

For the three months ended March 31, 2023 and 2022, there were no reconciling items related to either the numerator or denominator of the loss per share calculation, as their effect would have been anti-dilutive.

Securities which may have affected the calculation of diluted earnings per share for the three months ended March 31, 2023 if their effect had been dilutive include 1,626,346 total outstanding stock options, and 1,011,440 outstanding warrants to purchase common stock.

Segments

Existing GAAP, which establishes a management approach to segment reporting, defines operating segments as components of an entity about which separate, discrete financial information is available for evaluation by the chief operating decision maker. We have identified our Chief Executive Officer as our chief operating decision maker, who reviews operating results to make decisions about allocating resources and assessing performance based upon only one operating segment.

Table of Contents 13 Financial Statement Index

Recently Issued Accounting Pronouncements

In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2020-06 (“ASU 2020-06”), Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. The ASU will simplify the accounting for convertible instruments by reducing the number of accounting models for convertible debt instruments and convertible preferred stock. Limiting the accounting models will result in fewer embedded conversion features being separately recognized from the host contract as compared with current GAAP. Convertible instruments that continue to be subject to separation models are (1) those with embedded conversion features that are not clearly and closely related to the host contract, that meet the definition of a derivative, and that do not qualify for a scope exception from derivative accounting and (2) convertible debt instruments issued with substantial premiums for which the premiums are recorded as paid-in capital. The ASU also amends the guidance for the derivatives scope exception for contracts in an entity’s own equity to reduce form-over-substance-based accounting conclusions. With regard to our financial reporting, ASU 2020-06 will be effective January 1, 2024, and early adoption is permitted, but no earlier than January 1, 2021, including interim periods within that year. We are currently evaluating what effect(s) the adoption of ASU 2020-06 may have on our consolidated financial statements, but we do not believe the impact of the ASU will be material to our financial position, results of operations and cash flows. The effect will largely depend on the composition and terms of the financial instruments at the time of adoption.

We have reviewed all accounting pronouncements recently issued by the FASB and the SEC. The authoritative pronouncements that we have already adopted did not have a material effect on our financial condition, results of operations, cash flows or reporting thereof, and except as otherwise noted above, we do not believe that any of the authoritative pronouncements that we have not yet adopted will have a material effect upon our financial condition, results of operations, cash flows or reporting thereof.

NOTE 3. CONCENTRATION OF RISK

Revenue and Accounts Receivable

The disaggregation of revenue tables in Note 4 demonstrate the concentration in our revenue from certain products and the geographic concentration of our business. We also have a concentration in the volume of business we transacted with customers, as during the three months ended March 31, 2023, one of our customers represented about 50% of our revenue, while during three months ended March 31, 2022, two customers represented about 48% and 46%, respectively, of our revenue. At March 31, 2023, accounts receivable from four of our customers represented about 26%, 11%, 11% and 10%, respectively, of our gross accounts receivable, while at December 31, 2022, accounts receivable from our three largest customers represented about 23%, 16% and 10%, respectively, of our gross accounts receivable.

Deferred Cost of Revenue

See Note 6 for a discussion of a risk concentration regarding our deferred cost of revenue.

Cost of Sales and Accounts Payable

The various hardware we purchase to fulfill our contracts with customers is not especially unique in nature. Based on our analysis, we believe that should any disruption in our current supply chain occur, a sufficient number of alternative vendors is available to us, at reasonably comparable specifications and price, such that we would not experience a material negative impact on our ability to procure the hardware we need to operate our business.

NOTE 4. REVENUE

We primarily sell AI-based products and services based upon computer vision and other technologies.

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We do not include disclosures related to remaining performance obligations because substantially all our contracts with customers have an original expected duration of one year or less or, with regard to our stand-ready obligations, the amounts involved are not material.

Disaggregation of Revenue

The following table presents a disaggregation of our revenue by category of products and services (in thousands):

	Three Months Ended March 31,
	2023		2022
AI-based products and services, including amounts from China Business Partner in 2023 (See Note 15)	$	721	$	4,546
Other	105		121
Revenue	$	826	$	4,667

The following table presents a disaggregation of our revenue by country (in thousands):

	Three Months Ended March 31,
	2023		2022
China	$	743	$	4,554
United States	83		113
Revenue	$	826	$	4,667

Significant Judgments

When accounting for revenue we make certain judgments, such as whether we act as a principal or as an agent in transactions or whether our contracts with customers fall within the scope of current GAAP regarding revenue, that affect the determination of the amount and timing of our revenue from contracts with customers. Based on the current facts and circumstances related to our contracts with customers, none of the judgments we make involve an elevated degree of qualitative significance or complexity such that further disclosure is warranted in terms of their potential impact on the amount and timing of our revenue.

Contract Assets and Contract Liabilities

We do not currently generate material contract assets. During the three months ended March 31, 2023, our contract liability changed only as a result of routine business activity.

During the three months ended March 31, 2023 and 2022, the amount of revenue we recognized that was included in the beginning balance of Contract liability was not material.

During the three months ended March 31, 2023 and 2022, we did not recognize revenue from performance obligations that were satisfied in previous periods.

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NOTE 5. TRADE ACCOUNTS RECEIVABLE

	March 31, 2023		December 31, 2022
Gross accounts receivable balance	$	6,885	$	7,213
Allowance for bad debt	(4,166)		(4,122)
Accounts receivable, net	$	2,719	$	3,091

Generally, it is not unusual for Chinese entities to pay their vendors on longer timelines than the timelines typically observed in U.S. commerce. Trade receivables related to our China AI projects at March 31, 2023 and December 31, 2022; including approximately $1.1 million and $1.1 million, respectively, of trade receivables from projects related to work with our China Business Partner (see Note 15 for more information regarding our China Business Partner and related accounting); represented essentially all our gross trade receivables in each such period. Despite the longer collection timelines normally observed with Chinese entities, we have noted that the COVID-19 related lockdowns that persisted in China for most of 2022 have caused further delay in our ability to collect all balances due from some of our customers in China. As a result of our inability to assure collection of all amounts due from such customers within a short period of time, we recorded a reserve for bad debt of approximately $2.8 million as of December 31, 2022 for all accounts receivable from China customers that were more than one year past due.

NOTE 6. DEFERRED COST OF REVENUE

Deferred cost of revenue as of March 31, 2023 and December 31, 2022 of $7.5 million and $7.5 million, respectively, represent amounts we have paid in advance to the vendor who provides services to us in relation to various projects in China. Specifically, the deferred cost of revenue balance as of March 31, 2023, a large percentage of which was related to project installations we expected would be provided to us through our China Business Partner (described in more detail in Note 15), was paid almost entirely to a single vendor which will be visiting numerous sites across various regions of China to install our software solutions and/or hardware for our customers and perform other services for us pursuant to our customers’ requirements. Because most of the projects for which we have engaged the vendor require purchases of hardware, equipment and/or supplies in advance of site visits, we made the prepayments during 2022 in anticipation of several large batches of project installations. However, the lengthy COVID-19 related lockdowns that occurred in various regions in China prevented us and the vendor from being able to complete as many projects as we originally expected and caused our customers to delay installations. Given that the delays were related to the COVID-19 lockdowns that had ended by December 31, 2022 and were not a result of the vendor’s inability to either perform the services or refund of the amounts we advanced, we believe the balance as of March 31, 2023 will be fully recovered.

NOTE 7. PREPAID EXPENSE AND OTHER CURRENT ASSETS

The following table presents the components of prepaid expense and other current assets (in thousands):

	March 31, 2023		December 31, 2022
Other receivables	10		23
Prepaid expense	1,057		1,144
Deposits	203		201
Other current assets	5		6
Total	$	1,275	$	1,374

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NOTE 8. PROPERTY AND EQUIPMENT

Property and equipment consist of the following (in thousands, except estimated lives):

	Estimated Life (Years)	March 31, 2023		December 31, 2022
Vehicles	3	$	153	153
Computers and equipment	3	1,172		$	1,170
Furniture and fixtures	3	42		42
Software	3	5,168		5,160
Leasehold improvements	3	202		204
Software development in progress		1,199		1,199
Total property, equipment and software		$	7,936	$	7,928
Less accumulated depreciation		(6,276)		(6,229)
Total property, equipment and software, net		$	1,660	$	1,699

For the three months ended March 31, 2023 and 2022, depreciation (and amortization of software) expense was de minimis.

NOTE 9. ACCRUED EXPENSE AND OTHER CURRENT LIABILITIES

The following table presents the components of Accrued expense and other current liabilities (in thousands):

	March 31, 2023		December 31, 2022
Accrued compensation and benefit-related expense	$	2,007	$	1,448
Accrued interest	167		769
Other accrued expense	2,430		2,393
Other payables	2,224		2,234
Operating lease liability - current	120		138
China Cash Bonuses (see Note 15)	44		32
Other current liabilities	147		208
Total	$	7,139	$	7,222

NOTE 10. NOTES PAYABLE

The following table presents our notes payable (in thousands) as of:

	March 31, 2023		December 31, 2022
Principal balance of Original Mudrick Loans	$	16,307	$	14,418
Other notes payable	181		189
Notes payable, net of unamortized discount and debt issuance cost	$	16,488	$	14,607

Table of Contents 17 Financial Statement Index

On December 3, 2021, we entered into senior secured loan agreements (the “Original Mudrick Loan Agreements”) with certain of our subsidiaries as guarantors (the “Guarantors”) and certain institutional lenders affiliated with Mudrick Capital Management, LP (collectively, “Mudrick”), pursuant to which Mudrick extended credit to us consisting of term loans in the aggregate principal amount of $30.0 million (the “Original Mudrick Loans”). The Original Mudrick Loans bore interest at 16.5% per annum until the original maturity date of July 31, 2022 and, following an amendment we entered into with Mudrick in August 2022, bore interest at 18.5% per annum. The amendment also extended the maturity date of the Original Mudrick Loans from July 31, 2022 to October 31, 2022. However, we did not make the required repayment of the Original Mudrick Loans by October 31, 2022, which constituted an event of default under the Original Mudrick Loans and triggered an increase in the interest rate under the Original Mudrick Loans to 20.5%.

On March 14, 2023, we entered into a Note Purchase Agreement (the “New Mudrick Loan Agreement”) with Mudrick, pursuant to which all of the Original Mudrick Loans were cancelled in exchange for new notes payable to Mudrick (the “New Mudrick Notes”) in the aggregate principal amount of approximately $16.3 million. The principal balance of the New Mudrick Notes included the $14.4 million outstanding balance of the Original Mudrick Loans, plus $1.1 million of accrued interest on the Original Mudrick Loans, plus a fee of approximately $0.8 million payable to Mudrick as consideration for cancelling the Original Mudrick Loans and converting all amounts outstanding thereunder into the New Mudrick Notes. We recorded the $0.8 million as interest expense during the three months ended March 31, 2023.

The New Mudrick Notes bear interest at a rate of 20.5% per annum, which shall be payable on the last business day of each month commencing on May 31, 2023. The interest rate will increase by 2% and the principal amount outstanding under the New Mudrick Notes and any unpaid interest thereon may become immediately due and payable upon the occurrence of any event of default under the New Mudrick Loan Agreement. All amounts outstanding under the New Mudrick Notes, including all accrued and unpaid interest, will be due and payable in full on October 31, 2023.

To secure the payment and performance of the obligations under the Original Mudrick Loan Agreements and the New Mudrick Loan Agreement, we, together with the Guarantors, have granted to TMI Trust Company, as the collateral agent for the benefit of Mudrick, a first priority lien on, and security interest in, all assets of Remark and the Guarantors, subject to certain customary exceptions.

In connection with our entry into the Original Mudrick Loan Agreements, we paid Mudrick an upfront fee equal to 5.0% of the amount of the Original Mudrick Loans, which amount was netted against the drawdown of the Original Mudrick Loans. We recorded the upfront fee as a debt discount of $1.5 million, and recorded debt issuance cost totaling $1.1 million. We amortized the discount on the Original Mudrick Loans and the debt issuance cost over the life of the Original Mudrick Loans and, during the year ended December 31, 2022, we amortized $2.2 million of such discount and debt issuance cost.

During the year ended December 31, 2022, we repaid $6.2 million of the principal amount of the Original Mudrick Loans in cash and delivered all of our shares in Sharecare, Inc. to Mudrick on July 11, 2022, in partial settlement of the Original Mudrick Loans, resulting in a further repayment of approximately $9.7 million of the principal amount of the Original Mudrick Loans. As of December 31, 2022, the outstanding balance of the Original Mudrick Loans was $14.4 million, and approximately $0.8 million of accrued interest was included in Accrued expense and other current liabilities. During the three months ended March 31, 2023, we accrued approximately $0.6 million additional interest expense on the Original Mudrick Loans, of which $0.3 million was paid during the period.

Other Notes Payable

The Other notes payable in the table above represent individually immaterial notes payable issued for the purchase of operating assets. Such notes payable bear interest at a weighted-average interest rate of approximately 6.2% and have a weighted-average remaining term of approximately 4.8 years.

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NOTE 11. TRANSACTIONS WITH IONIC

Convertible Debentures

On October 6, 2022, we entered into a debenture purchase agreement (the “2022 Debenture Purchase Agreement”) and a purchase agreement (the “ELOC Purchase Agreement”) with Ionic Ventures, LLC (“Ionic”). Pursuant to the 2022 Debenture Purchase Agreement, we issued a convertible subordinated debenture in the original principal amount of approximately $2.8 million (the “2022 Debenture”) to Ionic for a purchase price of $2.5 million. The 2022 Debenture automatically converted into shares of our common stock (the “Settlement Shares”) on November 17, 2022 upon the effectiveness of a registration statement we filed pursuant to a registration rights agreement we entered into with Ionic. Upon issuance of the 2022 Debenture, we initially estimated the obligation to issue common stock at approximately $3.6 million. As of December 31, 2022, we estimated such obligation to have a fair value of $1.9 million, representing an additional 1,720,349 shares to be issued pursuant to the 2022 Debenture. When the measurement period for determining the conversion price of the 2022 Debenture was completed, we determined that the number of conversion shares to be issued to Ionic upon automatic conversion of the 2022 Debenture was 3,129,668 shares of our common stock. As of March 31, 2023, we had issued an aggregate of 2,993,282 shares of common stock upon automatic conversion of the 2022 Debenture (inclusive of 898,854 shares that were issued during 2022), leaving a balance of 136,386 shares that remained to be issued, representing an obligation with a fair value of $0.2 million.

On March 14, 2023, we entered into a new debenture purchase agreement (the “2023 Debenture Purchase Agreement”) with Ionic pursuant to which we authorized the issuance and sale of two convertible subordinated debentures in the aggregate principal amount of approximately $2.8 million for an aggregate purchase price of $2.5 million. The first debenture is in the original principal amount of approximately $1.7 million for a purchase price of $1.5 million (the “First 2023 Debenture”), which was issued on March 14, 2023, and the second debenture is in the original principal amount of approximately $1.1 million for a purchase price of $1.0 million (the “Second 2023 Debenture” and collectively with the First Debenture, the “2023 Debentures”), which was issued on April 12, 2023. Upon issuance of the First 2023 Debenture, we initially estimated the obligation to issue common stock at approximately $2.5 million. As of March 31, 2023, the First 2023 Debenture had not been converted into any shares of common stock and we estimated that 2,232,590 shares would be issued upon conversion of the First 2023 Debenture, representing an obligation with a fair value of $3.1 million.

The 2023 Debentures accrue interest at a rate of 10% per annum, of which two years of interest is guaranteed and deemed earned in full on the first day following the issuance date. The interest rate on the 2023 Debentures increases to a rate of 15% per annum if the 2023 Debentures are not fully paid, converted or redeemed by the second anniversary of each debenture (each, a “Maturity Date”) or upon the occurrence of certain trigger events, including, but not limited to, the suspension from trading or the delisting of our common stock from Nasdaq for three consecutive trading days. If the 2023 Debentures are not fully paid or converted by their respective Maturity Dates, the original aggregate principal amount of the 2023 Debentures will be deemed to have been approximately $3.3 million from their issuance dates.

The 2023 Debentures automatically convert into shares of common stock at the earlier of (i) the effectiveness of the initial registration statement registering the resale of certain Registrable Securities as such term is defined in the Registration Rights Agreement (as defined below) including, without limitation, the shares issuable upon conversion of the 2023 Debentures (the “Conversion Shares”) (such registration statement, the “Resale Registration Statement”), and (ii) 181 days after the issuance date of each 2023 Debenture. The number of shares of common stock issuable upon conversion of each 2023 Debenture shall be determined by dividing the outstanding balance under each 2023 Debenture (including all accrued and unpaid interest and accrued and unpaid late charges, if any) by a conversion price that is the lower of (x) 80% (or 70% if our common stock is not then trading on Nasdaq) of the average of the two lowest VWAPs over a specified measurement period following the conversion date (the “Variable Conversion Price”), and (y) $1.40 (the “Fixed Conversion Price”), subject to full ratchet anti-dilution protection in the event we issue certain equity securities at a price below the then Fixed Conversion Price. The 2023 Debentures are unsecured and expressly junior to any of our existing or future debt obligations. Notwithstanding anything to the contrary, under no circumstances shall the Variable Conversion Price be less than the floor price of $0.20 as specified in the 2023 Debentures. Additionally, in the event of a bankruptcy, we are required to redeem the 2023 Debentures in cash in an amount equal to the then outstanding balance of the 2023 Debentures multiplied by 120%. The 2023 Debentures further provide that we will not effect the conversion of any portion of the 2023 Debentures, and the holder thereof will not have the right to a conversion of any portion of the 2023 Debentures, to the extent that after giving effect to such conversion, the holder together with its affiliates would beneficially own more than 4.99% of the outstanding shares of our common stock immediately after giving effect to such conversion. Furthermore, we may not issue shares of common stock underlying the 2023 Debentures if such issuance would require us to obtain stockholder approval under the Nasdaq rules or until such stockholder approval has been obtained.

Concurrently with entering into the 2023 Debenture Purchase Agreement, we also entered into a registration rights agreement with Ionic (the “2023 Registration Rights Agreement”), in which we agreed to file with the SEC one or more registration statements, as necessary, and to the extent permissible and subject to certain exceptions, to register under the

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Securities Act of 1933, as amended, the resale of the shares of our common stock issuable upon conversion of the 2023 Debentures and the shares of common stock that may be issued to Ionic if we fail to comply with our obligations in the 2023 Registration Rights Agreement. The 2023 Registration Rights Agreement requires that we file, within 15 calendar days after we file our 2022 Form 10-K, a resale registration statement and use commercially reasonable efforts to have such resale registration statement declared effective by the SEC on or before the earlier of (i) 90 days after signing of the 2023 Registration Rights Agreement (or 120 days if such registration statement is subject to full review by the SEC) and (ii) the 2nd business day after we are notified we will not be subject to further SEC review. If we fail to file or have the resale registration statement declared effective by the specified deadlines, then in each instance, we will issue to Ionic 150,000 shares of our common stock within two trading days after such failure, and with respect to the Conversion Shares, we will additionally pay in cash, as liquidated damages, an amount equal to 2% of the amount then currently outstanding under the 2023 Debentures for failure to file and have the Resale Registration Statement declared effective by the same deadlines set forth above for each 30-day period after each such failure.

Equity Line of Credit

The ELOC Purchase Agreement, as amended (see below), provides that, upon the terms and subject to the conditions and limitations set forth therein, we have the right to direct Ionic to purchase up to an aggregate of $50.0 million of shares of our common stock over the 36-month term of the ELOC Purchase Agreement. Under the ELOC Purchase Agreement, after the satisfaction of certain commencement conditions, including, without limitation, the effectiveness of a resale registration statement filed with the SEC registering such shares and that the 2022 Debenture shall have been fully converted into shares of common stock or shall otherwise have been fully redeemed and settled in all respects in accordance with the terms of the 2022 Debenture, we have the right to present Ionic with a purchase notice (each, a “Purchase Notice”) directing Ionic to purchase any amount up to $3.0 million of our common stock per trading day, at a per share price equal to 90% (or 80% if our common stock is not then trading on Nasdaq) of the average of the two lowest volume-weighted average prices (“VWAPs”) over a specified measurement period. With each purchase under the ELOC Purchase Agreement, we are required to deliver to Ionic an additional number of shares equal to 2.5% of the number of shares of common stock deliverable upon such purchase. The number of shares that we can issue to Ionic from time to time under the ELOC Purchase Agreement shall be subject to the condition that we will not sell shares to Ionic to the extent that Ionic, together with its affiliates, would beneficially own more than 4.99% of the outstanding shares of our common stock immediately after giving effect to such sale (the “Beneficial Ownership Limitation”).

In addition, Ionic will not be required to buy any shares of our common stock pursuant to a Purchase Notice on any trading day on which the closing trade price of our common stock is below $0.20 (as amended by the Letter Agreement, as defined below). We will control the timing and amount of sales of our common stock to Ionic. Ionic has no right to require any sales by us, and is obligated to make purchases from us as directed solely by us in accordance with the ELOC Purchase Agreement. The ELOC Purchase Agreement provides that we will not be required or permitted to issue, and Ionic will not be required to purchase, any shares under the ELOC Purchase Agreement if such issuance would violate Nasdaq rules, and we may, in our sole discretion, determine whether to obtain stockholder approval to issue shares in excess of 19.99% of our outstanding shares of common stock if such issuance would require stockholder approval under Nasdaq rules. Ionic has agreed that neither it nor any of its agents, representatives and affiliates will engage in any direct or indirect short-selling or hedging our common stock during any time prior to the termination of the ELOC Purchase Agreement.

The ELOC Purchase Agreement may be terminated by us at any time after commencement, at our discretion; provided, however, that if we sold less than $25.0 million to Ionic (other than as a result of our inability to sell shares to Ionic as a result of the Beneficial Ownership Limitation, our failure to have sufficient shares authorized or our failure to obtain stockholder approval to issue more than 19.99% of our outstanding shares), we will pay to Ionic a termination fee of $0.5 million, which is payable, at our option, in cash or in shares of common stock at a price equal to the closing price on the day immediately preceding the date of receipt of the termination notice. Further, the ELOC Purchase Agreement will automatically terminate on the date that we sell, and Ionic purchases, the full $50.0 million amount under the agreement or, if the full amount has not been purchased, on the expiration of the 36-month term of the ELOC Purchase Agreement.

On January 5, 2023, we and Ionic entered into a letter agreement (the “Letter Agreement”) which amended the ELOC Purchase Agreement. Under the Letter Agreement, the parties agreed, among other things, to (i) amend the floor price below which Ionic will not be required to buy any shares of our common stock under the ELOC Purchase Agreement from $0.25 to $0.20, determined on a post-reverse split basis, (ii) amend the per share purchase price for purchases under the ELOC Purchase Agreement to 90% of the average of the two lowest daily VWAPs over a specified measurement period, which will commence at the conclusion of the applicable measurement period related to the 2022 Debenture and (iii) waive certain requirements in the ELOC Purchase Agreement to allow for a one-time $0.5 million purchase under the ELOC Purchase Agreement.

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As partial consideration for the waiver to allow for the $0.5 million purchase by Ionic, we agreed to issue to Ionic that number of shares (the “Letter Agreement Shares”) equal to the difference between (x) the variable conversion price in the 2022 Debenture, and (y) the calculation achieved as a result of the following formula: 80% (or 70% if our common stock is not then trading on Nasdaq) of the lowest VWAP starting on the trading day immediately following the receipt of pre-settlement conversion shares following the date on which the 2022 Debenture automatically converts or other relevant date of determination and ending the later of (a) 10 consecutive trading days after (and not including) the Automatic Conversion Date (as defined in the ELOC Agreement) or such other relevant date of determination and (b) the trading day immediately after shares of our common stock in the aggregate amount of at least $13.9 million shall have traded on Nasdaq. Upon issuance of the purchase notice evidencing the ELOC Advance (defined below), we initially estimated the obligation to issue common stock at approximately $0.2 million. As of March 31, 2023, we had not issued any of our common stock in relation to the Letter Agreement Shares, leaving an estimated 200,715 shares to be issued, representing an obligation with a fair value of $0.3 million.

During January 2023, Ionic advanced $1.0 million dollars (the “ELOC Advance”) to us pursuant to the ELOC Agreement, as amended. Upon issuance of the purchase notice evidencing the ELOC Advance, we initially estimated the obligation to issue common stock at approximately $1.3 million. As of March 31, 2023, we had not issued any of our common stock in relation to the First 2023 Debenture, leaving an estimated 1,068,376 shares to be issued, representing an obligation with a fair value of $1.5 million.

Accounting for the Debentures and the ELOC

Using the guidance in ASC Topic 480, Distinguishing Liabilities from Equity, we evaluated the 2022 Debenture Purchase Agreement and its associated 2022 Debenture, the 2023 Debenture Purchase Agreement and its associated First 2023 Debenture, and the ELOC Purchase Agreement and its associated Letter Agreement and ELOC Advance, and determined that all represented obligations that must or may be settled with a variable number of shares, the monetary value of which was based solely or predominantly on a fixed monetary amount known at inception. Using a Level 3 input, we estimated the number of shares of our common stock that we would have to issue for each obligation and multiplied the estimated number of shares by the closing market price of our common stock on the measurement date to determine the fair value of the obligation. We then recorded the amount of the initial obligation in excess of the purchase price as finance cost. We remeasure each obligation at every balance sheet date until all shares representing the obligation have been issued, with the change in the amount of the obligation being recorded as finance cost. The following table shows the changes in our obligations to issue common stock (dollars in thousands):

	2022 Debenture		First 2023 Debenture		Letter Agreement		ELOC Advance		Total
Obligations to Issue Common Stock
Balance at December 31, 2022	$	1,892	$	—	$	—	$	—	$	1,892
Establishment of new obligation to issue shares	—		2,501		249		1,325		4,075
Issuance of Shares	(2,985)		—		—		—		(2,985)
Change in measurement of liability	1,279		558		26		139		2,002
Balance at March 31, 2023	$	186	$	3,059	$	275	$	1,464	$	4,984
Estimated Number of Shares Issuable
Balance at December 31, 2022	1,720,349		—		—		—		1,720,349
Change in estimated number of shares issuable	510,465		—		—		—		510,465
Establishment of new obligation to issue shares	—		2,232,590		200,715		1,068,376		3,501,681
Issuance of Shares	(2,094,428)		—		—		—		(2,094,428)
Balance at March 31, 2023	136,386		2,232,590		200,715		1,068,376		3,638,067

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The following table shows the composition of finance cost associated with our obligations to issue common stock (dollars in thousands):

	2022 Debenture		First 2023 Debenture		Letter Agreement		ELOC Advance		Total
Initial obligation in excess of purchase price	$	—	$	1,000	$	249	$	325	$	1,574
Change in measurement of liability	1,279		558		26		139		2,002
Total	$	1,279	$	1,558	$	275	$	464	$	3,576

NOTE 12. COMMITMENTS AND CONTINGENCIES

At March 31, 2023, we had no material commitments outside the normal course of business.

Contingencies

As of March 31, 2023, we were neither a defendant in any material pending legal proceeding nor are we aware of any material threatened claims against us and, therefore, we have not accrued any contingent liabilities.

Registration Rights Agreement

On September 27, 2021, we entered into a securities purchase agreement (the “Armistice Purchase Agreement”) with Armistice Capital Master Fund Ltd. (“Armistice Capital”) pursuant to which we issued shares of our common stock together with warrants to purchase our common stock, subject to certain customary anti-dilution adjustments (the “Armistice Warrants”).

In connection with our entry into the Armistice Purchase Agreement, we also entered into a registration rights agreement with Armistice Capital, pursuant to which we were obligated to file one or more registration statements, as necessary, to register under the Securities Act of 1933, as amended, the resale of the shares we issued to Armistice Capital and the shares underlying the Armistice Warrants (collectively, the “Armistice Registrable Securities”) and to obtain effectiveness of such registration statement no later than 90 days following September 27, 2021. The registration rights agreement provided that if we failed to satisfy our obligation to timely obtain effectiveness, we would incur a penalty of as much as $1.0 million. The registration statement to register the resale of the Armistice Registrable Securities was declared effective on October 31, 2022. We had accrued the maximum penalty and, as of December 31, 2022, paid $0.2 million of such amount, resulting in an unpaid amount of $0.8 million included in other accrued expense during the three months ended March 31, 2023.

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NOTE 13. STOCKHOLDERS' EQUITY (DEFICIT)

Warrants

The following table summarizes information related to our equity-classified stock warrant issuances as of and for the dates and periods noted:

	Shares	Weighted Average Exercise Price Per Share		Weighted-Average Remaining Contractual Term	Aggregate Intrinsic Value (in thousands)
Outstanding at December 31, 2022	1,011,441	$	40.10	3.7	$	—
Granted	—	—
Exercised	—	—
Forfeited, cancelled or expired	—	—
Outstanding at March 31, 2023	1,011,441	$	40.10	3.4	$	—

Share-Based Compensation 

We are authorized to issue equity-based awards under our 2014 Incentive Plan, our 2017 Incentive Plan and our 2022 Incentive Plan, each of which our stockholders have approved. We also award cash bonuses (“China Cash Bonuses”) to our employees in China, which grants are not subject to a formal incentive plan and which can only be settled in cash. We grant such awards to attract, retain and motivate eligible officers, directors, employees and consultants. Under each of the plans, we have granted shares of restricted stock and options to purchase common stock to our officers and employees with exercise prices equal to or greater than the fair value of the underlying shares on the grant date.

Stock options and China Cash Bonuses generally expire 10 years from the grant date. All forms of equity awards and China Cash Bonuses vest upon the passage of time, the attainment of performance criteria, or both. When participants exercise stock options, we issue any shares of our common stock resulting from such exercise from new authorized and unallocated shares available at the time of exercise.

The following table summarizes activity under our equity incentive plans related to equity-classified stock option grants as of and for the dates and periods noted:

	Shares	Weighted Average Exercise Price Per Share		Weighted-Average Remaining Contractual Term	Aggregate Intrinsic Value (in thousands)
Outstanding at December 31, 2022	1,626,631	$	30.31	5.5	$	1
Granted	—	—
Exercised	—	—
Forfeited, cancelled or expired	(285)	12.50
Outstanding at March 31, 2023	1,626,346	$	30.31	5.2	$	12
Exercisable at December 31, 2022	1,549,681	31.41		5.3	$	1
Exercisable at March 31, 2023	1,589,946	30.96		5.1	$	6

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The following table summarizes activity related to our liability-classified China Cash Bonuses as of and for the dates and periods noted:

	Shares	Weighted Average Exercise Price Per Share		Weighted-Average Remaining Contractual Term	Aggregate Intrinsic Value (in thousands)
Outstanding at December 31, 2022	71,450	$	35.99	6.1	$	—
Granted	—	—
Exercised	—	—
Forfeited, cancelled or expired	—	—
Outstanding at March 31, 2023	71,450	$	35.99	5.9	$	—
Exercisable at December 31, 2022	68,450	36.97		6.1	$	—
Exercisable at March 31, 2023	71,450	35.99		5.9	$	—

The following table presents the change in the liability associated with our China Cash Bonuses included in Accrued expense and other current liabilities (in thousands):

	Three Months Ended March 31,		Year Ended December 31,
	2023		2022
Balance at beginning of period	$	32	$	439
Share-based compensation expense related to China Cash Bonuses	12		(407)
Balance at end of period	$	44	$	32

The following table presents a breakdown of share-based compensation cost included in operating expense (in thousands):

	Three Months Ended March 31,
	2023		2022
Stock options	$	143	$	514
China Cash Bonuses	12		(85)
Total	$	155	$	429

We record share-based compensation expense in the books of the subsidiary that incurs the expense, while for equity-classified stock options we record the change in additional paid-in capital on the corporate entity because the corporate entity’s equity underlies such stock options.

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The following table presents information regarding unrecognized share-based compensation cost associated with stock options and China Cash Bonuses:

	March 31, 2023
Unrecognized share-based compensation cost for non-vested awards (in thousands):
Stock options	55
China Cash Bonuses	—
Weighted-average years over which unrecognized share-based compensation expense will be recognized:
Stock options	1.9
China Cash Bonuses	0

NOTE 14. RELATED PARTY TRANSACTIONS

As of March 31, 2023, we owed approximately $1.2 million to members of management representing various operating expense payments made on our behalf.

NOTE 15. CHINA BUSINESS PARTNER

We interact with an unrelated entity (the “China Business Partner”) in more than one capacity. Firstly, since 2020, we have been working with the China Business Partner to earn revenue by obtaining business from some of the largest companies in China. Secondly, our artificial intelligence business in the U.S. has purchased substantially all of its inventory from a subsidiary of the China Business Partner which manufactures certain equipment to our specifications; though, during the three months ended March 31, 2023, we did not make any such purchases. In addition, a member of our senior leadership team maintains a role in the senior management structure of the China Business Partner.

During the three months ended March 31, 2023 and 2022, we recognized approximately $0.1 million and $2.2 million, respectively, of revenue from the relationship with the China Business Partner. At March 31, 2023 and December 31, 2022, in addition to the outstanding accounts receivable balances from the China Business Partner described in Note 5, we had outstanding accounts payable to the China Business Partner of $0.7 million and $0.7 million, respectively.

NOTE 16. SUBSEQUENT EVENTS

Ionic Transactions

On May 4, 2023, we issued 136,386 shares to Ionic in final settlement of our obligation to issue shares under the 2022 Debenture and 200,715 shares in final settlement of our obligation to issue the Letter Agreement Shares. On May 5, 2023, we issued 378,965 shares to Ionic in partial settlement of our obligation to issue shares related to the ELOC Advance.

Failure to Maintain Continued Listing Standards

On April 27, 2023, we received a written notice from the Nasdaq Listing Qualifications Department notifying us that, pursuant to Nasdaq Listing Rule 5550(b)(3), we are required to maintain a minimum of $500,000 in net income from continuing operations in the most recently completed fiscal year, or two of the last three fiscal years (the “Net Income Standard”). Since our 2022 Form 10-K reported net loss from continuing operations, and as of April 25, 2023, we did not meet the alternative continued listing standards (collectively, with the Net Income Standard, the “Continued Listing Standards”) under Nasdaq Listing Rule 5550(b) of a minimum stockholders' equity of $2.5 million or minimum market value of listed securities of $35 million, we no longer comply with the Continued Listing Standards.

In accordance with Nasdaq Listing Rule 5810(c)(2)(A), we have 45 calendar days, or until June 12, 2023, to submit a plan to regain compliance with the Continued Listing Standards (the “Cure Period”). If the Nasdaq Listing Qualifications Department accepts our plan, they can grant us an extension of up to 180 calendar days from April 27, 2023 to evidence

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compliance. If the Nasdaq Listing Qualifications Department does not accept our plan, we can appeal such decision to the Nasdaq Hearings Panel.

Our common stock will continue to be listed and traded on Nasdaq during the Cure Period, subject to our compliance with the other continued listing requirements of Nasdaq.

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ITEM 2.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read our discussion and analysis of our financial condition and results of operations for the three months ended March 31, 2023 in conjunction with our 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 Business, Risk Factors and Special Note Regarding Forward-Looking Statements in this Form 10-Q.

OVERVIEW

We are a diversified global technology business with leading AI and data-analytics, as well as a portfolio of digital media properties.

OUR BUSINESS

Corporate Structure

We are a holding company incorporated in Delaware and not a Chinese operating company. As a holding company, we conduct most of our operations through our subsidiaries, each of which is wholly owned. We have historically conducted a significant part of our operations through contractual arrangements between our WFOE and certain VIEs based in China to address challenges resulting from laws, policies and practices that may disfavor foreign-owned entities that operate within industries deemed sensitive by the Chinese government. We were the primary beneficiary of the VIEs because the contractual arrangements governing the relationship between the VIEs and our WFOE, which included an exclusive call option agreement, exclusive business cooperation agreement, a proxy agreement and an equity pledge agreement, enabled us to (i) exercise effective control over the VIEs, (ii) receive substantially all of the economic benefits of the VIEs, and (iii) have an exclusive call option to purchase, at any time, all or part of the equity interests in and/or assets of the VIEs to the extent permitted by Chinese laws. Because we were the primary beneficiary of the VIEs, we consolidated the financial results of the VIEs in our consolidated financial statements in accordance with GAAP.

We terminated all of the contractual arrangements between the WFOE and the VIEs and exercised our rights under the exclusive call option agreements between the WFOE and the VIEs such that, effective as of September 19, 2022, we obtained 100% of the equity ownership of the entities we formerly consolidated as VIEs and which we now consolidate as wholly-owned subsidiaries.

The following diagram illustrates our corporate structure, including our significant subsidiaries, as of the date of this Form 10-Q. The diagram omits certain entities which are immaterial to our results of operations and financial condition.

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We are subject to certain legal and operational risks associated with having a significant portion of our operations in China. Chinese laws and regulations governing our current business operations, including the enforcement of such laws and regulations, are sometimes vague and uncertain and can change quickly with little advance notice. The Chinese government may intervene in or influence the operations of our China-based subsidiaries at any time and may exert more control over offerings conducted overseas and/or foreign investment in China-based issuers, which could result in a material change in our operations and/or the value of our securities. In addition, any actions by the Chinese government to exert more oversight and control over offerings that are conducted overseas and/or foreign investment in China-based issuers could significantly limit or completely hinder our ability to offer or continue to offer our securities to investors and cause the value of such securities to

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significantly decline or become worthless. In recent years, the Chinese government adopted a series of regulatory actions and issued statements to regulate business operations in China, including those related to the use of variable interest entities, cybersecurity, data security, export control and anti-monopoly concerns. As of the date of this Form 10-Q, we have neither been involved in any investigations on cybersecurity review initiated by any Chinese regulatory authority, nor received any inquiry, notice or sanction. As of the date of this Form 10-Q, no relevant laws or regulations in China explicitly require us to seek approval from the CSRC for any securities listing. As of the date of this Form 10-Q, we have not received any inquiry, notice, warning or sanctions regarding our planned overseas listing from the CSRC or any other Chinese governmental authorities relating to securities listings. However, since these statements and regulatory actions are newly published, official guidance and related implementation rules have not all been issued. It is highly uncertain what potential impact such modified or new laws and regulations will have on our ability to conduct our business, accept investments or list or maintain a listing on a U.S. or foreign exchange.

As of the date of this Form 10-Q, we are not required to seek permissions from the CSRC, the CAC or any other entity that is required to approve our operations in China. Nevertheless, Chinese regulatory authorities may in the future promulgate laws, regulations or implement rules that require us or our subsidiaries to obtain permissions from such regulatory authorities to approve our operations or any securities listing.

Holding Foreign Companies Accountable Act

The HFCA Act was enacted on December 18, 2020. The HFCA Act states that if the SEC determines that a company has filed audit reports issued by a registered public accounting firm that has not been subject to inspection by the PCAOB for three consecutive years beginning in 2021, the SEC shall prohibit such shares from being traded on a national securities exchange or in the over the counter trading market in the United States. On December 2, 2021, the SEC adopted amendments to finalize rules implementing the submission and disclosure requirements in the HFCA Act. The rules apply to registrants that the SEC identifies as having filed an annual report with an audit report issued by a registered public accounting firm that is located in a foreign jurisdiction and that the PCAOB is unable to inspect or investigate completely because of a position taken by an authority in a foreign jurisdiction. The Consolidated Appropriations Act, 2023, which was signed into law on December 29, 2022, amended the HFCA Act to reduce the number of consecutive non-inspection years required to trigger the trading prohibition under the HFCA Act from three years to two years.

On December 16, 2021, the PCAOB issued a report on its determination that it is unable to inspect or investigate completely PCAOB-registered public accounting firms headquartered in mainland China and in Hong Kong because of positions taken by Chinese and Hong Kong authorities in those jurisdictions.

On August 26, 2022, the CSRC, the Ministry of Finance of the PRC, and the PCAOB signed the Protocol, taking the first step toward opening access for the PCAOB to completely inspect and investigate registered public accounting firms headquartered in mainland China and Hong Kong.

On December 15, 2022, the PCAOB vacated its 2021 determination that the positions taken by authorities in mainland China and Hong Kong prevented it from inspecting and investigating completely registered public accounting firms headquartered in those jurisdictions. In view of the PCAOB’s decision to vacate its 2021 determination and until such time as the PCAOB issues any new adverse determination, the SEC has stated that there are no issuers at risk of having their securities subject to a trading prohibition under the HFCA Act. Each year, the PCAOB will reassess its determinations on whether it can inspect and investigate completely audit firms in China, and if, in the future, the PCAOB determines it cannot do so, or if Chinese authorities do not allow the PCAOB complete access for inspections and investigations for two consecutive years, companies engaging China-based public accounting firms would be delisted pursuant to the HFCA Act.

Our auditor, Weinberg & Company, an independent registered public accounting firm headquartered in the United States is currently subject to PCAOB inspections and has been inspected by the PCAOB on a regular basis. However, if the PCAOB is unable to inspect the work papers of our accounting firm in the future, such lack of inspection could cause trading in our common stock to be prohibited under the HFCA Act, and as a result, an exchange may determine to delist our common stock. The delisting and the cessation of trading of our common stock, or the threat of our common stock being delisted and prohibited from being traded, may materially and adversely affect the value of our common stock.

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Transfer of Cash or Assets

Dividend Distributions

As of the date of this Form 10-Q, none of our subsidiaries have made any dividends or distributions to Remark.

We have never declared or paid dividends or distributions on our common equity. We currently intend to retain all available funds and any future consolidated earnings to fund our operations and continue the development and growth of our business; therefore, we do not anticipate paying any cash dividends.

Under Delaware law, a Delaware corporation’s ability to pay cash dividends on its capital stock requires the corporation to have either net profits or positive net assets (total assets less total liabilities) over its capital. If we determine to pay dividends on any of our common stock in the future, as a holding company, we may rely on dividends and other distributions on equity from our subsidiaries for cash requirements, including the funds necessary to pay dividends and other cash contributions to our stockholders.

Our WFOE’s ability to distribute dividends is based upon its distributable earnings. Current Chinese regulations permit our WFOE to pay dividends to its shareholder only out of its registered capital amount, if any, as determined in accordance with Chinese accounting standards and regulations, and then only after meeting the requirement regarding statutory reserve. If our WFOE incurs debt in the future, the instruments governing the debt may restrict its ability to pay dividends or make other payments to us. Any limitation on the ability of our WFOE to distribute dividends or other payments to us could materially and adversely limit our ability to grow, make investments or acquisitions that could be beneficial to our businesses, pay dividends or otherwise fund and conduct our business. In addition, any cash dividends or distributions of assets by our WFOE to its stockholder are subject to a Chinese withholding tax of as much as 10%.

The Chinese government also imposes controls on the conversion of RMB into foreign currencies and the remittance of currencies out of China. Therefore, we may experience difficulties in completing the administrative procedures necessary to obtain and remit foreign currency for the payment of dividends from our profits, if any. If we are unable to receive all of the revenues from our operations through our China-based subsidiaries, we may be unable to pay dividends on our common stock.

AI Business

We generate revenue by using the proprietary data and AI software platform we developed to deliver AI-based computer vision products, computing devices and software-as-a-service solutions for businesses in many industries. We continue to partner with top universities on research projects targeting algorithm, artificial neural network and computing architectures which we believe will keep us among the leaders in technology development.

The primary focus of our business is promoting and facilitating the safety of our customers and their customers through our Smart Safety Platform (the “SSP”). The SSP, having won numerous industry and government benchmark tests for accuracy and speed, is a leading software solution for using computer vision to detect persons, objects and behavior in video feeds. Real-time alerts from the SSP allow operations staff to respond rapidly to prevent any events or activities that can endanger public security or workplace safety.

We deploy the SSP to integrate with each customer’s IT infrastructure, including, in many cases, cameras already in place at the customer’s location(s). When necessary, we also sell and deploy hardware to create or supplement the customer’s monitoring capabilities. Such hardware includes, among other items, cameras, edge computing devices and/or our Smart Sentry units. The Smart Sentry is a large mobile camera unit with a telescoping mast on which a high-quality camera is mounted. Based upon customer needs, the camera may have either standard vision and/or thermal vision capability. The camera works in conjunction with an edge computing device that is also mounted to the unit. The Smart Sentry is an example of how we incorporate the SSP in modern IT architectural concepts, including edge computing and micro-service architectures. Edge computing, for example, allows the SSP to conduct expensive computing tasks at distributed locations without requiring large data transmission over the internet, thereby dramatically reducing costs while integrating numerous and varied sensors at distributed locations.

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We customize and sell our innovative AI-based computer vision products and solutions, including the SSP, to customers in the retail, construction, public safety, workplace safety and public sector markets. We have also developed versions of our solutions for application in the transportation and energy markets.

Overall Business Outlook

The innovative AI and data analytics solutions we sell continue to gain worldwide awareness and recognition through media exposure, comparative testing, product demonstrations and word of mouth resulting from positive customer experiences. 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. 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. In addition, we may face a large number of well-known competitors which would make deploying our software solutions in the market segments we have identified difficult.

Inflation and Supply Chain

Other than the impact of inflation on the general economy, we do not believe that inflation has had a material effect on our operations to date. However, there is a risk that our operating costs could be subject to inflationary pressures in the future, which would have the effect of increasing our operating costs and cause additional stress on our working capital resources.

We have not experienced any supply chain disruptions that have had a material effect on our operations to date. However, as we work to increase our sales of the SSP in the U.S. and thereby expand our business, we could be subjected to the risk of supply chain disruptions with regard to high-technology products such as servers and related equipment that we use to train our AI software algorithms and which we plan to sell to customers to support operation of the SSP.

Business Developments During 2023

China’s response to the COVID-19 pandemic, known as the Zero-COVID policy, included lockdowns and/or other severe restrictions on business and daily life in China, which made it difficult for us to interact with our clients and vendors through at least December 2022. Such preventative measures have had lingering effects which made it difficult for us to complete many projects in China during the first quarter of 2023. Our customers are only slowly beginning to make the decisions to restart stalled projects or begin new ones. The majority of our completed work was related to a large telecommunications provider in China. We expect project completions in China to begin to accelerate towards the latter half of the second quarter and into the third quarter of 2023 as our customers begin to restart projects that were placed on hold during the Zero-COVID policy and initiate new projects that had been on the drawing board when the Zero-COVID policy preventative measures went into effect early 2022.

As we work with customers and partners in China to ramp up business again, we have been working diligently to advance our interests in several large public safety products in the U.S., while our U.K. team has continued to support our U.S. project acquisition efforts as well as develop revenue-generating projects in the U.K. Additionally, we have been developing certain opportunities in South America which could allow us to gain a foothold in that market. All of such efforts to establish ourselves in the U.S., South America and the U.K. have caused increases in various business development expenses, but we expect such efforts to lead to a diversification of our business outside of China and reduce the concentrations in our revenue and associated accounts receivable.

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The following table presents our revenue categories as a percentage of total consolidated revenue during the three months ended March 31, 2023 and 2022.

	Three Months Ended March 31,
	2023		2022
AI-based products and services	87	%	97	%
Advertising and other	13	%	3	%

CRITICAL ACCOUNTING POLICIES

During the three months ended March 31, 2023, we made no material changes to our critical accounting policies as we disclosed them in Part II, Item 7 of our 2022 Form 10-K.

RESULTS OF OPERATIONS

The following tables summarize our operating results for the three months ended March 31, 2023, and the discussion following the table explains material changes in such operating results compared to the three months ended March 31, 2022.

(dollars in thousands)	Three Months Ended March 31,				Change
	2023		2022		Dollars		Percentage
Revenue, including amounts from China Business Partner	$	826	$	4,667	$	(3,841)	(82)	%
Cost of revenue	455		4,270		(3,815)		(89)	%
Sales and marketing	366		148		218		147	%
Technology and development	169		455		(286)		(63)	%
General and administrative	2,833		3,939		(1,106)		(28)	%
Depreciation and amortization	46		41		5		12	%
Interest expense	(1,544)		(2,186)		642		(29)	%
Finance cost related to obligations to issue common stock	(3,576)		—		(3,576)
Loss on investment	—		(19,056)		19,056		(100)	%
Other gain (loss), net	1		(1)		2		(200)	%
Net loss	(8,162)		(25,429)		17,267		(68)	%

Revenue and Cost of Revenue. During the three months ended March 31, 2023, we were unable to complete many projects in China due to the slow and methodical business and economic recovery efforts that are ongoing after China lifted most of its onerous COVID-19 related restrictions at the end of 2022, while in the same period of the prior year we were able to complete numerous projects, including projects associated with our work with an unrelated entity (our China Business Partner).

Cost of revenue during the three months ended March 31, 2023 decreased in conjunction with the U.S. revenue decreases described above.

Technology and development. During the three months ended March 31, 2023, we recorded a refundable tax credit of approximately $0.5 million we received from the government of the United Kingdom resulting from our research and

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development activities in its jurisdiction during the 2022 tax year. During 2022, we did not receive the similar tax credit of approximately $0.6 million related to the 2021 tax year until May 2022.

General and administrative. During the three months ended March 31, 2023, we experienced a decrease of approximately $0.7 million in certain expenses related to business development, including short-term work space rentals and consulting. Our share-based compensation expense decreased by $0.3 million due to a large batch of stock options with a grant date of July 8, 2021 becoming fully expensed in January 2023, in comparison to having a full three months of expense recognition during the three months ended March 31, 2022.

Interest expense. We executed the Original Mudrick Loan Agreements in December 2021, pursuant to which we obtained the Original Mudrick Loans in the aggregate principal amount of $30.0 million. During the three months ended March 31, 2022, we recorded in interest expense approximately $1.1 million of amortization of debt discount and debt issuance cost related to the Original Mudrick Loans, but did not have any such amortization during the three months ended March 31, 2023 because the debt discount and debt issuance cost were fully amortized during 2022. Interest expense also decreased because significantly less debt principal was outstanding on the Original Mudrick Loans during the three months ended March 31, 2023 than during the same period of the prior year, even though the interest rate had increased from 16.5% to 20.5%. Partially offsetting the decreases in interest expense was the amendment and extension fee of approximately $0.8 million we recorded in relation to our entry on March 14, 2023 into the New Mudrick Loan Agreement described, along with the Original Mudrick Loan Agreements, in Note 10 in the Notes to Unaudited Condensed Consolidated Financial Statements included in this Form 10-Q.

Finance Cost Related to Obligations to Issue Common Stock. The finance cost during the three months ended March 31, 2023 resulted from the establishment and remeasurement of obligations to issue our common stock that we incurred in relation to our transactions with Ionic pursuant to the Debenture Purchase Agreement, the Letter Agreement and the ELOC Purchase Agreement, each of which is described in Note 11 in the Notes to Unaudited Condensed Consolidated Financial Statements included in this Form 10-Q, that we entered into on October 6, 2022, January 5, 2023 and October 6, 2022, respectively. We had no similar transaction during the three months ended March 31, 2022.

Gain (loss) on investment. On July 1, 2021, as the result of a business combination involving a U.S.-based venture, Sharecare, Inc. (“Legacy Sharecare”) and Falcon Capital Acquisition Corp., a special purpose acquisition company, the common stock of the surviving entity of such business combination (“New Sharecare”) became listed on the Nasdaq Stock Market LLC and our equity in Legacy Sharecare converted into cash and shares of publicly traded common stock of New Sharecare. As a result of the common stock of New Sharecare being traded on a national securities exchange, we were able to remeasure our investment at fair value. Since July 1, 2021, the value of the New Sharecare stock steadily declined, which caused the loss of $19.0 million during the three months ended March 31, 2022. On July 11, 2022, we delivered our remaining 6,250,000 shares of New Sharecare to our lender at their request and, as a result, we did not maintain investments during the three months ended March 31, 2023.

LIQUIDITY AND CAPITAL RESOURCES

Overview

During the three months ended March 31, 2023, and in each fiscal year since our inception, we have incurred net losses which have resulted in a stockholders’ deficit of $25.8 million as of March 31, 2023. Additionally, our operations have historically used more cash than they have provided. Net cash used in operating activities was $2.1 million during the three months ended March 31, 2023. As of March 31, 2023, our cash balance was $0.4 million.

Mudrick Loans

On December 3, 2021, we entered into the Original Mudrick Loan Agreements pursuant to which we incurred the Original Mudrick Loans in the aggregate principal amount of $30.0 million. The Original Mudrick Loans initially bore interest at 16.5% per annum until the original maturity date of July 31, 2022 and, following an amendment we entered into with Mudrick in August 2022, bore interest at 18.5% per annum. The amendment also extended the maturity date of the Original Mudrick Loans from July 31, 2022 to October 31, 2022. However, we did not make the required repayment of the Original Mudrick Loans by October 31, 2022, which constituted an event of default under the Original Mudrick Loans and triggered an increase in the interest rate under the Original Mudrick Loans to 20.5%.

Table of Contents 33

On March 14, 2023, we entered into the New Mudrick Loan Agreement pursuant to which all of the Original Mudrick Loans were cancelled in exchange for the New Mudrick Notes in the aggregate principal amount of approximately $16.3 million. The New Mudrick Notes bear interest at a rate of 20.5% per annum, which shall be payable on the last business day of each month commencing on May 31, 2023. The interest rate will increase by 2% and the principal amount outstanding under the New Mudrick Notes and any unpaid interest thereon may become immediately due and payable upon the occurrence of any event of default under the New Mudrick Loan Agreement. All amounts outstanding under the New Mudrick Notes, including all accrued and unpaid interest, will be due and payable in full on October 31, 2023. See Note 10 in the Notes to Unaudited Condensed Consolidated Financial Statements included in this Form 10-Q for additional information regarding the New Mudrick Notes.

To secure the payment and performance of the obligations under the Original Mudrick Loan Agreements and the New Mudrick Loan Agreement, we, together with the Guarantors, have granted to TMI Trust Company, as the collateral agent for the benefit of Mudrick, a first priority lien on, and security interest in, all assets of Remark and the Guarantors, subject to certain customary exceptions.

In connection with our entry into the Original Mudrick Loan Agreements, we paid to Mudrick an upfront fee equal to 5.0% of the amount of the Original Mudrick Loans, which amount was netted against the drawdown of the Original Mudrick Loans. We recorded the upfront fee as a debt discount of $1.5 million, and recorded debt issuance cost totaling $1.1 million. We amortized the discount on the Original Mudrick Loans and the debt issuance cost over the life of the Original Mudrick Loans and, during the year ended December 31, 2022, we amortized $2.2 million of such discount and debt issuance cost. In consideration for the amendment we entered into with Mudrick in August 2022, we paid Mudrick an amendment and extension fee in the amount of 2.0% of the then unpaid principal balance of the Original Mudrick Loans, which was approximately $0.3 million, by adding such amount to the principal balance of the Original Mudrick Loans.

As of the date of this Form 10-Q, the principal amount outstanding, together with interest on the unpaid principal balance of the New Mudrick Notes, is $16.3 million.

Ionic Transactions

On October 6, 2022, we entered into the 2022 Debenture Purchase Agreement with Ionic, pursuant to which we issued the 2022 Debenture to Ionic for a purchase price of $2.5 million.

In connection with the 2022 Debenture, on October 6, 2022, we also entered into the ELOC Purchase Agreement, which provides that, upon the terms and subject to the conditions and limitations set forth therein, we have the right to direct Ionic to purchase up to an aggregate of $50.0 million of shares of our common stock over the 36-month term of the ELOC Purchase Agreement. Under the ELOC Purchase Agreement, after the satisfaction of certain commencement conditions, we have the right to present Ionic with a purchase notice directing Ionic to purchase any amount up to $3.0 million of our common stock per trading day, at the purchase price equal to 90% (or 80% if our common stock is not then trading on Nasdaq) of the average of the five lowest VWAPs of our common stock over a specified measurement period. With each purchase under the ELOC Purchase Agreement, we are required to deliver to Ionic an additional number of shares equal to 2.5% of the number of shares of common stock deliverable upon such purchase.

On November 7, 2022, we entered into an amendment to the 2022 Debenture Purchase Agreement with Ionic, pursuant to which we and Ionic agreed to amend and restate the 2022 Debenture to provide that (i) in no event will the conversion price under the 2022 Debenture be below a floor price of $0.10 (such price, as may be appropriately adjusted for any stock dividend, stock split, stock combination or other similar transaction, the “Floor Price”), and (ii) in the event the actual conversion price is less than the Floor Price, (A) Ionic will be entitled to that number of settlement conversion shares issuable with an assumed conversion price equal to the Floor Price, and (B) we will be required to make a cash payment to Ionic on or prior to the maturity date of an amount that is calculated by subtracting the number of shares of common stock issuable at an assumed conversion price equal to the Floor Price from the number of shares of common stock issuable at the actual conversion price, multiplied by a price equal to the average of the ten lowest VWAPs during the specified measurement period.

On January 5, 2023, we and Ionic entered the Letter Agreement which amended the ELOC Purchase Agreement. Under the Letter Agreement, the parties agreed, among other things, to (i) amend the floor price below which Ionic will not be required to buy any shares of our common stock under the ELOC Purchase Agreement from $0.25 to $0.20, determined on a post-reverse split basis, (ii) amend the per share purchase price for purchases under the ELOC Purchase Agreement to 90% of the average of the two lowest daily VWAPs over a specified measurement period, which will commence at the conclusion of the applicable measurement period related to the 2022 Debenture and (iii) waive certain requirements in the ELOC Purchase Agreement to allow for a one-time $0.5 million purchase under the ELOC Purchase Agreement.

Table of Contents 34

On March 14, 2023, we entered into the 2023 Debenture Purchase Agreement with Ionic pursuant to which we authorized the issuance and sale of two convertible subordinated debentures in the aggregate principal amount of approximately $2.8 million for an aggregate purchase price of $2.5 million. The first debenture is in the original principal amount of approximately $1.7 million for a purchase price of $1.5 million, which was issued on March 14, 2023, and the second debenture is in the original principal amount of approximately $1.1 million for a purchase price of $1.0 million.

See Note 11 in the Notes to Unaudited Condensed Consolidated Financial Statements included in this Form 10-Q for additional detail on the Ionic transactions.

General

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 from our AI offerings, 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.

Conditions in the debt and equity markets, as well as the volatility of investor sentiment regarding macroeconomic and microeconomic conditions (in particular, as a result of the COVID-19 pandemic, global supply chain disruptions, inflation and other cost increases, and the geopolitical conflict in Ukraine), will play primary roles in determining whether we can successfully obtain additional capital.

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 and based on the probable success of one or more of the following plans:

•develop and grow new product line(s)

•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 June 30, 2023.

Cash Flows - Operating Activities

During the three months ended March 31, 2023, we used $6.6 million less cash in operating activities than we did during the same period of the prior year. The decrease in cash used in operating activities is primarily the result of the timing of payments related to elements of working capital.

Cash Flows - Investing Activities

Investing activities during the three months ended March 31, 2023 were de minimis, while the same period during 2022 provided $1.8 million in proceeds from the sale of a portion of our marketable securities.

Table of Contents 35

Cash Flows - Financing Activities

During the three months ended March 31, 2023, we received $1.5 million from the issuance of a convertible debenture and advances totaling $1.0 million under the ELOC Purchase Agreement, while the prior year period’s financing activity included $3.7 million repayments of debt.

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.

ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

ITEM 4.    CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We maintain a set of disclosure controls and procedures designed to provide reasonable assurance that the information we must disclose in reports we file or submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms. We designed our disclosure controls with the objective of ensuring we accumulate and communicate this information to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of the design and operations of our disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) under Exchange Act, as of the end of the period covered by this report. Based upon that evaluation, our management, including our principal executive officer and principal financial officer, concluded that, because of the material weaknesses in our internal control over financial reporting related to: (i) insufficient documentary evidence that we had reviewed information underlying manual journal entries at a sufficient level of detail, (ii) insufficient documentation of our consideration of appropriate revenue recognition criteria for certain contracts arising from our AI business in China, (iii) an aggregation of deficiencies in our monitoring and activity-level controls related to processes in our AI business in China including accounts payable, accrued liabilities, payroll and fixed assets, and (iv) failure to retain documentary evidence of all inventory purchases and the insufficient evaluation of the impact of discounted sales transactions on the valuation of our inventory, all of which we described in our 2022 Form 10-K, our disclosure controls and procedures were not effective at a reasonable assurance level as of March 31, 2023.

Changes in Internal Control over Financial Reporting

In our 2022 Form 10-K, we disclosed that management had determined that material weaknesses in our internal control over financial reporting (described above) existed. As of the date of this report, the implementation of the plan developed by management to remediate the underlying causes of the material weaknesses and improve the design and operating effectiveness of internal control over financial reporting and our disclosure controls continues. Such implementation has been slowed by various factors, including the COVID-19 pandemic. As a result, there was no change in our internal control over financial reporting during such period that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Table of Contents 36

PART II

ITEM 1.    LEGAL PROCEEDINGS

None.

ITEM 1A.    RISK FACTORS

Investing in our common stock involves a high degree of risk. You should carefully consider the risk factors discussed in Part I, Item 1A of our 2022 Form 10-K, which could materially affect our business, financial condition or operating results. The risks described below and in our 2022 Form 10-K are not the only risks we face. Additional risks and uncertainties that we are unaware of may become important factors that affect us. If any of these risks actually occur, our business, financial condition or operating results may suffer, the trading price of our common stock could decline, and you may lose all or part of your investment.

ITEM 2.    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

On March 14, 2023, we issued a convertible subordinated debenture in the original principal amount of $1,667,000 to Ionic Ventures, LLC in a private placement for a purchase price of $1,500,000.

We made the offer and sale of securities in the above-described private placement in reliance upon an exemption from registration requirements pursuant to Section 4(a)(2) under the Securities Act of 1933, as amended, based upon representations made to us by the investor in a purchase agreement we entered into with the investor.

ITEM 3.    DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4.    MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5.    OTHER INFORMATION

None.

Table of Contents 37 Financial Statement Index

ITEM 6.    EXHIBITS

		Incorporated Herein By Reference To
Exhibit Number	Description	Document	Filed On	Exhibit Number
4.1	Form of Subordinated Convertible Debenture, dated as of March 14, 2023, by and between Remark Holdings, Inc. and Ionic Ventures, LLC.	8-K	03/16/2023	4.1
10.1	Letter Agreement, dated as of January 5, 2023, by and between Remark Holdings, Inc. and Ionic Ventures, LLC.	8-K	01/11/2023	10.1
10.2	Debenture Purchase Agreement, dated as of March 14, 2023, by and between Remark Holdings, Inc. and Ionic Ventures, LLC.	8-K	03/16/2023	10.1
10.3	Registration Rights Agreement, dated as of March 14, 2023, by and between Remark Holdings, Inc. and Ionic Ventures, LLC.	8-K	03/16/2023	10.2
10.4	Note Purchase Agreement, dated as of March 14, 2023, by and among Remark Holdings, Inc., certain of its subsidiaries party thereto, and Mudrick Capital Management, LP.	8-K	03/16/2023	10.3
31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002.
31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002.
32	Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes Oxley Act of 2002.
101	The following financial statements from our Quarterly Report on Form 10-Q for the quarter ended March 31, 2023, formatted in Inline XBRL: (i) Condensed Consolidated Balance Sheets as of March 31, 2023 and December 31, 2022; (ii) Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss for the three months ended March 31, 2023 and 2022; (iii) Unaudited Condensed Consolidated Statements of Stockholders’ Deficit for the three months ended March 31, 2023 and 2022; (iv) Unaudited Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2023 and 2022; and (v) Notes to Unaudited Condensed Consolidated Financial Statements.
104	The cover page from our Quarterly Report on Form 10-Q for the quarter ended March 31, 2023, formatted in Inline XBRL (included as Exhibit 101).

Table of Contents 38

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

			REMARK HOLDINGS, INC.
Date:	May 22, 2023	By:	/s/ Kai-Shing Tao
			Kai-Shing Tao
			Chairman and Chief Executive Officer
			(principal executive, financial and accounting officer)

Table of Contents 39

EX-31.1

EXHIBIT 31.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Kai-Shing Tao (the registrant's principal executive officer), certify that:

1.I have reviewed this Quarterly Report on Form 10-Q of Remark Holdings, Inc.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 22, 2023

By:	/s/ Kai-Shing Tao
	Kai-Shing Tao
	Chief Executive Officer and Chairman

EX-31.2

EXHIBIT 31.2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Kai-Shing Tao (the registrant's principal financial officer and principal accounting officer), certify that:

1.I have reviewed this Quarterly Report on Form 10-Q of Remark Holdings, Inc.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 22, 2023

By	/s/ Kai-Shing Tao
	Kai-Shing Tao
	Chief Executive Officer and Chairman

EX-32

EXHIBIT 32

CERTIFICATIONS OF PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Kai-Shing Tao, the registrant's principal executive, financial and accounting officer, certify that, to my knowledge:

1.the accompanying Quarterly Report on Form 10-Q for the period ended March 31, 2023 (the “Report”), fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and

2.the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Remark Holdings, Inc. at the dates and for the periods indicated.

Date: May 22, 2023

/s/ Kai-Shing Tao

Kai-Shing Tao

Chief Executive Officer and Chairman

XML

Cover Page - shares	3 Months Ended
	Mar. 31, 2023	May 19, 2023
Cover [Abstract]
Document Type	10-Q
Document Quarterly Report	true
Document Period End Date	Mar. 31, 2023
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Entity File Number	001-33720
Entity Registrant Name	Remark Holdings, Inc.
Entity Incorporation, State or Country Code	DE
Entity Tax Identification Number	33-1135689
Entity Address, Address Line One	800 S. Commerce St.
Entity Address, City or Town	Las Vegas
Entity Address, State or Province	NV
Entity Address, Postal Zip Code	89106
City Area Code	702
Local Phone Number	701-9514
Title of 12(b) Security	Common Stock, $0.001 par value per share
Trading Symbol	MARK
Security Exchange Name	NASDAQ
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Non-accelerated Filer
Entity Small Business	true
Entity Emerging Growth Company	false
Entity Shell Company	false
Entity Common Stock, Shares Outstanding		14,350,058
Entity Central Index Key	0001368365
Current Fiscal year End Date	--12-31
Document Fiscal Year Focus	2023
Document Fiscal Period Focus	Q1
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Condensed Consolidated Balance Sheets - USD ($) $ in Thousands	Mar. 31, 2023	Dec. 31, 2022
Assets
Cash	$ 364	$ 52
Trade accounts receivable, net	2,719	3,091
Inventory, net	309	308
Deferred cost of revenue	7,485	7,463
Prepaid expense and other current assets	1,275	1,374
Total current assets	12,152	12,288
Property and equipment, net	1,660	1,699
Operating lease assets	135	180
Other long-term assets	226	269
Total assets	14,173	14,436
Liabilities
Accounts payable	9,751	9,602
Advances from related parties	1,077	1,174
Obligations to issue common stock	4,984	1,892
Accrued expense and other current liabilities	7,139	7,222
Contract liability	481	308
Notes payable	16,488	14,607
Total current liabilities	39,920	34,805
Operating lease liabilities, long-term	30	56
Total liabilities	39,950	34,861
Commitments and contingencies
Stockholders’ Deficit
Preferred stock, 0.001 par value; 1,000,000 shares authorized; zero issued	0	0
Common stock, 0.001 par value; 175,000,000 shares authorized; 13,633,992 and 11,539,564 shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively	14	12
Additional paid-in-capital	372,071	368,945
Accumulated other comprehensive loss	(1,177)	(859)
Accumulated deficit	(396,685)	(388,523)
Total stockholders’ deficit	(25,777)	(20,425)
Total liabilities and stockholders’ deficit	$ 14,173	$ 14,436

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Condensed Consolidated Balance Sheets (Parenthetical) - $ / shares	Mar. 31, 2023	Dec. 31, 2022
Statement of Financial Position [Abstract]
Preferred stock, par value (in dollars per share)	$ 0.001	$ 0.001
Preferred stock, shares authorized (in shares)	1,000,000	1,000,000
Preferred stock, shares issued (in shares)	0	0
Common stock par value (in dollars per share)	$ 0.001	$ 0.001
Common stock, shares authorized (in shares)	175,000,000	175,000,000
Common stock, shares, issued (in shares)	13,633,992	11,539,564
Common stock, shares, outstanding (in shares)	13,633,992	11,539,564

XML

Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022
Income Statement [Abstract]
Revenue, including amounts from China Business Partner (See Note 15)	$ 826	$ 4,667
Cost and expense
Cost of revenue (excluding depreciation and amortization)	455	4,270
Sales and marketing	366	148
Technology and development	169	455
General and administrative	2,833	3,939
Depreciation and amortization	46	41
Total cost and expense	3,869	8,853
Operating loss	(3,043)	(4,186)
Other income (expense)
Interest expense	(1,544)	(2,186)
Finance cost related to obligations to issue common stock	(3,576)	0
Loss on investment	0	(19,056)
Other gain (loss), net	1	(1)
Total other expense, net	(5,119)	(21,243)
Loss before income taxes	(8,162)	(25,429)
Provision for income taxes	0	0
Net loss	(8,162)	(25,429)
Other comprehensive income
Foreign currency translation adjustments	(318)	2
Comprehensive loss	$ (8,480)	$ (25,427)
Weighted-average shares outstanding, basic (in shares)	13,004,071	10,515,777
Weighted-average shares outstanding, diluted (in shares)	13,004,071	10,515,777
Net income (loss) per share, basic (in dollars per share)	$ (0.63)	$ (2.42)
Net income (loss) per share, diluted (in dollars per share)	$ (0.63)	$ (2.42)

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Unaudited Condensed Consolidated Statements of Stockholders’ Equity (Deficit) - USD ($) $ in Thousands	Total	Common Stock	Additional Paid-In Capital	Accumulated Other Comprehensive Income (Loss)	Accumulated Deficit
Beginning balance (in shares) at Dec. 31, 2021		10,515,777
Beginning balance at Dec. 31, 2021	$ 31,034	$ 11	$ 364,333	$ (270)	$ (333,040)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net loss	(25,429)				(25,429)
Share-based compensation	514		514
Foreign currency translation	2			2
Ending balance (in shares) at Mar. 31, 2022		10,515,777
Ending balance at Mar. 31, 2022	$ 6,121	$ 11	364,847	(268)	(358,469)
Beginning balance (in shares) at Dec. 31, 2022	11,539,564	11,539,564
Beginning balance at Dec. 31, 2022	$ (20,425)	$ 12	368,945	(859)	(388,523)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net loss	(8,162)				(8,162)
Share-based compensation	$ 143		143
Common stock issuance upon note payable conversion (in shares)	2,094,428	2,094,428
Common stock issued upon note payable conversion	$ 2,985	$ 2	2,983
Foreign currency translation	$ (318)			(318)
Ending balance (in shares) at Mar. 31, 2023	13,633,992	13,633,992
Ending balance at Mar. 31, 2023	$ (25,777)	$ 14	$ 372,071	$ (1,177)	$ (396,685)

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Unaudited Condensed Consolidated Statements of Cash Flows - USD ($) $ in Thousands	3 Months Ended		12 Months Ended
	Mar. 31, 2023	Mar. 31, 2022	Dec. 31, 2022
Cash flows from operating activities:
Net loss	$ (8,162)	$ (25,429)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation, amortization and impairments	46	41
Share-based compensation	156	429
Cost of extending note payable	750	1,095
Finance cost related to obligations to issue common stock	3,576	0
Accrued interest included in note payable	1,139	0
Loss on investment	0	19,056
Provision for doubtful accounts	6	0
Other	(9)	43
Changes in operating assets and liabilities:
Accounts receivable	84	(1,052)
Inventory	(1)	(146)
Deferred cost of revenue	(22)	(4,176)
Prepaid expense and other assets	176	2,281
Operating lease assets	47	(52)
Accounts payable, accrued expense and other liabilities	(1)	(666)
Contract liability	162	(142)
Operating lease liabilities	(27)	30
Net cash used in operating activities	(2,080)	(8,688)
Cash flows from investing activities:
Proceeds from sale of investment	0	1,849
Purchases of property, equipment and software	(4)	(10)
Payment of amounts capitalized to software in progress	0	(949)
Net cash provided by (used in) investing activities	(4)	890
Cash flows from financing activities:
Proceeds from obligations to issue common stock - ELOC	1,000	0
Proceeds from obligations to issue common stock - Debentures	1,500	0
Advances from related parties	259	0
Repayments of advances from related parties	(355)	0
Repayments of debt	(8)	(3,698)
Net cash provided by (used in) financing activities	2,396	(3,698)
Net change in cash	312	(11,496)
Cash:
Beginning of period	52	14,187	$ 14,187
End of period	364	2,691	$ 52
Supplemental cash flow information:
Cash paid for interest	$ 250	$ 1,092

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ORGANIZATION AND BUSINESS

3 Months Ended

Mar. 31, 2023

Organization, Consolidation and Presentation of Financial Statements [Abstract]

ORGANIZATION AND BUSINESS

NOTE 1. ORGANIZATION AND BUSINESS

Organization and Business

Remark Holdings, Inc. and its subsidiaries (“Remark”, “we”, “us”, or “our”) constitute a diversified global technology business with leading artificial intelligence (“AI”) and data-analytics solutions. The common stock of Remark Holdings, Inc. is listed on the Nasdaq Capital Market (“Nasdaq”) under the ticker symbol MARK.

We primarily sell AI-based products and services. We currently recognize substantially all of our revenue from China, with additional revenue from sales in the U.S.

Corporate Structure

We are a holding company incorporated in Delaware and not a Chinese operating company. As a holding company, we conduct most of our operations through our subsidiaries, each of which is wholly owned. We have historically conducted a significant part of our operations through contractual arrangements between our wholly-foreign-owned enterprise (“WFOE”) and certain variable interest entities (“VIEs”) based in China to address challenges resulting from laws, policies and practices that may disfavor foreign-owned entities that operate within industries deemed sensitive by the Chinese government. We were the primary beneficiary of the VIEs because the contractual arrangements governing the relationship between the VIEs and our WFOE, which included an exclusive call option agreement, exclusive business cooperation agreement, a proxy agreement and an equity pledge agreement, enabled us to (i) exercise effective control over the VIEs, (ii) receive substantially all of the economic benefits of the VIEs, and (iii) have an exclusive call option to purchase, at any time, all or part of the equity interests in and/or assets of the VIEs to the extent permitted by Chinese laws. Because we were the primary beneficiary of the VIEs, we consolidated the financial results of the VIEs in our consolidated financial statements in accordance with generally accepted accounting principles (“GAAP”).

We terminated all of the contractual arrangements between the WFOE and the VIEs and exercised our rights under the exclusive call option agreements between the WFOE and the VIEs such that, effective as of September 19, 2022, we obtained 100% of the equity ownership of the entities we formerly consolidated as VIEs and which we now consolidate as wholly-owned subsidiaries.

The following diagram illustrates our corporate structure, including our significant subsidiaries, as of the date of this Form 10-Q. The diagram omits certain entities which are immaterial to our results of operations and financial condition.

We are subject to certain legal and operational risks associated with having a significant portion of our operations in China. Chinese laws and regulations governing our current business operations, including the enforcement of such laws and regulations, are sometimes vague and uncertain and can change quickly with little advance notice. The Chinese government may intervene in or influence the operations of our China-based subsidiaries at any time and may exert more control over offerings conducted overseas and/or foreign investment in China-based issuers, which could result in a material change in our operations and/or the value of our securities. In addition, any actions by the Chinese government to exert more oversight and control over offerings that are conducted overseas and/or foreign investment in China-based issuers could significantly limit or completely hinder our ability to offer or continue to offer our securities to investors and cause the value of such securities to

significantly decline or become worthless. In recent years, the Chinese government adopted a series of regulatory actions and issued statements to regulate business operations in China, including those related to the use of variable interest entities, cybersecurity, data security, export control and anti-monopoly concerns. As of the date of this Form 10-Q, we have neither been involved in any investigations on cybersecurity review initiated by any Chinese regulatory authority, nor received any inquiry, notice or sanction. As of the date of this Form 10-Q, no relevant laws or regulations in China explicitly require us to seek approval from the China Securities Regulatory Commission (“CSRC”) for any securities listing. As of the date of this Form 10-Q, we have not received any inquiry, notice, warning or sanctions regarding our planned overseas listing from the CSRC or any other Chinese governmental authorities relating to securities listings. However, since these statements and regulatory actions are newly published, official guidance and related implementation rules have not all been issued. It is highly uncertain what potential impact such modified or new laws and regulations will have on our ability to conduct our business, accept investments or list or maintain a listing on a U.S. or foreign exchange.

As of the date of this Form 10-Q, we are not required to seek permissions from the CSRC, the Cyberspace Administration of China (the “CAC”), or any other entity that is required to approve our operations in China. Nevertheless, Chinese regulatory authorities may in the future promulgate laws, regulations or implement rules that require us or our subsidiaries to obtain permissions from such regulatory authorities to approve our operations or any securities listing.

Holding Foreign Companies Accountable Act

The Holding Foreign Companies Accountable Act (the “HFCA Act”) was enacted on December 18, 2020. The HFCA Act states that if the Securities and Exchange Commission (the “SEC”) determines that a company has filed audit reports issued by a registered public accounting firm that has not been subject to inspection by the Public Company Accounting Oversight Board (the “PCAOB”) for three consecutive years beginning in 2021, the SEC shall prohibit such shares from being traded on a national securities exchange or in the over the counter trading market in the United States. On December 2, 2021, the SEC adopted amendments to finalize rules implementing the submission and disclosure requirements in the HFCA Act. The rules apply to registrants that the SEC identifies as having filed an annual report with an audit report issued by a registered public accounting firm that is located in a foreign jurisdiction and that the PCAOB is unable to inspect or investigate completely because of a position taken by an authority in a foreign jurisdiction. The Consolidated Appropriations Act, 2023, which was signed into law on December 29, 2022, amended the HFCA Act to reduce the number of consecutive non-inspection years required to trigger the trading prohibition under the HFCA Act from three years to two years.

On December 16, 2021, the PCAOB issued a report on its determination that it is unable to inspect or investigate completely PCAOB-registered public accounting firms headquartered in mainland China and in Hong Kong because of positions taken by Chinese and Hong Kong authorities in those jurisdictions.

On August 26, 2022, the CSRC, the Ministry of Finance of the PRC, and the PCAOB signed a Statement of Protocol (the “Protocol”), taking the first step toward opening access for the PCAOB to completely inspect and investigate registered public accounting firms headquartered in mainland China and Hong Kong.

On December 15, 2022, the PCAOB vacated its 2021 determination that the positions taken by authorities in mainland China and Hong Kong prevented it from inspecting and investigating completely registered public accounting firms headquartered in those jurisdictions. In view of the PCAOB’s decision to vacate its 2021 determination and until such time as the PCAOB issues any new adverse determination, the SEC has stated that there are no issuers at risk of having their securities subject to a trading prohibition under the HFCA Act. Each year, the PCAOB will reassess its determinations on whether it can inspect and investigate completely audit firms in China, and if, in the future, the PCAOB determines it cannot do so, or if Chinese authorities do not allow the PCAOB complete access for inspections and investigations for two consecutive years, companies engaging China-based public accounting firms would be delisted pursuant to the HFCA Act.

Our auditor, Weinberg & Company, an independent registered public accounting firm headquartered in the United States is currently subject to PCAOB inspections and has been inspected by the PCAOB on a regular basis. However, if the PCAOB is unable to inspect the work papers of our accounting firm in the future, such lack of inspection could cause trading in our common stock to be prohibited under the HFCA Act, and as a result, an exchange may determine to delist our common stock. The delisting and the cessation of trading of our common stock, or the threat of our common stock being delisted and prohibited from being traded, may materially and adversely affect the value of our common stock.

Transfer of Cash or Assets

Dividend Distributions

As of the date of this Form 10-Q, none of our subsidiaries have made any dividends or distributions to Remark.

We have never declared or paid dividends or distributions on our common equity. We currently intend to retain all available funds and any future consolidated earnings to fund our operations and continue the development and growth of our business; therefore, we do not anticipate paying any cash dividends.

Under Delaware law, a Delaware corporation’s ability to pay cash dividends on its capital stock requires the corporation to have either net profits or positive net assets (total assets less total liabilities) over its capital. If we determine to pay dividends on any of our common stock in the future, as a holding company, we may rely on dividends and other distributions on equity from our subsidiaries for cash requirements, including the funds necessary to pay dividends and other cash contributions to our stockholders.

Our WFOE’s ability to distribute dividends is based upon its distributable earnings. Current Chinese regulations permit our WFOE to pay dividends to its shareholder only out of its registered capital amount, if any, as determined in accordance with Chinese accounting standards and regulations, and then only after meeting the requirement regarding statutory reserve. If our WFOE incurs debt in the future, the instruments governing the debt may restrict its ability to pay dividends or make other payments to us. Any limitation on the ability of our WFOE to distribute dividends or other payments to us could materially and adversely limit our ability to grow, make investments or acquisitions that could be beneficial to our businesses, pay dividends or otherwise fund and conduct our business. In addition, any cash dividends or distributions of assets by our WFOE to its stockholder are subject to a Chinese withholding tax of as much as 10%.

The Chinese government also imposes controls on the conversion of Chinese Renminbi (“RMB”) into foreign currencies and the remittance of currencies out of China. Therefore, we may experience difficulties in completing the administrative procedures necessary to obtain and remit foreign currency for the payment of dividends from our profits, if any. If we are unable to receive all of the revenues from our operations through our China-based subsidiaries, we may be unable to pay dividends on our common stock.

COVID-19

Our consolidated financial statements for the three months ended March 31, 2023 continued to show the negative impact that the COVID-19 pandemic has had on our business. Preventative measures related to COVID-19 outbreaks may continue to adversely affect our business and financial results, 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. The COVID-19 pandemic caused a broad shift towards remote working arrangements for many businesses worldwide and injected uncertainty and delay into decision-making processes for such businesses. Though the most restrictive preventative measures have been eased in China, city-wide lockdowns, travel restrictions, closures of non-essential businesses and other quarantine measures could be reinstituted at any time. Recovering from the effects of the preventative measures in China that resulted from the Chinese government’s Zero-COVID policy and that significantly limited the operational capabilities of our China-based subsidiaries has taken some time as we and our customers and partners work to ramp up business again. Many cities across large swaths of China, including economically significant regions such as Shanghai, as recently as the end of 2022 were fully or partially locked down for weeks or even months. Such lockdowns have had a material adverse impact on our business, including on the collection of our accounts receivable and our ability to complete projects in China to generate revenue, and may continue to adversely impact our business until customers and potential customers believe they can operate and expand their businesses without fear of lockdowns or other severely restrictive preventative measures.

The full extent of the impact of the pandemic on our business and financial results will depend largely on future developments, including resurgences and further spread of existing or new COVID-19 variants, the duration of any remaining preventative measures implemented by domestic and foreign governments, the impact on capital and financial markets and the related impact on the financial circumstances of our customers, all of which are highly uncertain and cannot be predicted. The pandemic-related situation continues to change rapidly, and additional impacts of which we are not currently aware may arise. We are closely monitoring worldwide developments and are continually assessing the potential impact on our business.

Going Concern

During the three months ended March 31, 2023, and in each fiscal year since our inception, we have incurred operating losses which have resulted in a stockholders’ deficit of $25.8 million as of March 31, 2023. Additionally, our operations have historically used more cash than they have provided. Net cash used in operating activities was $2.1 million during the three months ended March 31, 2023. As of March 31, 2023, our cash balance was $0.4 million.

Our history of recurring operating losses, working capital deficiencies and negative cash flows from operating activities give rise to, and management has concluded that there is, substantial doubt regarding our ability to continue as a going concern. Our independent registered public accounting firm, in its report on our consolidated financial statements for the year ended December 31, 2022, has also expressed substantial doubt about our ability to continue as a going concern. Our consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

We intend to fund our future operations and meet our financial obligations through revenue growth from our AI and data analytics offerings. 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.

Conditions in the debt and equity markets, as well as the volatility of investor sentiment regarding macroeconomic and microeconomic conditions (in particular, as a result of the COVID-19 pandemic, global supply chain disruptions, inflation and other cost increases, and the geopolitical conflict in Ukraine), 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.

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 and based on the probable success of one or more of the following plans:

•develop and grow new product line(s)

•obtain additional capital through debt and/or 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 June 30, 2023.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

3 Months Ended

Mar. 31, 2023

Accounting Policies [Abstract]

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

We prepared the accompanying unaudited Condensed Consolidated Balance Sheet as of March 31, 2023, with the audited Consolidated Balance Sheet amounts as of December 31, 2022 presented for comparative purposes, and the related unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss, the Condensed Consolidated Statements of Cash Flows and the Condensed Consolidated Statements of Stockholders’ Deficit in accordance with the instructions for Form 10-Q. In compliance with those instructions, we have omitted certain information and footnote disclosures normally included in annual consolidated financial statements prepared in accordance with U.S. GAAP, though management believes the disclosures made herein are sufficient to ensure that the information presented is not misleading.

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

Management believes that we have included all adjustments (including those of a normal, recurring nature) considered necessary to fairly present our unaudited Condensed Consolidated Balance Sheet and our unaudited Condensed Consolidated Statement of Stockholders’ Deficit, each as of March 31, 2023, as well as our unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss and Condensed Consolidated Statements of Cash Flows for all periods presented. You should read our unaudited condensed consolidated interim financial statements and footnotes in conjunction with our

consolidated financial statements and footnotes included within the Annual Report on Form 10-K for the year ended December 31, 2022 (the “2022 Form 10-K”).

Consolidation

We include all of our subsidiaries in our condensed consolidated financial statements, eliminating all significant intercompany balances and transactions during consolidation.

Use of Estimates

We prepare our consolidated financial statements in conformity with GAAP. While preparing our financial statements, we make estimates and assumptions that affect amounts reported and disclosed in the consolidated financial statements and accompanying notes. Accordingly, actual results could differ from those estimates. On an ongoing basis, we evaluate our estimates, including those related to accounts receivable, deferred cost of revenue, share-based compensation, deferred income taxes, and inventory reserve, among other items.

The impact of the COVID-19 pandemic continues to unfold. As a result, many of our estimates and assumptions required increased judgment and carry a higher degree of variability and volatility. As events continue to evolve and additional information becomes available, our estimates may change materially in future periods.

Cash

Our cash consists of funds held in bank accounts.

We maintain cash balances in United States dollars (“USD”), British pounds (“GBP”), RMB and Hong Kong dollars (“HKD”). The following table, reported in USD, disaggregates our cash balances by currency denomination (in thousands):

	March 31, 2023		December 31, 2022
Cash denominated in:
USD	$	238	$	11
RMB	66		19
GBP	5		17
HKD	55		5
Total cash	$	364	$	52

We maintain substantially all of our USD-denominated cash at a U.S. financial institution where the balances are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000. At times, however, our cash balances may exceed the FDIC-insured limit. As of March 31, 2023, we do not believe we have any significant concentrations of credit risk. Cash held by our non-U.S. subsidiaries is subject to foreign currency fluctuations against the USD, although such risk is somewhat mitigated because we transfer U.S. funds to China to fund local operations. If, however, the USD is devalued significantly against the RMB, our cost to further develop our business in China could exceed original estimates.

Fair Value of Financial Instruments

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants (an exit price). When reporting the fair values of our financial instruments, we prioritize those fair value measurements into one of three levels based on the nature of the inputs, as follows:

Level 1:    Valuations based on quoted prices in active markets for identical assets and liabilities;

Level 2:    Valuations based on observable inputs that do not meet the criteria for Level 1, including quoted prices in inactive markets and observable market data for similar, but not identical instruments; and

Level 3:    Valuations based on unobservable inputs, which are based upon the best available information when external market data is limited or unavailable.

The fair value hierarchy requires us to use observable market data, when available, and to minimize the use of unobservable inputs when determining fair value. For some products or in certain market conditions, observable inputs may not be available.

We believe the reported carrying amounts for cash, marketable securities, receivables, prepaids and other current assets, accounts payable, accrued expense and other current liabilities, and short-term debt approximate their fair values because of the short-term nature of these financial instruments.

Foreign Currency Translation

We report all currency amounts in USD. Our overseas subsidiaries, however, maintain their books and records in their functional currencies, which are GBP in the United Kingdom (“U.K.”) and RMB in China.

In general, when consolidating our subsidiaries with non-USD functional currencies, we translate the amounts of assets and liabilities into USD using the exchange rate on the balance sheet date, and the amounts of revenue and expense are translated at the average exchange rate prevailing during the period. The gains and losses resulting from translation of financial statement amounts into USD are recorded as a separate component of accumulated other comprehensive loss within stockholders’ deficit.

We used the exchange rates in the following table to translate amounts denominated in non-USD currencies as of and for the periods noted:

	2023	2022
Exchange rates at March 31st:
GBP:USD	1.237	1.313
RMB:USD	0.146	0.158
HKD:USD	0.127	0.128
Average exchange rate during the three months ended March 31st:
RMB:USD	0.146	0.158
GBP:USD	1.214	1.317

Revenue Recognition

AI-Based Products

We generate revenue by developing AI-based products, including fully-integrated AI solutions which combine our proprietary technology with third-party hardware and software products to meet end-user specifications. Under one type of contract for our AI-based products, we provide a single, continuous service to clients who control the assets as we create them. Accordingly, we recognize the revenue over the period of time during which we provide the service. Under another type of contract, we have performance obligations to provide fully-integrated AI solutions to our customer and we recognize revenue at the point in time when each performance obligation is completed and delivered to, tested by and accepted by our customer.

We recognize revenue when we transfer control of the promised goods or services to our customers, and we recognize an amount that reflects the consideration to which we expect to be entitled in exchange for those goods or services. If there is uncertainty related to the timing of collections from our customer, which may be the case if our customer is not the ultimate end user of our goods, we consider this to be uncertainty of the customer’s ability and intention to pay us when consideration is due. Accordingly, we recognize revenue only when we have transferred control of the goods or services and collectability of consideration from the customer is probable.

When customers pay us prior to when we satisfy our obligation to transfer control of promised goods or services, we record the amount that reflects the consideration to which we expect to be entitled as a contract liability until such time as we satisfy our performance obligation.

For contracts under which we have not yet completed the performance obligation, deferred costs are recorded for any amounts incurred in advance of the performance obligation.

For our contracts with customers, we generally extend short-term credit policies to our customers, typically up to one year for large-scale projects.

We record the incremental costs of obtaining contracts as an expense when incurred.

We offer extended warranties on our products for periods of one to three years. Revenue from these extended warranties is recognized on a straight-line basis over the warranty contract term.

Other

We generate revenue from other sources, such as from advertising and marketing services. We recognize the revenue from these contracts at the point in time when we transfer control of the good sold to the customer or when we deliver the promised promotional materials or media content. Substantially all of our contracts with customers that generate Other revenue are completed within one year or less.

Inventory

We use the first-in first-out method to determine the cost of our inventory, then we report inventory at the lower of cost or net realizable value. We regularly review our inventory quantities on hand and record a provision for excess and obsolete inventory based primarily on our estimated sales forecasts. At March 31, 2023 and December 31, 2022, reserve for inventory was $2.2 million and $2.2 million, respectively.

Refundable Tax Credits

We charge the cost of our research and development efforts to operations as incurred. Our subsidiary in the United Kingdom is entitled to receive certain government assistance in the form of refundable research and development tax credits from taxation authorities, based on qualifying expenditures incurred during the fiscal year. The refundable credits are not dependent on our ongoing tax status or tax position and accordingly are not considered part of income taxes. We record refundable tax credits as a reduction of technology and development expense when we can reasonably estimate the amount and it is more likely than not that such amount will be received. During the three months ended March 31, 2023, we recorded a tax credit of approximately $0.5 million.

Internal Use Software

We acquire or develop applications and other software that help us meet our internal needs with respect to operating our business. For such projects, planning cost and other costs related to the preliminary project stage, as well as costs incurred for post-implementation activities, are expensed as incurred. We capitalize costs incurred during the application development phase only when we believe it is probable the development will result in new or additional functionality. The types of costs capitalized during the application development phase include fees incurred with third parties for consulting, programming and other development activities performed to complete the software. We amortize our internal use software on a straight-line basis over an estimated useful life of three years. If we identify any internal use software to be abandoned, the cost less the accumulated amortization, if any, is recorded as amortization expense. Once we have fully amortized internal use software costs that we capitalized, we remove such amounts from their respective accounts.

Net Income (Loss) per Share

We calculate basic net income (loss) per share using the weighted-average number of common stock shares outstanding during the period. For the calculation of diluted net income (loss) per share, we give effect to all the shares of common stock that were outstanding during the period plus the number of additional common shares that would have been outstanding if all dilutive potential common shares had been issued, using the treasury stock method. Potential common shares are excluded from the computation when their effect is anti-dilutive. Dilutive potential shares of common stock consist of incremental shares of common stock issuable upon exercise of stock options and warrants.

For the three months ended March 31, 2023 and 2022, there were no reconciling items related to either the numerator or denominator of the loss per share calculation, as their effect would have been anti-dilutive.

Securities which may have affected the calculation of diluted earnings per share for the three months ended March 31, 2023 if their effect had been dilutive include 1,626,346 total outstanding stock options, and 1,011,440 outstanding warrants to purchase common stock.

Segments

Existing GAAP, which establishes a management approach to segment reporting, defines operating segments as components of an entity about which separate, discrete financial information is available for evaluation by the chief operating decision maker. We have identified our Chief Executive Officer as our chief operating decision maker, who reviews operating results to make decisions about allocating resources and assessing performance based upon only one operating segment.

Recently Issued Accounting Pronouncements

In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2020-06 (“ASU 2020-06”), Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. The ASU will simplify the accounting for convertible instruments by reducing the number of accounting models for convertible debt instruments and convertible preferred stock. Limiting the accounting models will result in fewer embedded conversion features being separately recognized from the host contract as compared with current GAAP. Convertible instruments that continue to be subject to separation models are (1) those with embedded conversion features that are not clearly and closely related to the host contract, that meet the definition of a derivative, and that do not qualify for a scope exception from derivative accounting and (2) convertible debt instruments issued with substantial premiums for which the premiums are recorded as paid-in capital. The ASU also amends the guidance for the derivatives scope exception for contracts in an entity’s own equity to reduce form-over-substance-based accounting conclusions. With regard to our financial reporting, ASU 2020-06 will be effective January 1, 2024, and early adoption is permitted, but no earlier than January 1, 2021, including interim periods within that year. We are currently evaluating what effect(s) the adoption of ASU 2020-06 may have on our consolidated financial statements, but we do not believe the impact of the ASU will be material to our financial position, results of operations and cash flows. The effect will largely depend on the composition and terms of the financial instruments at the time of adoption.

We have reviewed all accounting pronouncements recently issued by the FASB and the SEC. The authoritative pronouncements that we have already adopted did not have a material effect on our financial condition, results of operations, cash flows or reporting thereof, and except as otherwise noted above, we do not believe that any of the authoritative pronouncements that we have not yet adopted will have a material effect upon our financial condition, results of operations, cash flows or reporting thereof.

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CONCENTRATION OF RISK

3 Months Ended

Mar. 31, 2023

Risks and Uncertainties [Abstract]

CONCENTRATION OF RISK

NOTE 3. CONCENTRATION OF RISK

Revenue and Accounts Receivable

The disaggregation of revenue tables in Note 4 demonstrate the concentration in our revenue from certain products and the geographic concentration of our business. We also have a concentration in the volume of business we transacted with customers, as during the three months ended March 31, 2023, one of our customers represented about 50% of our revenue, while during three months ended March 31, 2022, two customers represented about 48% and 46%, respectively, of our revenue. At March 31, 2023, accounts receivable from four of our customers represented about 26%, 11%, 11% and 10%, respectively, of our gross accounts receivable, while at December 31, 2022, accounts receivable from our three largest customers represented about 23%, 16% and 10%, respectively, of our gross accounts receivable.

Deferred Cost of Revenue

See Note 6 for a discussion of a risk concentration regarding our deferred cost of revenue.

Cost of Sales and Accounts Payable

The various hardware we purchase to fulfill our contracts with customers is not especially unique in nature. Based on our analysis, we believe that should any disruption in our current supply chain occur, a sufficient number of alternative vendors is available to us, at reasonably comparable specifications and price, such that we would not experience a material negative impact on our ability to procure the hardware we need to operate our business.

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REVENUE

3 Months Ended

Mar. 31, 2023

Revenue from Contract with Customer [Abstract]

REVENUE

NOTE 4. REVENUE

We primarily sell AI-based products and services based upon computer vision and other technologies.

We do not include disclosures related to remaining performance obligations because substantially all our contracts with customers have an original expected duration of one year or less or, with regard to our stand-ready obligations, the amounts involved are not material.

Disaggregation of Revenue

The following table presents a disaggregation of our revenue by category of products and services (in thousands):

	Three Months Ended March 31,
	2023		2022
AI-based products and services, including amounts from China Business Partner in 2023 (See Note 15)	$	721	$	4,546
Other	105		121
Revenue	$	826	$	4,667

The following table presents a disaggregation of our revenue by country (in thousands):

	Three Months Ended March 31,
	2023		2022
China	$	743	$	4,554
United States	83		113
Revenue	$	826	$	4,667

Significant Judgments

When accounting for revenue we make certain judgments, such as whether we act as a principal or as an agent in transactions or whether our contracts with customers fall within the scope of current GAAP regarding revenue, that affect the determination of the amount and timing of our revenue from contracts with customers. Based on the current facts and circumstances related to our contracts with customers, none of the judgments we make involve an elevated degree of qualitative significance or complexity such that further disclosure is warranted in terms of their potential impact on the amount and timing of our revenue.

Contract Assets and Contract Liabilities

We do not currently generate material contract assets. During the three months ended March 31, 2023, our contract liability changed only as a result of routine business activity.

During the three months ended March 31, 2023 and 2022, the amount of revenue we recognized that was included in the beginning balance of Contract liability was not material.

During the three months ended March 31, 2023 and 2022, we did not recognize revenue from performance obligations that were satisfied in previous periods.

NOTE 6. DEFERRED COST OF REVENUE

Deferred cost of revenue as of March 31, 2023 and December 31, 2022 of $7.5 million and $7.5 million, respectively, represent amounts we have paid in advance to the vendor who provides services to us in relation to various projects in China. Specifically, the deferred cost of revenue balance as of March 31, 2023, a large percentage of which was related to project installations we expected would be provided to us through our China Business Partner (described in more detail in Note 15), was paid almost entirely to a single vendor which will be visiting numerous sites across various regions of China to install our software solutions and/or hardware for our customers and perform other services for us pursuant to our customers’ requirements. Because most of the projects for which we have engaged the vendor require purchases of hardware, equipment and/or supplies in advance of site visits, we made the prepayments during 2022 in anticipation of several large batches of project installations. However, the lengthy COVID-19 related lockdowns that occurred in various regions in China prevented us and the vendor from being able to complete as many projects as we originally expected and caused our customers to delay installations. Given that the delays were related to the COVID-19 lockdowns that had ended by December 31, 2022 and were not a result of the vendor’s inability to either perform the services or refund of the amounts we advanced, we believe the balance as of March 31, 2023 will be fully recovered.

XML

TRADE ACCOUNTS RECEIVABLE

3 Months Ended

Mar. 31, 2023

Receivables [Abstract]

TRADE ACCOUNTS RECEIVABLE

NOTE 5. TRADE ACCOUNTS RECEIVABLE

	March 31, 2023		December 31, 2022
Gross accounts receivable balance	$	6,885	$	7,213
Allowance for bad debt	(4,166)		(4,122)
Accounts receivable, net	$	2,719	$	3,091

Generally, it is not unusual for Chinese entities to pay their vendors on longer timelines than the timelines typically observed in U.S. commerce. Trade receivables related to our China AI projects at March 31, 2023 and December 31, 2022; including approximately $1.1 million and $1.1 million, respectively, of trade receivables from projects related to work with our China Business Partner (see Note 15 for more information regarding our China Business Partner and related accounting); represented essentially all our gross trade receivables in each such period. Despite the longer collection timelines normally observed with Chinese entities, we have noted that the COVID-19 related lockdowns that persisted in China for most of 2022 have caused further delay in our ability to collect all balances due from some of our customers in China. As a result of our inability to assure collection of all amounts due from such customers within a short period of time, we recorded a reserve for bad debt of approximately $2.8 million as of December 31, 2022 for all accounts receivable from China customers that were more than one year past due.

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DEFERRED COST OF REVENUE

3 Months Ended

Mar. 31, 2023

Revenue from Contract with Customer [Abstract]

DEFERRED COST OF REVENUE

NOTE 4. REVENUE

We primarily sell AI-based products and services based upon computer vision and other technologies.

We do not include disclosures related to remaining performance obligations because substantially all our contracts with customers have an original expected duration of one year or less or, with regard to our stand-ready obligations, the amounts involved are not material.

Disaggregation of Revenue

The following table presents a disaggregation of our revenue by category of products and services (in thousands):

	Three Months Ended March 31,
	2023		2022
AI-based products and services, including amounts from China Business Partner in 2023 (See Note 15)	$	721	$	4,546
Other	105		121
Revenue	$	826	$	4,667

The following table presents a disaggregation of our revenue by country (in thousands):

	Three Months Ended March 31,
	2023		2022
China	$	743	$	4,554
United States	83		113
Revenue	$	826	$	4,667

Significant Judgments

When accounting for revenue we make certain judgments, such as whether we act as a principal or as an agent in transactions or whether our contracts with customers fall within the scope of current GAAP regarding revenue, that affect the determination of the amount and timing of our revenue from contracts with customers. Based on the current facts and circumstances related to our contracts with customers, none of the judgments we make involve an elevated degree of qualitative significance or complexity such that further disclosure is warranted in terms of their potential impact on the amount and timing of our revenue.

Contract Assets and Contract Liabilities

We do not currently generate material contract assets. During the three months ended March 31, 2023, our contract liability changed only as a result of routine business activity.

During the three months ended March 31, 2023 and 2022, the amount of revenue we recognized that was included in the beginning balance of Contract liability was not material.

During the three months ended March 31, 2023 and 2022, we did not recognize revenue from performance obligations that were satisfied in previous periods.

NOTE 6. DEFERRED COST OF REVENUE

Deferred cost of revenue as of March 31, 2023 and December 31, 2022 of $7.5 million and $7.5 million, respectively, represent amounts we have paid in advance to the vendor who provides services to us in relation to various projects in China. Specifically, the deferred cost of revenue balance as of March 31, 2023, a large percentage of which was related to project installations we expected would be provided to us through our China Business Partner (described in more detail in Note 15), was paid almost entirely to a single vendor which will be visiting numerous sites across various regions of China to install our software solutions and/or hardware for our customers and perform other services for us pursuant to our customers’ requirements. Because most of the projects for which we have engaged the vendor require purchases of hardware, equipment and/or supplies in advance of site visits, we made the prepayments during 2022 in anticipation of several large batches of project installations. However, the lengthy COVID-19 related lockdowns that occurred in various regions in China prevented us and the vendor from being able to complete as many projects as we originally expected and caused our customers to delay installations. Given that the delays were related to the COVID-19 lockdowns that had ended by December 31, 2022 and were not a result of the vendor’s inability to either perform the services or refund of the amounts we advanced, we believe the balance as of March 31, 2023 will be fully recovered.

XML

PREPAID EXPENSE AND OTHER CURRENT ASSETS

3 Months Ended

Mar. 31, 2023

Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract]

PREPAID EXPENSE AND OTHER CURRENT ASSETS

NOTE 7. PREPAID EXPENSE AND OTHER CURRENT ASSETS

The following table presents the components of prepaid expense and other current assets (in thousands):

	March 31, 2023		December 31, 2022
Other receivables	10		23
Prepaid expense	1,057		1,144
Deposits	203		201
Other current assets	5		6
Total	$	1,275	$	1,374

XML

PROPERTY AND EQUIPMENT

3 Months Ended

Mar. 31, 2023

Property, Plant and Equipment [Abstract]

PROPERTY AND EQUIPMENT

NOTE 8. PROPERTY AND EQUIPMENT

Property and equipment consist of the following (in thousands, except estimated lives):

	Estimated Life (Years)	March 31, 2023		December 31, 2022
Vehicles	3	$	153	153
Computers and equipment	3	1,172		$	1,170
Furniture and fixtures	3	42		42
Software	3	5,168		5,160
Leasehold improvements	3	202		204
Software development in progress		1,199		1,199
Total property, equipment and software		$	7,936	$	7,928
Less accumulated depreciation		(6,276)		(6,229)
Total property, equipment and software, net		$	1,660	$	1,699

For the three months ended March 31, 2023 and 2022, depreciation (and amortization of software) expense was de minimis.

XML

ACCRUED EXPENSE AND OTHER CURRENT LIABILITIES

3 Months Ended

Mar. 31, 2023

Other Liabilities Disclosure [Abstract]

ACCRUED EXPENSE AND OTHER CURRENT LIABILITIES

NOTE 9. ACCRUED EXPENSE AND OTHER CURRENT LIABILITIES

The following table presents the components of Accrued expense and other current liabilities (in thousands):

	March 31, 2023		December 31, 2022
Accrued compensation and benefit-related expense	$	2,007	$	1,448
Accrued interest	167		769
Other accrued expense	2,430		2,393
Other payables	2,224		2,234
Operating lease liability - current	120		138
China Cash Bonuses (see Note 15)	44		32
Other current liabilities	147		208
Total	$	7,139	$	7,222

XML

NOTES PAYABLE

3 Months Ended

Mar. 31, 2023

Debt Disclosure [Abstract]

NOTES PAYABLE

NOTE 10. NOTES PAYABLE

The following table presents our notes payable (in thousands) as of:

	March 31, 2023		December 31, 2022
Principal balance of Original Mudrick Loans	$	16,307	$	14,418
Other notes payable	181		189
Notes payable, net of unamortized discount and debt issuance cost	$	16,488	$	14,607

On December 3, 2021, we entered into senior secured loan agreements (the “Original Mudrick Loan Agreements”) with certain of our subsidiaries as guarantors (the “Guarantors”) and certain institutional lenders affiliated with Mudrick Capital Management, LP (collectively, “Mudrick”), pursuant to which Mudrick extended credit to us consisting of term loans in the aggregate principal amount of $30.0 million (the “Original Mudrick Loans”). The Original Mudrick Loans bore interest at 16.5% per annum until the original maturity date of July 31, 2022 and, following an amendment we entered into with Mudrick in August 2022, bore interest at 18.5% per annum. The amendment also extended the maturity date of the Original Mudrick Loans from July 31, 2022 to October 31, 2022. However, we did not make the required repayment of the Original Mudrick Loans by October 31, 2022, which constituted an event of default under the Original Mudrick Loans and triggered an increase in the interest rate under the Original Mudrick Loans to 20.5%.

On March 14, 2023, we entered into a Note Purchase Agreement (the “New Mudrick Loan Agreement”) with Mudrick, pursuant to which all of the Original Mudrick Loans were cancelled in exchange for new notes payable to Mudrick (the “New Mudrick Notes”) in the aggregate principal amount of approximately $16.3 million. The principal balance of the New Mudrick Notes included the $14.4 million outstanding balance of the Original Mudrick Loans, plus $1.1 million of accrued interest on the Original Mudrick Loans, plus a fee of approximately $0.8 million payable to Mudrick as consideration for cancelling the Original Mudrick Loans and converting all amounts outstanding thereunder into the New Mudrick Notes. We recorded the $0.8 million as interest expense during the three months ended March 31, 2023.

The New Mudrick Notes bear interest at a rate of 20.5% per annum, which shall be payable on the last business day of each month commencing on May 31, 2023. The interest rate will increase by 2% and the principal amount outstanding under the New Mudrick Notes and any unpaid interest thereon may become immediately due and payable upon the occurrence of any event of default under the New Mudrick Loan Agreement. All amounts outstanding under the New Mudrick Notes, including all accrued and unpaid interest, will be due and payable in full on October 31, 2023.

To secure the payment and performance of the obligations under the Original Mudrick Loan Agreements and the New Mudrick Loan Agreement, we, together with the Guarantors, have granted to TMI Trust Company, as the collateral agent for the benefit of Mudrick, a first priority lien on, and security interest in, all assets of Remark and the Guarantors, subject to certain customary exceptions.

In connection with our entry into the Original Mudrick Loan Agreements, we paid Mudrick an upfront fee equal to 5.0% of the amount of the Original Mudrick Loans, which amount was netted against the drawdown of the Original Mudrick Loans. We recorded the upfront fee as a debt discount of $1.5 million, and recorded debt issuance cost totaling $1.1 million. We amortized the discount on the Original Mudrick Loans and the debt issuance cost over the life of the Original Mudrick Loans and, during the year ended December 31, 2022, we amortized $2.2 million of such discount and debt issuance cost.

During the year ended December 31, 2022, we repaid $6.2 million of the principal amount of the Original Mudrick Loans in cash and delivered all of our shares in Sharecare, Inc. to Mudrick on July 11, 2022, in partial settlement of the Original Mudrick Loans, resulting in a further repayment of approximately $9.7 million of the principal amount of the Original Mudrick Loans. As of December 31, 2022, the outstanding balance of the Original Mudrick Loans was $14.4 million, and approximately $0.8 million of accrued interest was included in Accrued expense and other current liabilities. During the three months ended March 31, 2023, we accrued approximately $0.6 million additional interest expense on the Original Mudrick Loans, of which $0.3 million was paid during the period.

Other Notes Payable

The Other notes payable in the table above represent individually immaterial notes payable issued for the purchase of operating assets. Such notes payable bear interest at a weighted-average interest rate of approximately 6.2% and have a weighted-average remaining term of approximately 4.8 years.

NOTE 11. TRANSACTIONS WITH IONIC

Convertible Debentures

On October 6, 2022, we entered into a debenture purchase agreement (the “2022 Debenture Purchase Agreement”) and a purchase agreement (the “ELOC Purchase Agreement”) with Ionic Ventures, LLC (“Ionic”). Pursuant to the 2022 Debenture Purchase Agreement, we issued a convertible subordinated debenture in the original principal amount of approximately $2.8 million (the “2022 Debenture”) to Ionic for a purchase price of $2.5 million. The 2022 Debenture automatically converted into shares of our common stock (the “Settlement Shares”) on November 17, 2022 upon the effectiveness of a registration statement we filed pursuant to a registration rights agreement we entered into with Ionic. Upon issuance of the 2022 Debenture, we initially estimated the obligation to issue common stock at approximately $3.6 million. As of December 31, 2022, we estimated such obligation to have a fair value of $1.9 million, representing an additional 1,720,349 shares to be issued pursuant to the 2022 Debenture. When the measurement period for determining the conversion price of the 2022 Debenture was completed, we determined that the number of conversion shares to be issued to Ionic upon automatic conversion of the 2022 Debenture was 3,129,668 shares of our common stock. As of March 31, 2023, we had issued an aggregate of 2,993,282 shares of common stock upon automatic conversion of the 2022 Debenture (inclusive of 898,854 shares that were issued during 2022), leaving a balance of 136,386 shares that remained to be issued, representing an obligation with a fair value of $0.2 million.

On March 14, 2023, we entered into a new debenture purchase agreement (the “2023 Debenture Purchase Agreement”) with Ionic pursuant to which we authorized the issuance and sale of two convertible subordinated debentures in the aggregate principal amount of approximately $2.8 million for an aggregate purchase price of $2.5 million. The first debenture is in the original principal amount of approximately $1.7 million for a purchase price of $1.5 million (the “First 2023 Debenture”), which was issued on March 14, 2023, and the second debenture is in the original principal amount of approximately $1.1 million for a purchase price of $1.0 million (the “Second 2023 Debenture” and collectively with the First Debenture, the “2023 Debentures”), which was issued on April 12, 2023. Upon issuance of the First 2023 Debenture, we initially estimated the obligation to issue common stock at approximately $2.5 million. As of March 31, 2023, the First 2023 Debenture had not been converted into any shares of common stock and we estimated that 2,232,590 shares would be issued upon conversion of the First 2023 Debenture, representing an obligation with a fair value of $3.1 million.

The 2023 Debentures accrue interest at a rate of 10% per annum, of which two years of interest is guaranteed and deemed earned in full on the first day following the issuance date. The interest rate on the 2023 Debentures increases to a rate of 15% per annum if the 2023 Debentures are not fully paid, converted or redeemed by the second anniversary of each debenture (each, a “Maturity Date”) or upon the occurrence of certain trigger events, including, but not limited to, the suspension from trading or the delisting of our common stock from Nasdaq for three consecutive trading days. If the 2023 Debentures are not fully paid or converted by their respective Maturity Dates, the original aggregate principal amount of the 2023 Debentures will be deemed to have been approximately $3.3 million from their issuance dates.

The 2023 Debentures automatically convert into shares of common stock at the earlier of (i) the effectiveness of the initial registration statement registering the resale of certain Registrable Securities as such term is defined in the Registration Rights Agreement (as defined below) including, without limitation, the shares issuable upon conversion of the 2023 Debentures (the “Conversion Shares”) (such registration statement, the “Resale Registration Statement”), and (ii) 181 days after the issuance date of each 2023 Debenture. The number of shares of common stock issuable upon conversion of each 2023 Debenture shall be determined by dividing the outstanding balance under each 2023 Debenture (including all accrued and unpaid interest and accrued and unpaid late charges, if any) by a conversion price that is the lower of (x) 80% (or 70% if our common stock is not then trading on Nasdaq) of the average of the two lowest VWAPs over a specified measurement period following the conversion date (the “Variable Conversion Price”), and (y) $1.40 (the “Fixed Conversion Price”), subject to full ratchet anti-dilution protection in the event we issue certain equity securities at a price below the then Fixed Conversion Price. The 2023 Debentures are unsecured and expressly junior to any of our existing or future debt obligations. Notwithstanding anything to the contrary, under no circumstances shall the Variable Conversion Price be less than the floor price of $0.20 as specified in the 2023 Debentures. Additionally, in the event of a bankruptcy, we are required to redeem the 2023 Debentures in cash in an amount equal to the then outstanding balance of the 2023 Debentures multiplied by 120%. The 2023 Debentures further provide that we will not effect the conversion of any portion of the 2023 Debentures, and the holder thereof will not have the right to a conversion of any portion of the 2023 Debentures, to the extent that after giving effect to such conversion, the holder together with its affiliates would beneficially own more than 4.99% of the outstanding shares of our common stock immediately after giving effect to such conversion. Furthermore, we may not issue shares of common stock underlying the 2023 Debentures if such issuance would require us to obtain stockholder approval under the Nasdaq rules or until such stockholder approval has been obtained.

Concurrently with entering into the 2023 Debenture Purchase Agreement, we also entered into a registration rights agreement with Ionic (the “2023 Registration Rights Agreement”), in which we agreed to file with the SEC one or more registration statements, as necessary, and to the extent permissible and subject to certain exceptions, to register under the

Securities Act of 1933, as amended, the resale of the shares of our common stock issuable upon conversion of the 2023 Debentures and the shares of common stock that may be issued to Ionic if we fail to comply with our obligations in the 2023 Registration Rights Agreement. The 2023 Registration Rights Agreement requires that we file, within 15 calendar days after we file our 2022 Form 10-K, a resale registration statement and use commercially reasonable efforts to have such resale registration statement declared effective by the SEC on or before the earlier of (i) 90 days after signing of the 2023 Registration Rights Agreement (or 120 days if such registration statement is subject to full review by the SEC) and (ii) the 2nd business day after we are notified we will not be subject to further SEC review. If we fail to file or have the resale registration statement declared effective by the specified deadlines, then in each instance, we will issue to Ionic 150,000 shares of our common stock within two trading days after such failure, and with respect to the Conversion Shares, we will additionally pay in cash, as liquidated damages, an amount equal to 2% of the amount then currently outstanding under the 2023 Debentures for failure to file and have the Resale Registration Statement declared effective by the same deadlines set forth above for each 30-day period after each such failure.

Equity Line of Credit

The ELOC Purchase Agreement, as amended (see below), provides that, upon the terms and subject to the conditions and limitations set forth therein, we have the right to direct Ionic to purchase up to an aggregate of $50.0 million of shares of our common stock over the 36-month term of the ELOC Purchase Agreement. Under the ELOC Purchase Agreement, after the satisfaction of certain commencement conditions, including, without limitation, the effectiveness of a resale registration statement filed with the SEC registering such shares and that the 2022 Debenture shall have been fully converted into shares of common stock or shall otherwise have been fully redeemed and settled in all respects in accordance with the terms of the 2022 Debenture, we have the right to present Ionic with a purchase notice (each, a “Purchase Notice”) directing Ionic to purchase any amount up to $3.0 million of our common stock per trading day, at a per share price equal to 90% (or 80% if our common stock is not then trading on Nasdaq) of the average of the two lowest volume-weighted average prices (“VWAPs”) over a specified measurement period. With each purchase under the ELOC Purchase Agreement, we are required to deliver to Ionic an additional number of shares equal to 2.5% of the number of shares of common stock deliverable upon such purchase. The number of shares that we can issue to Ionic from time to time under the ELOC Purchase Agreement shall be subject to the condition that we will not sell shares to Ionic to the extent that Ionic, together with its affiliates, would beneficially own more than 4.99% of the outstanding shares of our common stock immediately after giving effect to such sale (the “Beneficial Ownership Limitation”).

In addition, Ionic will not be required to buy any shares of our common stock pursuant to a Purchase Notice on any trading day on which the closing trade price of our common stock is below $0.20 (as amended by the Letter Agreement, as defined below). We will control the timing and amount of sales of our common stock to Ionic. Ionic has no right to require any sales by us, and is obligated to make purchases from us as directed solely by us in accordance with the ELOC Purchase Agreement. The ELOC Purchase Agreement provides that we will not be required or permitted to issue, and Ionic will not be required to purchase, any shares under the ELOC Purchase Agreement if such issuance would violate Nasdaq rules, and we may, in our sole discretion, determine whether to obtain stockholder approval to issue shares in excess of 19.99% of our outstanding shares of common stock if such issuance would require stockholder approval under Nasdaq rules. Ionic has agreed that neither it nor any of its agents, representatives and affiliates will engage in any direct or indirect short-selling or hedging our common stock during any time prior to the termination of the ELOC Purchase Agreement.

The ELOC Purchase Agreement may be terminated by us at any time after commencement, at our discretion; provided, however, that if we sold less than $25.0 million to Ionic (other than as a result of our inability to sell shares to Ionic as a result of the Beneficial Ownership Limitation, our failure to have sufficient shares authorized or our failure to obtain stockholder approval to issue more than 19.99% of our outstanding shares), we will pay to Ionic a termination fee of $0.5 million, which is payable, at our option, in cash or in shares of common stock at a price equal to the closing price on the day immediately preceding the date of receipt of the termination notice. Further, the ELOC Purchase Agreement will automatically terminate on the date that we sell, and Ionic purchases, the full $50.0 million amount under the agreement or, if the full amount has not been purchased, on the expiration of the 36-month term of the ELOC Purchase Agreement.

On January 5, 2023, we and Ionic entered into a letter agreement (the “Letter Agreement”) which amended the ELOC Purchase Agreement. Under the Letter Agreement, the parties agreed, among other things, to (i) amend the floor price below which Ionic will not be required to buy any shares of our common stock under the ELOC Purchase Agreement from $0.25 to $0.20, determined on a post-reverse split basis, (ii) amend the per share purchase price for purchases under the ELOC Purchase Agreement to 90% of the average of the two lowest daily VWAPs over a specified measurement period, which will commence at the conclusion of the applicable measurement period related to the 2022 Debenture and (iii) waive certain requirements in the ELOC Purchase Agreement to allow for a one-time $0.5 million purchase under the ELOC Purchase Agreement.

As partial consideration for the waiver to allow for the $0.5 million purchase by Ionic, we agreed to issue to Ionic that number of shares (the “Letter Agreement Shares”) equal to the difference between (x) the variable conversion price in the 2022 Debenture, and (y) the calculation achieved as a result of the following formula: 80% (or 70% if our common stock is not then trading on Nasdaq) of the lowest VWAP starting on the trading day immediately following the receipt of pre-settlement conversion shares following the date on which the 2022 Debenture automatically converts or other relevant date of determination and ending the later of (a) 10 consecutive trading days after (and not including) the Automatic Conversion Date (as defined in the ELOC Agreement) or such other relevant date of determination and (b) the trading day immediately after shares of our common stock in the aggregate amount of at least $13.9 million shall have traded on Nasdaq. Upon issuance of the purchase notice evidencing the ELOC Advance (defined below), we initially estimated the obligation to issue common stock at approximately $0.2 million. As of March 31, 2023, we had not issued any of our common stock in relation to the Letter Agreement Shares, leaving an estimated 200,715 shares to be issued, representing an obligation with a fair value of $0.3 million.

During January 2023, Ionic advanced $1.0 million dollars (the “ELOC Advance”) to us pursuant to the ELOC Agreement, as amended. Upon issuance of the purchase notice evidencing the ELOC Advance, we initially estimated the obligation to issue common stock at approximately $1.3 million. As of March 31, 2023, we had not issued any of our common stock in relation to the First 2023 Debenture, leaving an estimated 1,068,376 shares to be issued, representing an obligation with a fair value of $1.5 million.

Accounting for the Debentures and the ELOC

Using the guidance in ASC Topic 480, Distinguishing Liabilities from Equity, we evaluated the 2022 Debenture Purchase Agreement and its associated 2022 Debenture, the 2023 Debenture Purchase Agreement and its associated First 2023 Debenture, and the ELOC Purchase Agreement and its associated Letter Agreement and ELOC Advance, and determined that all represented obligations that must or may be settled with a variable number of shares, the monetary value of which was based solely or predominantly on a fixed monetary amount known at inception. Using a Level 3 input, we estimated the number of shares of our common stock that we would have to issue for each obligation and multiplied the estimated number of shares by the closing market price of our common stock on the measurement date to determine the fair value of the obligation. We then recorded the amount of the initial obligation in excess of the purchase price as finance cost. We remeasure each obligation at every balance sheet date until all shares representing the obligation have been issued, with the change in the amount of the obligation being recorded as finance cost. The following table shows the changes in our obligations to issue common stock (dollars in thousands):

	2022 Debenture		First 2023 Debenture		Letter Agreement		ELOC Advance		Total
Obligations to Issue Common Stock
Balance at December 31, 2022	$	1,892	$	—	$	—	$	—	$	1,892
Establishment of new obligation to issue shares	—		2,501		249		1,325		4,075
Issuance of Shares	(2,985)		—		—		—		(2,985)
Change in measurement of liability	1,279		558		26		139		2,002
Balance at March 31, 2023	$	186	$	3,059	$	275	$	1,464	$	4,984
Estimated Number of Shares Issuable
Balance at December 31, 2022	1,720,349		—		—		—		1,720,349
Change in estimated number of shares issuable	510,465		—		—		—		510,465
Establishment of new obligation to issue shares	—		2,232,590		200,715		1,068,376		3,501,681
Issuance of Shares	(2,094,428)		—		—		—		(2,094,428)
Balance at March 31, 2023	136,386		2,232,590		200,715		1,068,376		3,638,067

The following table shows the composition of finance cost associated with our obligations to issue common stock (dollars in thousands):

	2022 Debenture		First 2023 Debenture		Letter Agreement		ELOC Advance		Total
Initial obligation in excess of purchase price	$	—	$	1,000	$	249	$	325	$	1,574
Change in measurement of liability	1,279		558		26		139		2,002
Total	$	1,279	$	1,558	$	275	$	464	$	3,576

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TRANSACTIONS WITH IONIC

3 Months Ended

Mar. 31, 2023

Debt Disclosure [Abstract]

TRANSACTIONS WITH IONIC

NOTE 10. NOTES PAYABLE

The following table presents our notes payable (in thousands) as of:

	March 31, 2023		December 31, 2022
Principal balance of Original Mudrick Loans	$	16,307	$	14,418
Other notes payable	181		189
Notes payable, net of unamortized discount and debt issuance cost	$	16,488	$	14,607

On December 3, 2021, we entered into senior secured loan agreements (the “Original Mudrick Loan Agreements”) with certain of our subsidiaries as guarantors (the “Guarantors”) and certain institutional lenders affiliated with Mudrick Capital Management, LP (collectively, “Mudrick”), pursuant to which Mudrick extended credit to us consisting of term loans in the aggregate principal amount of $30.0 million (the “Original Mudrick Loans”). The Original Mudrick Loans bore interest at 16.5% per annum until the original maturity date of July 31, 2022 and, following an amendment we entered into with Mudrick in August 2022, bore interest at 18.5% per annum. The amendment also extended the maturity date of the Original Mudrick Loans from July 31, 2022 to October 31, 2022. However, we did not make the required repayment of the Original Mudrick Loans by October 31, 2022, which constituted an event of default under the Original Mudrick Loans and triggered an increase in the interest rate under the Original Mudrick Loans to 20.5%.

On March 14, 2023, we entered into a Note Purchase Agreement (the “New Mudrick Loan Agreement”) with Mudrick, pursuant to which all of the Original Mudrick Loans were cancelled in exchange for new notes payable to Mudrick (the “New Mudrick Notes”) in the aggregate principal amount of approximately $16.3 million. The principal balance of the New Mudrick Notes included the $14.4 million outstanding balance of the Original Mudrick Loans, plus $1.1 million of accrued interest on the Original Mudrick Loans, plus a fee of approximately $0.8 million payable to Mudrick as consideration for cancelling the Original Mudrick Loans and converting all amounts outstanding thereunder into the New Mudrick Notes. We recorded the $0.8 million as interest expense during the three months ended March 31, 2023.

The New Mudrick Notes bear interest at a rate of 20.5% per annum, which shall be payable on the last business day of each month commencing on May 31, 2023. The interest rate will increase by 2% and the principal amount outstanding under the New Mudrick Notes and any unpaid interest thereon may become immediately due and payable upon the occurrence of any event of default under the New Mudrick Loan Agreement. All amounts outstanding under the New Mudrick Notes, including all accrued and unpaid interest, will be due and payable in full on October 31, 2023.

To secure the payment and performance of the obligations under the Original Mudrick Loan Agreements and the New Mudrick Loan Agreement, we, together with the Guarantors, have granted to TMI Trust Company, as the collateral agent for the benefit of Mudrick, a first priority lien on, and security interest in, all assets of Remark and the Guarantors, subject to certain customary exceptions.

In connection with our entry into the Original Mudrick Loan Agreements, we paid Mudrick an upfront fee equal to 5.0% of the amount of the Original Mudrick Loans, which amount was netted against the drawdown of the Original Mudrick Loans. We recorded the upfront fee as a debt discount of $1.5 million, and recorded debt issuance cost totaling $1.1 million. We amortized the discount on the Original Mudrick Loans and the debt issuance cost over the life of the Original Mudrick Loans and, during the year ended December 31, 2022, we amortized $2.2 million of such discount and debt issuance cost.

During the year ended December 31, 2022, we repaid $6.2 million of the principal amount of the Original Mudrick Loans in cash and delivered all of our shares in Sharecare, Inc. to Mudrick on July 11, 2022, in partial settlement of the Original Mudrick Loans, resulting in a further repayment of approximately $9.7 million of the principal amount of the Original Mudrick Loans. As of December 31, 2022, the outstanding balance of the Original Mudrick Loans was $14.4 million, and approximately $0.8 million of accrued interest was included in Accrued expense and other current liabilities. During the three months ended March 31, 2023, we accrued approximately $0.6 million additional interest expense on the Original Mudrick Loans, of which $0.3 million was paid during the period.

Other Notes Payable

The Other notes payable in the table above represent individually immaterial notes payable issued for the purchase of operating assets. Such notes payable bear interest at a weighted-average interest rate of approximately 6.2% and have a weighted-average remaining term of approximately 4.8 years.

NOTE 11. TRANSACTIONS WITH IONIC

Convertible Debentures

On October 6, 2022, we entered into a debenture purchase agreement (the “2022 Debenture Purchase Agreement”) and a purchase agreement (the “ELOC Purchase Agreement”) with Ionic Ventures, LLC (“Ionic”). Pursuant to the 2022 Debenture Purchase Agreement, we issued a convertible subordinated debenture in the original principal amount of approximately $2.8 million (the “2022 Debenture”) to Ionic for a purchase price of $2.5 million. The 2022 Debenture automatically converted into shares of our common stock (the “Settlement Shares”) on November 17, 2022 upon the effectiveness of a registration statement we filed pursuant to a registration rights agreement we entered into with Ionic. Upon issuance of the 2022 Debenture, we initially estimated the obligation to issue common stock at approximately $3.6 million. As of December 31, 2022, we estimated such obligation to have a fair value of $1.9 million, representing an additional 1,720,349 shares to be issued pursuant to the 2022 Debenture. When the measurement period for determining the conversion price of the 2022 Debenture was completed, we determined that the number of conversion shares to be issued to Ionic upon automatic conversion of the 2022 Debenture was 3,129,668 shares of our common stock. As of March 31, 2023, we had issued an aggregate of 2,993,282 shares of common stock upon automatic conversion of the 2022 Debenture (inclusive of 898,854 shares that were issued during 2022), leaving a balance of 136,386 shares that remained to be issued, representing an obligation with a fair value of $0.2 million.

On March 14, 2023, we entered into a new debenture purchase agreement (the “2023 Debenture Purchase Agreement”) with Ionic pursuant to which we authorized the issuance and sale of two convertible subordinated debentures in the aggregate principal amount of approximately $2.8 million for an aggregate purchase price of $2.5 million. The first debenture is in the original principal amount of approximately $1.7 million for a purchase price of $1.5 million (the “First 2023 Debenture”), which was issued on March 14, 2023, and the second debenture is in the original principal amount of approximately $1.1 million for a purchase price of $1.0 million (the “Second 2023 Debenture” and collectively with the First Debenture, the “2023 Debentures”), which was issued on April 12, 2023. Upon issuance of the First 2023 Debenture, we initially estimated the obligation to issue common stock at approximately $2.5 million. As of March 31, 2023, the First 2023 Debenture had not been converted into any shares of common stock and we estimated that 2,232,590 shares would be issued upon conversion of the First 2023 Debenture, representing an obligation with a fair value of $3.1 million.

The 2023 Debentures accrue interest at a rate of 10% per annum, of which two years of interest is guaranteed and deemed earned in full on the first day following the issuance date. The interest rate on the 2023 Debentures increases to a rate of 15% per annum if the 2023 Debentures are not fully paid, converted or redeemed by the second anniversary of each debenture (each, a “Maturity Date”) or upon the occurrence of certain trigger events, including, but not limited to, the suspension from trading or the delisting of our common stock from Nasdaq for three consecutive trading days. If the 2023 Debentures are not fully paid or converted by their respective Maturity Dates, the original aggregate principal amount of the 2023 Debentures will be deemed to have been approximately $3.3 million from their issuance dates.

The 2023 Debentures automatically convert into shares of common stock at the earlier of (i) the effectiveness of the initial registration statement registering the resale of certain Registrable Securities as such term is defined in the Registration Rights Agreement (as defined below) including, without limitation, the shares issuable upon conversion of the 2023 Debentures (the “Conversion Shares”) (such registration statement, the “Resale Registration Statement”), and (ii) 181 days after the issuance date of each 2023 Debenture. The number of shares of common stock issuable upon conversion of each 2023 Debenture shall be determined by dividing the outstanding balance under each 2023 Debenture (including all accrued and unpaid interest and accrued and unpaid late charges, if any) by a conversion price that is the lower of (x) 80% (or 70% if our common stock is not then trading on Nasdaq) of the average of the two lowest VWAPs over a specified measurement period following the conversion date (the “Variable Conversion Price”), and (y) $1.40 (the “Fixed Conversion Price”), subject to full ratchet anti-dilution protection in the event we issue certain equity securities at a price below the then Fixed Conversion Price. The 2023 Debentures are unsecured and expressly junior to any of our existing or future debt obligations. Notwithstanding anything to the contrary, under no circumstances shall the Variable Conversion Price be less than the floor price of $0.20 as specified in the 2023 Debentures. Additionally, in the event of a bankruptcy, we are required to redeem the 2023 Debentures in cash in an amount equal to the then outstanding balance of the 2023 Debentures multiplied by 120%. The 2023 Debentures further provide that we will not effect the conversion of any portion of the 2023 Debentures, and the holder thereof will not have the right to a conversion of any portion of the 2023 Debentures, to the extent that after giving effect to such conversion, the holder together with its affiliates would beneficially own more than 4.99% of the outstanding shares of our common stock immediately after giving effect to such conversion. Furthermore, we may not issue shares of common stock underlying the 2023 Debentures if such issuance would require us to obtain stockholder approval under the Nasdaq rules or until such stockholder approval has been obtained.

Concurrently with entering into the 2023 Debenture Purchase Agreement, we also entered into a registration rights agreement with Ionic (the “2023 Registration Rights Agreement”), in which we agreed to file with the SEC one or more registration statements, as necessary, and to the extent permissible and subject to certain exceptions, to register under the

Securities Act of 1933, as amended, the resale of the shares of our common stock issuable upon conversion of the 2023 Debentures and the shares of common stock that may be issued to Ionic if we fail to comply with our obligations in the 2023 Registration Rights Agreement. The 2023 Registration Rights Agreement requires that we file, within 15 calendar days after we file our 2022 Form 10-K, a resale registration statement and use commercially reasonable efforts to have such resale registration statement declared effective by the SEC on or before the earlier of (i) 90 days after signing of the 2023 Registration Rights Agreement (or 120 days if such registration statement is subject to full review by the SEC) and (ii) the 2nd business day after we are notified we will not be subject to further SEC review. If we fail to file or have the resale registration statement declared effective by the specified deadlines, then in each instance, we will issue to Ionic 150,000 shares of our common stock within two trading days after such failure, and with respect to the Conversion Shares, we will additionally pay in cash, as liquidated damages, an amount equal to 2% of the amount then currently outstanding under the 2023 Debentures for failure to file and have the Resale Registration Statement declared effective by the same deadlines set forth above for each 30-day period after each such failure.

Equity Line of Credit

The ELOC Purchase Agreement, as amended (see below), provides that, upon the terms and subject to the conditions and limitations set forth therein, we have the right to direct Ionic to purchase up to an aggregate of $50.0 million of shares of our common stock over the 36-month term of the ELOC Purchase Agreement. Under the ELOC Purchase Agreement, after the satisfaction of certain commencement conditions, including, without limitation, the effectiveness of a resale registration statement filed with the SEC registering such shares and that the 2022 Debenture shall have been fully converted into shares of common stock or shall otherwise have been fully redeemed and settled in all respects in accordance with the terms of the 2022 Debenture, we have the right to present Ionic with a purchase notice (each, a “Purchase Notice”) directing Ionic to purchase any amount up to $3.0 million of our common stock per trading day, at a per share price equal to 90% (or 80% if our common stock is not then trading on Nasdaq) of the average of the two lowest volume-weighted average prices (“VWAPs”) over a specified measurement period. With each purchase under the ELOC Purchase Agreement, we are required to deliver to Ionic an additional number of shares equal to 2.5% of the number of shares of common stock deliverable upon such purchase. The number of shares that we can issue to Ionic from time to time under the ELOC Purchase Agreement shall be subject to the condition that we will not sell shares to Ionic to the extent that Ionic, together with its affiliates, would beneficially own more than 4.99% of the outstanding shares of our common stock immediately after giving effect to such sale (the “Beneficial Ownership Limitation”).

In addition, Ionic will not be required to buy any shares of our common stock pursuant to a Purchase Notice on any trading day on which the closing trade price of our common stock is below $0.20 (as amended by the Letter Agreement, as defined below). We will control the timing and amount of sales of our common stock to Ionic. Ionic has no right to require any sales by us, and is obligated to make purchases from us as directed solely by us in accordance with the ELOC Purchase Agreement. The ELOC Purchase Agreement provides that we will not be required or permitted to issue, and Ionic will not be required to purchase, any shares under the ELOC Purchase Agreement if such issuance would violate Nasdaq rules, and we may, in our sole discretion, determine whether to obtain stockholder approval to issue shares in excess of 19.99% of our outstanding shares of common stock if such issuance would require stockholder approval under Nasdaq rules. Ionic has agreed that neither it nor any of its agents, representatives and affiliates will engage in any direct or indirect short-selling or hedging our common stock during any time prior to the termination of the ELOC Purchase Agreement.

The ELOC Purchase Agreement may be terminated by us at any time after commencement, at our discretion; provided, however, that if we sold less than $25.0 million to Ionic (other than as a result of our inability to sell shares to Ionic as a result of the Beneficial Ownership Limitation, our failure to have sufficient shares authorized or our failure to obtain stockholder approval to issue more than 19.99% of our outstanding shares), we will pay to Ionic a termination fee of $0.5 million, which is payable, at our option, in cash or in shares of common stock at a price equal to the closing price on the day immediately preceding the date of receipt of the termination notice. Further, the ELOC Purchase Agreement will automatically terminate on the date that we sell, and Ionic purchases, the full $50.0 million amount under the agreement or, if the full amount has not been purchased, on the expiration of the 36-month term of the ELOC Purchase Agreement.

On January 5, 2023, we and Ionic entered into a letter agreement (the “Letter Agreement”) which amended the ELOC Purchase Agreement. Under the Letter Agreement, the parties agreed, among other things, to (i) amend the floor price below which Ionic will not be required to buy any shares of our common stock under the ELOC Purchase Agreement from $0.25 to $0.20, determined on a post-reverse split basis, (ii) amend the per share purchase price for purchases under the ELOC Purchase Agreement to 90% of the average of the two lowest daily VWAPs over a specified measurement period, which will commence at the conclusion of the applicable measurement period related to the 2022 Debenture and (iii) waive certain requirements in the ELOC Purchase Agreement to allow for a one-time $0.5 million purchase under the ELOC Purchase Agreement.

As partial consideration for the waiver to allow for the $0.5 million purchase by Ionic, we agreed to issue to Ionic that number of shares (the “Letter Agreement Shares”) equal to the difference between (x) the variable conversion price in the 2022 Debenture, and (y) the calculation achieved as a result of the following formula: 80% (or 70% if our common stock is not then trading on Nasdaq) of the lowest VWAP starting on the trading day immediately following the receipt of pre-settlement conversion shares following the date on which the 2022 Debenture automatically converts or other relevant date of determination and ending the later of (a) 10 consecutive trading days after (and not including) the Automatic Conversion Date (as defined in the ELOC Agreement) or such other relevant date of determination and (b) the trading day immediately after shares of our common stock in the aggregate amount of at least $13.9 million shall have traded on Nasdaq. Upon issuance of the purchase notice evidencing the ELOC Advance (defined below), we initially estimated the obligation to issue common stock at approximately $0.2 million. As of March 31, 2023, we had not issued any of our common stock in relation to the Letter Agreement Shares, leaving an estimated 200,715 shares to be issued, representing an obligation with a fair value of $0.3 million.

During January 2023, Ionic advanced $1.0 million dollars (the “ELOC Advance”) to us pursuant to the ELOC Agreement, as amended. Upon issuance of the purchase notice evidencing the ELOC Advance, we initially estimated the obligation to issue common stock at approximately $1.3 million. As of March 31, 2023, we had not issued any of our common stock in relation to the First 2023 Debenture, leaving an estimated 1,068,376 shares to be issued, representing an obligation with a fair value of $1.5 million.

Accounting for the Debentures and the ELOC

Using the guidance in ASC Topic 480, Distinguishing Liabilities from Equity, we evaluated the 2022 Debenture Purchase Agreement and its associated 2022 Debenture, the 2023 Debenture Purchase Agreement and its associated First 2023 Debenture, and the ELOC Purchase Agreement and its associated Letter Agreement and ELOC Advance, and determined that all represented obligations that must or may be settled with a variable number of shares, the monetary value of which was based solely or predominantly on a fixed monetary amount known at inception. Using a Level 3 input, we estimated the number of shares of our common stock that we would have to issue for each obligation and multiplied the estimated number of shares by the closing market price of our common stock on the measurement date to determine the fair value of the obligation. We then recorded the amount of the initial obligation in excess of the purchase price as finance cost. We remeasure each obligation at every balance sheet date until all shares representing the obligation have been issued, with the change in the amount of the obligation being recorded as finance cost. The following table shows the changes in our obligations to issue common stock (dollars in thousands):

	2022 Debenture		First 2023 Debenture		Letter Agreement		ELOC Advance		Total
Obligations to Issue Common Stock
Balance at December 31, 2022	$	1,892	$	—	$	—	$	—	$	1,892
Establishment of new obligation to issue shares	—		2,501		249		1,325		4,075
Issuance of Shares	(2,985)		—		—		—		(2,985)
Change in measurement of liability	1,279		558		26		139		2,002
Balance at March 31, 2023	$	186	$	3,059	$	275	$	1,464	$	4,984
Estimated Number of Shares Issuable
Balance at December 31, 2022	1,720,349		—		—		—		1,720,349
Change in estimated number of shares issuable	510,465		—		—		—		510,465
Establishment of new obligation to issue shares	—		2,232,590		200,715		1,068,376		3,501,681
Issuance of Shares	(2,094,428)		—		—		—		(2,094,428)
Balance at March 31, 2023	136,386		2,232,590		200,715		1,068,376		3,638,067

The following table shows the composition of finance cost associated with our obligations to issue common stock (dollars in thousands):

	2022 Debenture		First 2023 Debenture		Letter Agreement		ELOC Advance		Total
Initial obligation in excess of purchase price	$	—	$	1,000	$	249	$	325	$	1,574
Change in measurement of liability	1,279		558		26		139		2,002
Total	$	1,279	$	1,558	$	275	$	464	$	3,576

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COMMITMENTS AND CONTINGENCIES

3 Months Ended

Mar. 31, 2023

Commitments and Contingencies Disclosure [Abstract]

COMMITMENTS AND CONTINGENCIES

NOTE 12. COMMITMENTS AND CONTINGENCIES

At March 31, 2023, we had no material commitments outside the normal course of business.

Contingencies

As of March 31, 2023, we were neither a defendant in any material pending legal proceeding nor are we aware of any material threatened claims against us and, therefore, we have not accrued any contingent liabilities.

Registration Rights Agreement

On September 27, 2021, we entered into a securities purchase agreement (the “Armistice Purchase Agreement”) with Armistice Capital Master Fund Ltd. (“Armistice Capital”) pursuant to which we issued shares of our common stock together with warrants to purchase our common stock, subject to certain customary anti-dilution adjustments (the “Armistice Warrants”).

In connection with our entry into the Armistice Purchase Agreement, we also entered into a registration rights agreement with Armistice Capital, pursuant to which we were obligated to file one or more registration statements, as necessary, to register under the Securities Act of 1933, as amended, the resale of the shares we issued to Armistice Capital and the shares underlying the Armistice Warrants (collectively, the “Armistice Registrable Securities”) and to obtain effectiveness of such registration statement no later than 90 days following September 27, 2021. The registration rights agreement provided that if we failed to satisfy our obligation to timely obtain effectiveness, we would incur a penalty of as much as $1.0 million. The registration statement to register the resale of the Armistice Registrable Securities was declared effective on October 31, 2022. We had accrued the maximum penalty and, as of December 31, 2022, paid $0.2 million of such amount, resulting in an unpaid amount of $0.8 million included in other accrued expense during the three months ended March 31, 2023.

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STOCKHOLDERS' EQUITY (DEFICIT)

3 Months Ended

Mar. 31, 2023

Stockholders' Equity Note [Abstract]

STOCKHOLDERS' EQUITY (DEFICIT)

NOTE 13. STOCKHOLDERS' EQUITY (DEFICIT)

Warrants

The following table summarizes information related to our equity-classified stock warrant issuances as of and for the dates and periods noted:

	Shares	Weighted Average Exercise Price Per Share		Weighted-Average Remaining Contractual Term	Aggregate Intrinsic Value (in thousands)
Outstanding at December 31, 2022	1,011,441	$	40.10	3.7	$	—
Granted	—	—
Exercised	—	—
Forfeited, cancelled or expired	—	—
Outstanding at March 31, 2023	1,011,441	$	40.10	3.4	$	—

Share-Based Compensation 

We are authorized to issue equity-based awards under our 2014 Incentive Plan, our 2017 Incentive Plan and our 2022 Incentive Plan, each of which our stockholders have approved. We also award cash bonuses (“China Cash Bonuses”) to our employees in China, which grants are not subject to a formal incentive plan and which can only be settled in cash. We grant such awards to attract, retain and motivate eligible officers, directors, employees and consultants. Under each of the plans, we have granted shares of restricted stock and options to purchase common stock to our officers and employees with exercise prices equal to or greater than the fair value of the underlying shares on the grant date.

Stock options and China Cash Bonuses generally expire 10 years from the grant date. All forms of equity awards and China Cash Bonuses vest upon the passage of time, the attainment of performance criteria, or both. When participants exercise stock options, we issue any shares of our common stock resulting from such exercise from new authorized and unallocated shares available at the time of exercise.

The following table summarizes activity under our equity incentive plans related to equity-classified stock option grants as of and for the dates and periods noted:

	Shares	Weighted Average Exercise Price Per Share		Weighted-Average Remaining Contractual Term	Aggregate Intrinsic Value (in thousands)
Outstanding at December 31, 2022	1,626,631	$	30.31	5.5	$	1
Granted	—	—
Exercised	—	—
Forfeited, cancelled or expired	(285)	12.50
Outstanding at March 31, 2023	1,626,346	$	30.31	5.2	$	12
Exercisable at December 31, 2022	1,549,681	31.41		5.3	$	1
Exercisable at March 31, 2023	1,589,946	30.96		5.1	$	6

The following table summarizes activity related to our liability-classified China Cash Bonuses as of and for the dates and periods noted:

	Shares	Weighted Average Exercise Price Per Share		Weighted-Average Remaining Contractual Term	Aggregate Intrinsic Value (in thousands)
Outstanding at December 31, 2022	71,450	$	35.99	6.1	$	—
Granted	—	—
Exercised	—	—
Forfeited, cancelled or expired	—	—
Outstanding at March 31, 2023	71,450	$	35.99	5.9	$	—
Exercisable at December 31, 2022	68,450	36.97		6.1	$	—
Exercisable at March 31, 2023	71,450	35.99		5.9	$	—

The following table presents the change in the liability associated with our China Cash Bonuses included in Accrued expense and other current liabilities (in thousands):

	Three Months Ended March 31,		Year Ended December 31,
	2023		2022
Balance at beginning of period	$	32	$	439
Share-based compensation expense related to China Cash Bonuses	12		(407)
Balance at end of period	$	44	$	32

The following table presents a breakdown of share-based compensation cost included in operating expense (in thousands):

	Three Months Ended March 31,
	2023		2022
Stock options	$	143	$	514
China Cash Bonuses	12		(85)
Total	$	155	$	429

We record share-based compensation expense in the books of the subsidiary that incurs the expense, while for equity-classified stock options we record the change in additional paid-in capital on the corporate entity because the corporate entity’s equity underlies such stock options.

The following table presents information regarding unrecognized share-based compensation cost associated with stock options and China Cash Bonuses:

	March 31, 2023
Unrecognized share-based compensation cost for non-vested awards (in thousands):
Stock options	55
China Cash Bonuses	—
Weighted-average years over which unrecognized share-based compensation expense will be recognized:
Stock options	1.9
China Cash Bonuses	0

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RELATED PARTY TRANSACTIONS

3 Months Ended

Mar. 31, 2023

Related Party Transactions [Abstract]

RELATED PARTY TRANSACTIONS

NOTE 14. RELATED PARTY TRANSACTIONS

As of March 31, 2023, we owed approximately $1.2 million to members of management representing various operating expense payments made on our behalf.

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CHINA BUSINESS PARTNER

3 Months Ended

Mar. 31, 2023

Business Combination and Asset Acquisition [Abstract]

CHINA BUSINESS PARTNER

NOTE 15. CHINA BUSINESS PARTNER

We interact with an unrelated entity (the “China Business Partner”) in more than one capacity. Firstly, since 2020, we have been working with the China Business Partner to earn revenue by obtaining business from some of the largest companies in China. Secondly, our artificial intelligence business in the U.S. has purchased substantially all of its inventory from a subsidiary of the China Business Partner which manufactures certain equipment to our specifications; though, during the three months ended March 31, 2023, we did not make any such purchases. In addition, a member of our senior leadership team maintains a role in the senior management structure of the China Business Partner.

During the three months ended March 31, 2023 and 2022, we recognized approximately $0.1 million and $2.2 million, respectively, of revenue from the relationship with the China Business Partner. At March 31, 2023 and December 31, 2022, in addition to the outstanding accounts receivable balances from the China Business Partner described in Note 5, we had outstanding accounts payable to the China Business Partner of $0.7 million and $0.7 million, respectively.

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SUBSEQUENT EVENTS

3 Months Ended

Mar. 31, 2023

Subsequent Events [Abstract]

SUBSEQUENT EVENTS

NOTE 16. SUBSEQUENT EVENTS

Ionic Transactions

On May 4, 2023, we issued 136,386 shares to Ionic in final settlement of our obligation to issue shares under the 2022 Debenture and 200,715 shares in final settlement of our obligation to issue the Letter Agreement Shares. On May 5, 2023, we issued 378,965 shares to Ionic in partial settlement of our obligation to issue shares related to the ELOC Advance.

Failure to Maintain Continued Listing Standards

On April 27, 2023, we received a written notice from the Nasdaq Listing Qualifications Department notifying us that, pursuant to Nasdaq Listing Rule 5550(b)(3), we are required to maintain a minimum of $500,000 in net income from continuing operations in the most recently completed fiscal year, or two of the last three fiscal years (the “Net Income Standard”). Since our 2022 Form 10-K reported net loss from continuing operations, and as of April 25, 2023, we did not meet the alternative continued listing standards (collectively, with the Net Income Standard, the “Continued Listing Standards”) under Nasdaq Listing Rule 5550(b) of a minimum stockholders' equity of $2.5 million or minimum market value of listed securities of $35 million, we no longer comply with the Continued Listing Standards.

In accordance with Nasdaq Listing Rule 5810(c)(2)(A), we have 45 calendar days, or until June 12, 2023, to submit a plan to regain compliance with the Continued Listing Standards (the “Cure Period”). If the Nasdaq Listing Qualifications Department accepts our plan, they can grant us an extension of up to 180 calendar days from April 27, 2023 to evidence

compliance. If the Nasdaq Listing Qualifications Department does not accept our plan, we can appeal such decision to the Nasdaq Hearings Panel.

Our common stock will continue to be listed and traded on Nasdaq during the Cure Period, subject to our compliance with the other continued listing requirements of Nasdaq.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

3 Months Ended

Mar. 31, 2023

Accounting Policies [Abstract]

Basis of Presentation

Basis of Presentation

We prepared the accompanying unaudited Condensed Consolidated Balance Sheet as of March 31, 2023, with the audited Consolidated Balance Sheet amounts as of December 31, 2022 presented for comparative purposes, and the related unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss, the Condensed Consolidated Statements of Cash Flows and the Condensed Consolidated Statements of Stockholders’ Deficit in accordance with the instructions for Form 10-Q. In compliance with those instructions, we have omitted certain information and footnote disclosures normally included in annual consolidated financial statements prepared in accordance with U.S. GAAP, though management believes the disclosures made herein are sufficient to ensure that the information presented is not misleading.

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

Management believes that we have included all adjustments (including those of a normal, recurring nature) considered necessary to fairly present our unaudited Condensed Consolidated Balance Sheet and our unaudited Condensed Consolidated Statement of Stockholders’ Deficit, each as of March 31, 2023, as well as our unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss and Condensed Consolidated Statements of Cash Flows for all periods presented. You should read our unaudited condensed consolidated interim financial statements and footnotes in conjunction with our

consolidated financial statements and footnotes included within the Annual Report on Form 10-K for the year ended December 31, 2022 (the “2022 Form 10-K”).

Consolidation

Consolidation

We include all of our subsidiaries in our condensed consolidated financial statements, eliminating all significant intercompany balances and transactions during consolidation.

Use of Estimates

Use of Estimates

We prepare our consolidated financial statements in conformity with GAAP. While preparing our financial statements, we make estimates and assumptions that affect amounts reported and disclosed in the consolidated financial statements and accompanying notes. Accordingly, actual results could differ from those estimates. On an ongoing basis, we evaluate our estimates, including those related to accounts receivable, deferred cost of revenue, share-based compensation, deferred income taxes, and inventory reserve, among other items.

The impact of the COVID-19 pandemic continues to unfold. As a result, many of our estimates and assumptions required increased judgment and carry a higher degree of variability and volatility. As events continue to evolve and additional information becomes available, our estimates may change materially in future periods.

Cash

Cash

Our cash consists of funds held in bank accounts.

Fair Value of Financial Instruments

Fair Value of Financial Instruments

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants (an exit price). When reporting the fair values of our financial instruments, we prioritize those fair value measurements into one of three levels based on the nature of the inputs, as follows:

Level 1:    Valuations based on quoted prices in active markets for identical assets and liabilities;

Level 2:    Valuations based on observable inputs that do not meet the criteria for Level 1, including quoted prices in inactive markets and observable market data for similar, but not identical instruments; and

Level 3:    Valuations based on unobservable inputs, which are based upon the best available information when external market data is limited or unavailable.

The fair value hierarchy requires us to use observable market data, when available, and to minimize the use of unobservable inputs when determining fair value. For some products or in certain market conditions, observable inputs may not be available.

We believe the reported carrying amounts for cash, marketable securities, receivables, prepaids and other current assets, accounts payable, accrued expense and other current liabilities, and short-term debt approximate their fair values because of the short-term nature of these financial instruments.

Foreign Currency Translation

Foreign Currency Translation

We report all currency amounts in USD. Our overseas subsidiaries, however, maintain their books and records in their functional currencies, which are GBP in the United Kingdom (“U.K.”) and RMB in China.

In general, when consolidating our subsidiaries with non-USD functional currencies, we translate the amounts of assets and liabilities into USD using the exchange rate on the balance sheet date, and the amounts of revenue and expense are translated at the average exchange rate prevailing during the period. The gains and losses resulting from translation of financial statement amounts into USD are recorded as a separate component of accumulated other comprehensive loss within stockholders’ deficit.

Revenue Recognition

Revenue Recognition

AI-Based Products

We generate revenue by developing AI-based products, including fully-integrated AI solutions which combine our proprietary technology with third-party hardware and software products to meet end-user specifications. Under one type of contract for our AI-based products, we provide a single, continuous service to clients who control the assets as we create them. Accordingly, we recognize the revenue over the period of time during which we provide the service. Under another type of contract, we have performance obligations to provide fully-integrated AI solutions to our customer and we recognize revenue at the point in time when each performance obligation is completed and delivered to, tested by and accepted by our customer.

We recognize revenue when we transfer control of the promised goods or services to our customers, and we recognize an amount that reflects the consideration to which we expect to be entitled in exchange for those goods or services. If there is uncertainty related to the timing of collections from our customer, which may be the case if our customer is not the ultimate end user of our goods, we consider this to be uncertainty of the customer’s ability and intention to pay us when consideration is due. Accordingly, we recognize revenue only when we have transferred control of the goods or services and collectability of consideration from the customer is probable.

When customers pay us prior to when we satisfy our obligation to transfer control of promised goods or services, we record the amount that reflects the consideration to which we expect to be entitled as a contract liability until such time as we satisfy our performance obligation.

For contracts under which we have not yet completed the performance obligation, deferred costs are recorded for any amounts incurred in advance of the performance obligation.

For our contracts with customers, we generally extend short-term credit policies to our customers, typically up to one year for large-scale projects.

We record the incremental costs of obtaining contracts as an expense when incurred.

We offer extended warranties on our products for periods of one to three years. Revenue from these extended warranties is recognized on a straight-line basis over the warranty contract term.

Other

We generate revenue from other sources, such as from advertising and marketing services. We recognize the revenue from these contracts at the point in time when we transfer control of the good sold to the customer or when we deliver the promised promotional materials or media content. Substantially all of our contracts with customers that generate Other revenue are completed within one year or less.

Inventory

InventoryWe use the first-in first-out method to determine the cost of our inventory, then we report inventory at the lower of cost or net realizable value. We regularly review our inventory quantities on hand and record a provision for excess and obsolete inventory based primarily on our estimated sales forecasts.

Refundable Tax Credits

Refundable Tax CreditsWe charge the cost of our research and development efforts to operations as incurred. Our subsidiary in the United Kingdom is entitled to receive certain government assistance in the form of refundable research and development tax credits from taxation authorities, based on qualifying expenditures incurred during the fiscal year. The refundable credits are not dependent on our ongoing tax status or tax position and accordingly are not considered part of income taxes. We record refundable tax credits as a reduction of technology and development expense when we can reasonably estimate the amount and it is more likely than not that such amount will be received.

Internal Use Software

Internal Use Software

We acquire or develop applications and other software that help us meet our internal needs with respect to operating our business. For such projects, planning cost and other costs related to the preliminary project stage, as well as costs incurred for post-implementation activities, are expensed as incurred. We capitalize costs incurred during the application development phase only when we believe it is probable the development will result in new or additional functionality. The types of costs capitalized during the application development phase include fees incurred with third parties for consulting, programming and other development activities performed to complete the software. We amortize our internal use software on a straight-line basis over an estimated useful life of three years. If we identify any internal use software to be abandoned, the cost less the accumulated amortization, if any, is recorded as amortization expense. Once we have fully amortized internal use software costs that we capitalized, we remove such amounts from their respective accounts.

Net Income (Loss) per Share

Net Income (Loss) per Share

We calculate basic net income (loss) per share using the weighted-average number of common stock shares outstanding during the period. For the calculation of diluted net income (loss) per share, we give effect to all the shares of common stock that were outstanding during the period plus the number of additional common shares that would have been outstanding if all dilutive potential common shares had been issued, using the treasury stock method. Potential common shares are excluded from the computation when their effect is anti-dilutive. Dilutive potential shares of common stock consist of incremental shares of common stock issuable upon exercise of stock options and warrants.

Segments

Segments

Existing GAAP, which establishes a management approach to segment reporting, defines operating segments as components of an entity about which separate, discrete financial information is available for evaluation by the chief operating decision maker. We have identified our Chief Executive Officer as our chief operating decision maker, who reviews operating results to make decisions about allocating resources and assessing performance based upon only one operating segment.

Recently Issued Accounting Pronouncements

Recently Issued Accounting Pronouncements

In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2020-06 (“ASU 2020-06”), Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. The ASU will simplify the accounting for convertible instruments by reducing the number of accounting models for convertible debt instruments and convertible preferred stock. Limiting the accounting models will result in fewer embedded conversion features being separately recognized from the host contract as compared with current GAAP. Convertible instruments that continue to be subject to separation models are (1) those with embedded conversion features that are not clearly and closely related to the host contract, that meet the definition of a derivative, and that do not qualify for a scope exception from derivative accounting and (2) convertible debt instruments issued with substantial premiums for which the premiums are recorded as paid-in capital. The ASU also amends the guidance for the derivatives scope exception for contracts in an entity’s own equity to reduce form-over-substance-based accounting conclusions. With regard to our financial reporting, ASU 2020-06 will be effective January 1, 2024, and early adoption is permitted, but no earlier than January 1, 2021, including interim periods within that year. We are currently evaluating what effect(s) the adoption of ASU 2020-06 may have on our consolidated financial statements, but we do not believe the impact of the ASU will be material to our financial position, results of operations and cash flows. The effect will largely depend on the composition and terms of the financial instruments at the time of adoption.

We have reviewed all accounting pronouncements recently issued by the FASB and the SEC. The authoritative pronouncements that we have already adopted did not have a material effect on our financial condition, results of operations, cash flows or reporting thereof, and except as otherwise noted above, we do not believe that any of the authoritative pronouncements that we have not yet adopted will have a material effect upon our financial condition, results of operations, cash flows or reporting thereof.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables)

3 Months Ended

Mar. 31, 2023

Accounting Policies [Abstract]

Schedule of Cash and Cash Equivalents

The following table, reported in USD, disaggregates our cash balances by currency denomination (in thousands):

	March 31, 2023		December 31, 2022
Cash denominated in:
USD	$	238	$	11
RMB	66		19
GBP	5		17
HKD	55		5
Total cash	$	364	$	52

Schedule of Exchange Rates

We used the exchange rates in the following table to translate amounts denominated in non-USD currencies as of and for the periods noted:

	2023	2022
Exchange rates at March 31st:
GBP:USD	1.237	1.313
RMB:USD	0.146	0.158
HKD:USD	0.127	0.128
Average exchange rate during the three months ended March 31st:
RMB:USD	0.146	0.158
GBP:USD	1.214	1.317

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REVENUE (Tables)

3 Months Ended

Mar. 31, 2023

Revenue from Contract with Customer [Abstract]

Schedule of Disaggregation of Revenue by Major Category

The following table presents a disaggregation of our revenue by category of products and services (in thousands):

	Three Months Ended March 31,
	2023		2022
AI-based products and services, including amounts from China Business Partner in 2023 (See Note 15)	$	721	$	4,546
Other	105		121
Revenue	$	826	$	4,667

Schedule of Disaggregation of Revenue by Country

The following table presents a disaggregation of our revenue by country (in thousands):

	Three Months Ended March 31,
	2023		2022
China	$	743	$	4,554
United States	83		113
Revenue	$	826	$	4,667

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TRADE ACCOUNTS RECEIVABLE (Tables)

3 Months Ended

Mar. 31, 2023

Receivables [Abstract]

Schedule of Components of Prepaid Expense and Other Current Assets

	March 31, 2023		December 31, 2022
Gross accounts receivable balance	$	6,885	$	7,213
Allowance for bad debt	(4,166)		(4,122)
Accounts receivable, net	$	2,719	$	3,091

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PREPAID EXPENSE AND OTHER CURRENT ASSETS (Tables)

3 Months Ended

Mar. 31, 2023

Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract]

Schedule of Prepaid Expense and Other Current Assets

The following table presents the components of prepaid expense and other current assets (in thousands):

	March 31, 2023		December 31, 2022
Other receivables	10		23
Prepaid expense	1,057		1,144
Deposits	203		201
Other current assets	5		6
Total	$	1,275	$	1,374

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PROPERTY AND EQUIPMENT (Tables)

3 Months Ended

Mar. 31, 2023

Property, Plant and Equipment [Abstract]

Schedule of Property and Equipment

Property and equipment consist of the following (in thousands, except estimated lives):

	Estimated Life (Years)	March 31, 2023		December 31, 2022
Vehicles	3	$	153	153
Computers and equipment	3	1,172		$	1,170
Furniture and fixtures	3	42		42
Software	3	5,168		5,160
Leasehold improvements	3	202		204
Software development in progress		1,199		1,199
Total property, equipment and software		$	7,936	$	7,928
Less accumulated depreciation		(6,276)		(6,229)
Total property, equipment and software, net		$	1,660	$	1,699

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ACCRUED EXPENSE AND OTHER CURRENT LIABILITIES (Tables)

3 Months Ended

Mar. 31, 2023

Other Liabilities Disclosure [Abstract]

Schedule of Accrued Expense and Other Current Liabilities

The following table presents the components of Accrued expense and other current liabilities (in thousands):

	March 31, 2023		December 31, 2022
Accrued compensation and benefit-related expense	$	2,007	$	1,448
Accrued interest	167		769
Other accrued expense	2,430		2,393
Other payables	2,224		2,234
Operating lease liability - current	120		138
China Cash Bonuses (see Note 15)	44		32
Other current liabilities	147		208
Total	$	7,139	$	7,222

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NOTES PAYABLE (Tables)

3 Months Ended

Mar. 31, 2023

Debt Disclosure [Abstract]

Schedule of Notes Payable

The following table presents our notes payable (in thousands) as of:

	March 31, 2023		December 31, 2022
Principal balance of Original Mudrick Loans	$	16,307	$	14,418
Other notes payable	181		189
Notes payable, net of unamortized discount and debt issuance cost	$	16,488	$	14,607

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TRANSACTIONS WITH IONIC (Tables)

3 Months Ended

Mar. 31, 2023

Debt Disclosure [Abstract]

Schedule of Activity Related to All Obligations to Issue Shares

The following table shows the changes in our obligations to issue common stock (dollars in thousands):

	2022 Debenture		First 2023 Debenture		Letter Agreement		ELOC Advance		Total
Obligations to Issue Common Stock
Balance at December 31, 2022	$	1,892	$	—	$	—	$	—	$	1,892
Establishment of new obligation to issue shares	—		2,501		249		1,325		4,075
Issuance of Shares	(2,985)		—		—		—		(2,985)
Change in measurement of liability	1,279		558		26		139		2,002
Balance at March 31, 2023	$	186	$	3,059	$	275	$	1,464	$	4,984
Estimated Number of Shares Issuable
Balance at December 31, 2022	1,720,349		—		—		—		1,720,349
Change in estimated number of shares issuable	510,465		—		—		—		510,465
Establishment of new obligation to issue shares	—		2,232,590		200,715		1,068,376		3,501,681
Issuance of Shares	(2,094,428)		—		—		—		(2,094,428)
Balance at March 31, 2023	136,386		2,232,590		200,715		1,068,376		3,638,067

The following table shows the composition of finance cost associated with our obligations to issue common stock (dollars in thousands):

	2022 Debenture		First 2023 Debenture		Letter Agreement		ELOC Advance		Total
Initial obligation in excess of purchase price	$	—	$	1,000	$	249	$	325	$	1,574
Change in measurement of liability	1,279		558		26		139		2,002
Total	$	1,279	$	1,558	$	275	$	464	$	3,576

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STOCKHOLDERS' EQUITY (DEFICIT) (Tables)

3 Months Ended

Mar. 31, 2023

Stockholders' Equity Note [Abstract]

Schedule of Share-based Payment Arrangement, Activity

The following table summarizes information related to our equity-classified stock warrant issuances as of and for the dates and periods noted:

	Shares	Weighted Average Exercise Price Per Share		Weighted-Average Remaining Contractual Term	Aggregate Intrinsic Value (in thousands)
Outstanding at December 31, 2022	1,011,441	$	40.10	3.7	$	—
Granted	—	—
Exercised	—	—
Forfeited, cancelled or expired	—	—
Outstanding at March 31, 2023	1,011,441	$	40.10	3.4	$	—

Schedule of Stock Option Activity Under Equity Incentive Plans

The following table summarizes activity under our equity incentive plans related to equity-classified stock option grants as of and for the dates and periods noted:

	Shares	Weighted Average Exercise Price Per Share		Weighted-Average Remaining Contractual Term	Aggregate Intrinsic Value (in thousands)
Outstanding at December 31, 2022	1,626,631	$	30.31	5.5	$	1
Granted	—	—
Exercised	—	—
Forfeited, cancelled or expired	(285)	12.50
Outstanding at March 31, 2023	1,626,346	$	30.31	5.2	$	12
Exercisable at December 31, 2022	1,549,681	31.41		5.3	$	1
Exercisable at March 31, 2023	1,589,946	30.96		5.1	$	6

The following table summarizes activity related to our liability-classified China Cash Bonuses as of and for the dates and periods noted:

	Shares	Weighted Average Exercise Price Per Share		Weighted-Average Remaining Contractual Term	Aggregate Intrinsic Value (in thousands)
Outstanding at December 31, 2022	71,450	$	35.99	6.1	$	—
Granted	—	—
Exercised	—	—
Forfeited, cancelled or expired	—	—
Outstanding at March 31, 2023	71,450	$	35.99	5.9	$	—
Exercisable at December 31, 2022	68,450	36.97		6.1	$	—
Exercisable at March 31, 2023	71,450	35.99		5.9	$	—

Schedule of Change in Liability Balance Associated with China Cash Bonuses

The following table presents the change in the liability associated with our China Cash Bonuses included in Accrued expense and other current liabilities (in thousands):

	Three Months Ended March 31,		Year Ended December 31,
	2023		2022
Balance at beginning of period	$	32	$	439
Share-based compensation expense related to China Cash Bonuses	12		(407)
Balance at end of period	$	44	$	32

Schedule of Share-based Payment Arrangement, Expensed and Capitalized, Amount

The following table presents a breakdown of share-based compensation cost included in operating expense (in thousands):

	Three Months Ended March 31,
	2023		2022
Stock options	$	143	$	514
China Cash Bonuses	12		(85)
Total	$	155	$	429

Summary of Unrecognized Share-based Compensation Cost

The following table presents information regarding unrecognized share-based compensation cost associated with stock options and China Cash Bonuses:

	March 31, 2023
Unrecognized share-based compensation cost for non-vested awards (in thousands):
Stock options	55
China Cash Bonuses	—
Weighted-average years over which unrecognized share-based compensation expense will be recognized:
Stock options	1.9
China Cash Bonuses	0

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ORGANIZATION AND BUSINESS (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2023	Dec. 31, 2022	Mar. 31, 2022	Dec. 31, 2021
Consolidation, Less than Wholly Owned Subsidiary, Parent Ownership Interest, Effects of Changes, Net [Line Items]
Stockholders' equity	$ 25,777	$ 20,425	$ (6,121)	$ (31,034)
Net cash used in operating activities	2,100
Cash and cash equivalents	$ 364	$ 52
WFOE
Consolidation, Less than Wholly Owned Subsidiary, Parent Ownership Interest, Effects of Changes, Net [Line Items]
Ownership percentage by parent	100.00%

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Cash and cash equivalents (Details) - USD ($) $ in Thousands	Mar. 31, 2023	Dec. 31, 2022
Financial Statement Line Items with Differences in Reported Amount and Reporting Currency Denominated Amounts [Line Items]
Total cash	$ 364	$ 52
USD
Financial Statement Line Items with Differences in Reported Amount and Reporting Currency Denominated Amounts [Line Items]
Total cash	238	11
RMB
Financial Statement Line Items with Differences in Reported Amount and Reporting Currency Denominated Amounts [Line Items]
Total cash	66	19
GBP
Financial Statement Line Items with Differences in Reported Amount and Reporting Currency Denominated Amounts [Line Items]
Total cash	5	17
HKD
Financial Statement Line Items with Differences in Reported Amount and Reporting Currency Denominated Amounts [Line Items]
Total cash	$ 55	$ 5

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Foreign Currency Translation (Details)	Mar. 31, 2023	Mar. 31, 2022
GBP
Financial Statement Line Items with Differences in Reported Amount and Reporting Currency Denominated Amounts [Line Items]
Foreign currency exchange rate	1.237	1.313
GBP | Weighted Average
Financial Statement Line Items with Differences in Reported Amount and Reporting Currency Denominated Amounts [Line Items]
Foreign currency exchange rate	1.214	1.317
RMB
Financial Statement Line Items with Differences in Reported Amount and Reporting Currency Denominated Amounts [Line Items]
Foreign currency exchange rate	0.146	0.158
RMB | Weighted Average
Financial Statement Line Items with Differences in Reported Amount and Reporting Currency Denominated Amounts [Line Items]
Foreign currency exchange rate	0.146	0.158
HKD
Financial Statement Line Items with Differences in Reported Amount and Reporting Currency Denominated Amounts [Line Items]
Foreign currency exchange rate	0.127	0.128

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Narrative (Details) $ in Millions	3 Months Ended
	Mar. 31, 2023 USD ($) segment shares	Dec. 31, 2022 USD ($) shares
Disaggregation of Revenue [Line Items]
Term of contract	1 year
Reserve for inventory | $	$ 2.2	$ 2.2
Tax credit | $	$ 0.5
Number of operating segments | segment	1
Stock options
Disaggregation of Revenue [Line Items]
Shares of common stock outstanding (in shares) | shares	1,626,346	1,626,631
Warrant
Disaggregation of Revenue [Line Items]
Anti-dilutive securities (in shares) | shares	1,011,440
Software
Disaggregation of Revenue [Line Items]
Estimate useful life (in years)	3 years
Other
Disaggregation of Revenue [Line Items]
Performance period (or less)	1 year
Minimum
Disaggregation of Revenue [Line Items]
Extended warranty period	1 year
Maximum
Disaggregation of Revenue [Line Items]
Extended warranty period	3 years

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CONCENTRATION OF RISK (Details) - Customer Concentration Risk	3 Months Ended		12 Months Ended
	Mar. 31, 2023	Mar. 31, 2022	Dec. 31, 2022
Customer A | Revenue
Concentration Risk [Line Items]
Concentration risk, percentage	50.00%	48.00%
Customer A | Gross Accounts Receivable
Concentration Risk [Line Items]
Concentration risk, percentage	26.00%		23.00%
Customer B | Revenue
Concentration Risk [Line Items]
Concentration risk, percentage		46.00%
Customer B | Gross Accounts Receivable
Concentration Risk [Line Items]
Concentration risk, percentage	11.00%		16.00%
Customer C | Gross Accounts Receivable
Concentration Risk [Line Items]
Concentration risk, percentage	11.00%		10.00%
Customer D | Gross Accounts Receivable
Concentration Risk [Line Items]
Concentration risk, percentage	10.00%

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REVENUE - Disaggregated by Major Category (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022
Disaggregation of Revenue [Line Items]
Revenue	$ 826	$ 4,667
AI-based products and services, including amounts from China Business Partner in 2023 (See Note 15)
Disaggregation of Revenue [Line Items]
Revenue	721	4,546
Other
Disaggregation of Revenue [Line Items]
Revenue	$ 105	$ 121

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REVENUE - Disaggregation by Country (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022
Disaggregation of Revenue [Line Items]
Revenue	$ 826	$ 4,667
China
Disaggregation of Revenue [Line Items]
Revenue	743	4,554
United States
Disaggregation of Revenue [Line Items]
Revenue	$ 83	$ 113

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REVENUE - Narrative (Details) - USD ($)	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022
Revenue from Contract with Customer [Abstract]
Revenue recognized on liability balances	$ 0	$ 0
Revenue recognized from performance obligations satisfied in previous periods	$ 0	$ 0

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TRADE ACCOUNTS RECEIVABLE (Details) - USD ($) $ in Thousands	3 Months Ended		12 Months Ended
	Mar. 31, 2023	Mar. 31, 2022	Dec. 31, 2022
Accounts, Notes, Loans and Financing Receivable [Line Items]
Gross accounts receivable balance	$ 6,885		$ 7,213
Allowance for bad debt	(4,166)		(4,122)
Accounts receivable, net	2,719		3,091
Provision for doubtful accounts	6	$ 0
China
Accounts, Notes, Loans and Financing Receivable [Line Items]
Provision for doubtful accounts			$ 2,800
Period past due			1 year
China | AI-based Products
Accounts, Notes, Loans and Financing Receivable [Line Items]
Trade receivables	$ 1,100		$ 1,100

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DEFERRED COST OF REVENUE (Details) - USD ($) $ in Thousands	Mar. 31, 2023	Dec. 31, 2022
Revenue from Contract with Customer [Abstract]
Deferred cost of revenue	$ 7,485	$ 7,463

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PREPAID EXPENSE AND OTHER CURRENT ASSETS (Details) - USD ($) $ in Thousands	Mar. 31, 2023	Dec. 31, 2022
Prepaid Expense and Other Current Assets
Other receivables	$ 10	$ 23
Prepaid expense	1,057	1,144
Deposits	203	201
Other current assets	5	6
Total	$ 1,275	$ 1,374

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PROPERTY AND EQUIPMENT (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2023	Dec. 31, 2022
Property, Plant and Equipment [Line Items]
Total property, equipment and software	$ 7,936	$ 7,928
Less accumulated depreciation	(6,276)	(6,229)
Total property, equipment and software, net	$ 1,660	1,699
Vehicles
Property, Plant and Equipment [Line Items]
Estimated Life (Years)	3 years
Total property, equipment and software	$ 153	153
Computers and equipment
Property, Plant and Equipment [Line Items]
Estimated Life (Years)	3 years
Total property, equipment and software	$ 1,172	1,170
Furniture and fixtures
Property, Plant and Equipment [Line Items]
Estimated Life (Years)	3 years
Total property, equipment and software	$ 42	42
Software
Property, Plant and Equipment [Line Items]
Estimated Life (Years)	3 years
Total property, equipment and software	$ 5,168	5,160
Leasehold improvements
Property, Plant and Equipment [Line Items]
Estimated Life (Years)	3 years
Total property, equipment and software	$ 202	204
Software development in progress
Property, Plant and Equipment [Line Items]
Total property, equipment and software	$ 1,199	$ 1,199

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ACCRUED EXPENSE AND OTHER CURRENT LIABILITIES (Details) - USD ($) $ in Thousands	Mar. 31, 2023	Dec. 31, 2022
Other Liabilities Disclosure [Abstract]
Accrued compensation and benefit-related expense	$ 2,007	$ 1,448
Accrued interest	167	769
Other accrued expense	2,430	2,393
Other payables	2,224	2,234
Operating lease liability - current	120	138
China Cash Bonuses (see Note 15)	44	32
Other current liabilities	147	208
Total	$ 7,139	$ 7,222

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NOTES PAYABLE - Schedule of Notes Payable (Details) - USD ($) $ in Thousands	Mar. 31, 2023	Mar. 14, 2023	Dec. 31, 2022	Jul. 11, 2022
Short-term Debt [Line Items]
Other notes payable	$ 181		$ 189
Notes payable, net of unamortized discount and debt issuance cost	16,488		14,607
Principal balance of Original Mudrick Loans
Short-term Debt [Line Items]
Principal balance of Original Mudrick Loans				$ 9,700
Principal balance of Original Mudrick Loans | Notes Payable
Short-term Debt [Line Items]
Principal balance of Original Mudrick Loans	$ 16,307	$ 14,400	$ 14,418

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NOTES PAYABLE - Narrative (Details) - USD ($)			3 Months Ended		12 Months Ended
	Mar. 14, 2023	Oct. 31, 2022	Mar. 31, 2023	Mar. 31, 2022	Dec. 31, 2022	Aug. 31, 2022	Jul. 11, 2022	Dec. 03, 2021
Debt Instrument [Line Items]
Interest expense			$ 1,544,000	$ 2,186,000
Short-term Note Payable to Private Lender
Debt Instrument [Line Items]
Note repayment of debt					$ 6,200,000
Debt, weighted average interest rate			6.20%
Debt instrument, weighted average remaining term			4 years 9 months 18 days
Principal balance of Original Mudrick Loans
Debt Instrument [Line Items]
Principal balance of Original Mudrick Loans							$ 9,700,000
Principal balance of Original Mudrick Loans | Short-term Note Payable to Private Lender
Debt Instrument [Line Items]
Principal balance of Original Mudrick Loans	$ 14,400,000		$ 16,307,000		14,418,000
Accrued interest on loan			600,000
Interest expense			300,000
Principal balance of Original Mudrick Loans | Short-term Note Payable to Private Lender | Accrued Expense and Other Current Liabilities
Debt Instrument [Line Items]
Accrued interest on loan					800,000
Principal balance of Original Mudrick Loans | Loans Payable
Debt Instrument [Line Items]
Principal balance of Original Mudrick Loans								$ 30,000,000
Debt interest rate percentage	20.50%					18.50%		16.50%
Increase, interest rate	2.00%	20.50%
Upfront fee (in percent)								5.00%
Debt instrument, unamortized discount								$ 1,500,000
Additional closing cost								$ 1,100,000
Amortization of debt issuance costs and discount					$ 2,200,000
New Mudrick Note Purchase Agreement | Mudrick Lenders
Debt Instrument [Line Items]
Principal balance of Original Mudrick Loans	$ 16,300,000
Accrued interest on loan	1,100,000
Interest expense	$ 800,000		$ 800,000

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TRANSACTIONS WITH IONIC - Narrative (Details)					3 Months Ended	12 Months Ended
	Mar. 14, 2023 USD ($) day debenture price $ / shares shares	Jan. 05, 2023 USD ($) day $ / shares	Nov. 07, 2022	Oct. 06, 2022 USD ($) $ / shares shares	Mar. 31, 2023 USD ($) shares	Dec. 31, 2022 USD ($) shares	Jan. 31, 2023 USD ($)
Debt Instrument [Line Items]
Additional shares to issue (in shares) | shares					3,638,067	1,720,349
Common stock issuance upon note payable conversion (in shares) | shares					2,094,428
Obligations to issue common stock					$ 4,984,000	$ 1,892,000
Ionic
Debt Instrument [Line Items]
Settlement shares (in shares) | shares				3,129,668		898,854
Common stock issuance upon note payable conversion (in shares) | shares					2,993,282
Settlement shares yet to be issued (in share) | shares					136,386
Ionic | ELOC Advance
Debt Instrument [Line Items]
Sale of stock, amount authorized in transaction				$ 50,000,000
Stock purchase obligation, period of purchase				36 months
Cash received on sale of shares				$ 3,000,000
Sale of stock, additional number of shares issued in percentage				2.50%
Required minimum closing trading price (in usd per share) | $ / shares				$ 0.20
Stockholder approval, outstanding percentage of common stock percentage				19.99%
Payable termination fee				$ 500,000
Ionic | ELOC Advance | Maximum
Debt Instrument [Line Items]
Sale of stock, purchase price, percentage				90.00%
Ionic | ELOC Advance | Minimum
Debt Instrument [Line Items]
Sale of stock, amount authorized in transaction				$ 25,000,000
Sale of stock, purchase price, percentage				80.00%
Letter Agreement
Debt Instrument [Line Items]
Additional shares to issue (in shares) | shares					200,715	0
Common stock issuance upon note payable conversion (in shares) | shares					0
Obligations to issue common stock		$ 200,000			$ 275,000	$ 0
Letter Agreement | Ionic
Debt Instrument [Line Items]
Initial liability amount				$ 3,600,000
Letter Agreement | Ionic | ELOC Advance
Debt Instrument [Line Items]
Shares required to issue(in shares) | shares	150,000
Shares required to issue, period	2 days
Liquidated damages percentage	2.00%
Liquidated damages period	30 days
Letter Agreement | Ionic | ELOC Advance | Maximum
Debt Instrument [Line Items]
Effective declaration period	120 days
Letter Agreement | Ionic | ELOC Advance | Minimum
Debt Instrument [Line Items]
Filing period | day	15
Effective declaration period	90 days
Letter Agreement | Ionic | Convertible Subordinated Debt
Debt Instrument [Line Items]
Original principal amount	$ 2,800,000			2,800,000
Repurchase amount	$ 2,500,000			$ 2,500,000
Beneficial ownership limitation percentage	4.99%
Conversion price (in usd per share) | $ / shares	$ 1.40
Suspension from trading or delisting, trading days | day	3
Number of debentures | debenture	2
Debt interest rate percentage	10.00%
Interest guaranteed period	2 years
Increase, interest rate	15.00%
Covenant, conversion period	181 days
Number of volume-weighted average prices | price	2
Conversion percentage, bankruptcy multiplier	120.00%
Letter Agreement | Ionic | Convertible Subordinated Debt | Debt Instrument, Redemption, Period One
Debt Instrument [Line Items]
Original principal amount	$ 3,300,000
Letter Agreement | Ionic | Convertible Subordinated Debt | Maximum
Debt Instrument [Line Items]
Debt conversion percentage	80.00%
Letter Agreement | Ionic | Convertible Subordinated Debt | Minimum
Debt Instrument [Line Items]
Conversion price (in usd per share) | $ / shares	$ 0.20
Debt conversion percentage	70.00%
Debenture Purchase Agreement Amendment | Ionic | Convertible Subordinated Debt
Debt Instrument [Line Items]
Beneficial ownership limitation percentage			4.99%
Letter Agreement With Ionic | Ionic | ELOC Advance
Debt Instrument [Line Items]
Cash received on sale of shares		$ 500,000
Suspension from trading or delisting, trading days | day		10
Minimum trading amount		$ 13,900,000
Letter Agreement With Ionic | Ionic | ELOC Advance | Maximum
Debt Instrument [Line Items]
Conversion price (in usd per share) | $ / shares		$ 0.25
Debt conversion percentage		80.00%
Letter Agreement With Ionic | Ionic | ELOC Advance | Minimum
Debt Instrument [Line Items]
Debt conversion percentage		70.00%
ELOC Advances | Ionic
Debt Instrument [Line Items]
Original principal amount							$ 1,000,000
First Debenture Purchase Agreement | Ionic | Convertible Subordinated Debt | First Debenture
Debt Instrument [Line Items]
Original principal amount	$ 1,700,000
Repurchase amount	1,500,000
Second Debenture Purchase Agreement | Ionic | Convertible Subordinated Debt | Second Debenture
Debt Instrument [Line Items]
Original principal amount	1,100,000
Repurchase amount	1,000,000
ELOC Advance
Debt Instrument [Line Items]
Additional shares to issue (in shares) | shares					1,068,376	0
Common stock issuance upon note payable conversion (in shares) | shares					0
Obligations to issue common stock					$ 1,464,000	$ 0	$ 1,300,000
First 2023 Debenture
Debt Instrument [Line Items]
Additional shares to issue (in shares) | shares					2,232,590	0
Common stock issuance upon note payable conversion (in shares) | shares					0
Obligations to issue common stock	$ 2,500,000				$ 3,059,000	$ 0
2022 Debenture
Debt Instrument [Line Items]
Additional shares to issue (in shares) | shares					136,386	1,720,349
Common stock issuance upon note payable conversion (in shares) | shares					2,094,428
Obligations to issue common stock					$ 186,000	$ 1,892,000

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TRANSACTIONS WITH IONIC - Activity Related to All Obligations to Issue Shares (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022
Obligations to Issue Common Stock
Balance at December 31, 2022	$ 1,892
Establishment of new obligation to issue shares	4,075
Issuance of Shares	(2,985)
Change in measurement of liability	2,002
Balance at March 31, 2023	$ 4,984
Estimated Number of Shares Issuable
Estimated Number of Shares Issuable, Beginning (in shares)	1,720,349
Change in estimated number of shares issuable (in shares)	510,465
Establishment of new obligation to issue shares (in shares)	3,501,681
Issuance of Shares (in shares)	(2,094,428)
Estimated Number of Shares Issuable, Ending (in shares)	3,638,067
Initial obligation in excess of purchase price	$ 1,574
Change in measurement of liability	2,002
Total	3,576	$ 0
2022 Debenture
Obligations to Issue Common Stock
Balance at December 31, 2022	1,892
Establishment of new obligation to issue shares	0
Issuance of Shares	(2,985)
Change in measurement of liability	1,279
Balance at March 31, 2023	$ 186
Estimated Number of Shares Issuable
Estimated Number of Shares Issuable, Beginning (in shares)	1,720,349
Change in estimated number of shares issuable (in shares)	510,465
Establishment of new obligation to issue shares (in shares)	0
Issuance of Shares (in shares)	(2,094,428)
Estimated Number of Shares Issuable, Ending (in shares)	136,386
Initial obligation in excess of purchase price	$ 0
Change in measurement of liability	1,279
Total	1,279
First 2023 Debenture
Obligations to Issue Common Stock
Balance at December 31, 2022	0
Establishment of new obligation to issue shares	2,501
Issuance of Shares	0
Change in measurement of liability	558
Balance at March 31, 2023	$ 3,059
Estimated Number of Shares Issuable
Estimated Number of Shares Issuable, Beginning (in shares)	0
Change in estimated number of shares issuable (in shares)	0
Establishment of new obligation to issue shares (in shares)	2,232,590
Issuance of Shares (in shares)	0
Estimated Number of Shares Issuable, Ending (in shares)	2,232,590
Initial obligation in excess of purchase price	$ 1,000
Change in measurement of liability	558
Total	1,558
Letter Agreement
Obligations to Issue Common Stock
Balance at December 31, 2022	0
Establishment of new obligation to issue shares	249
Issuance of Shares	0
Change in measurement of liability	26
Balance at March 31, 2023	$ 275
Estimated Number of Shares Issuable
Estimated Number of Shares Issuable, Beginning (in shares)	0
Change in estimated number of shares issuable (in shares)	0
Establishment of new obligation to issue shares (in shares)	200,715
Issuance of Shares (in shares)	0
Estimated Number of Shares Issuable, Ending (in shares)	200,715
Initial obligation in excess of purchase price	$ 249
Change in measurement of liability	26
Total	275
ELOC Advance
Obligations to Issue Common Stock
Balance at December 31, 2022	0
Establishment of new obligation to issue shares	1,325
Issuance of Shares	0
Change in measurement of liability	139
Balance at March 31, 2023	$ 1,464
Estimated Number of Shares Issuable
Estimated Number of Shares Issuable, Beginning (in shares)	0
Change in estimated number of shares issuable (in shares)	0
Establishment of new obligation to issue shares (in shares)	1,068,376
Issuance of Shares (in shares)	0
Estimated Number of Shares Issuable, Ending (in shares)	1,068,376
Initial obligation in excess of purchase price	$ 325
Change in measurement of liability	139
Total	$ 464

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COMMITMENTS AND CONTINGENCIES (Details) - USD ($) $ in Millions	12 Months Ended
	Dec. 31, 2022	Mar. 31, 2023
Commitments and Contingencies Disclosure [Abstract]
Accrued penalty		$ 1.0
Payment of registration rights agreement penalty	$ 0.2
Unpaid amount included in other accrued expense		$ 0.8

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STOCKHOLDERS' EQUITY (DEFICIT) - Equity Stock Warrant Issuances (Details) - Warrant - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended	12 Months Ended
	Mar. 31, 2023	Dec. 31, 2022
Shares
Outstanding at beginning of period (in share)	1,011,441
Granted (in shares)	0
Exercised (in shares)	0
Forfeited, cancelled or expired (in shares)	0
Outstanding at end of period (in shares)	1,011,441	1,011,441
Weighted Average Exercise Price Per Share
Outstanding at beginning of period (in dollars per share)	$ 40.10
Granted (in dollars per share)	0
Exercised (in dollars per share)	0
Forfeited, cancelled or expired (in dollars per share)	0
Outstanding at end of period (in dollars per share)	$ 40.10	$ 40.10
Weighted-Average Remaining Contractual Term
Outstanding (term)	3 years 4 months 24 days	3 years 8 months 12 days
Aggregate Intrinsic Value (in thousands)
Outstanding	$ 0	$ 0

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STOCKHOLDERS' EQUITY (DEFICIT) - Narrative (Details)	3 Months Ended
	Mar. 31, 2023
Stock options
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Option award expiration period	10 years

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STOCKHOLDERS' EQUITY (DEFICIT) - Stock Options Activity (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended	12 Months Ended
	Mar. 31, 2023	Dec. 31, 2022
Stock options
Shares
Outstanding at beginning of period (in shares)	1,626,631
Granted (in shares)	0
Exercised (in shares)	0
Forfeited, cancelled or expired (in shares)	(285)
Outstanding at end of period (in shares)	1,626,346	1,626,631
Options exercisable (in shares)	1,589,946	1,549,681
Weighted Average Exercise Price Per Share
Outstanding at beginning of period (in dollars per share)	$ 30.31
Granted (in dollars per share)	0
Exercised (in dollars per share)	0
Forfeited, cancelled or expired (in dollars per share)	12.50
Outstanding at end of period (in dollars per share)	30.31	$ 30.31
Options exercisable (in dollars per share)	$ 30.96	$ 31.41
Weighted-Average Remaining Contractual Term
Outstanding (term)	5 years 2 months 12 days	5 years 6 months
Options exercisable (term)	5 years 1 month 6 days	5 years 3 months 18 days
Aggregate Intrinsic Value (in thousands)
Outstanding	$ 12	$ 1
Options exercisable	$ 6	$ 1
China Cash Bonuses
Shares
Outstanding at beginning of period (in shares)	71,450
Granted (in shares)	0
Exercised (in shares)	0
Forfeited, cancelled or expired (in shares)	0
Outstanding at end of period (in shares)	71,450	71,450
Options exercisable (in shares)	71,450	68,450
Weighted Average Exercise Price Per Share
Outstanding at beginning of period (in dollars per share)	$ 35.99
Granted (in dollars per share)	0
Exercised (in dollars per share)	0
Forfeited, cancelled or expired (in dollars per share)	0
Outstanding at end of period (in dollars per share)	35.99	$ 35.99
Options exercisable (in dollars per share)	$ 35.99	$ 36.97
Weighted-Average Remaining Contractual Term
Outstanding (term)	5 years 10 months 24 days	6 years 1 month 6 days
Options exercisable (term)	5 years 10 months 24 days	6 years 1 month 6 days
Aggregate Intrinsic Value (in thousands)
Outstanding	$ 0	$ 0
Options exercisable	$ 0	$ 0

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STOCKHOLDERS' EQUITY (DEFICIT) - Liability Activity (Details) - USD ($) $ in Thousands	3 Months Ended		12 Months Ended
	Mar. 31, 2023	Mar. 31, 2022	Dec. 31, 2022
Share-based Payment Award Liability [Roll Forward]
Balance at beginning of period	$ 32
Share-based compensation expense related to China Cash Bonuses	155	$ 429
Balance at end of period	44		$ 32
China Cash Bonuses
Share-based Payment Award Liability [Roll Forward]
Balance at beginning of period	32	439	439
Share-based compensation expense related to China Cash Bonuses	12	$ (85)	(407)
Balance at end of period	$ 44		$ 32

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STOCKHOLDERS' EQUITY (DEFICIT) - Compensation Expense (Details) - USD ($) $ in Thousands	3 Months Ended		12 Months Ended
	Mar. 31, 2023	Mar. 31, 2022	Dec. 31, 2022
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based compensation expense	$ 155	$ 429
Stock options
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based compensation expense	143	514
China Cash Bonuses
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based compensation expense	$ 12	$ (85)	$ (407)

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STOCKHOLDERS' EQUITY (DEFICIT) - Unrecognized Compensation Cost (Details) $ in Thousands	3 Months Ended
	Mar. 31, 2023 USD ($)
Stock options
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Unrecognized share-based compensation cost for non-vested awards	$ 55
Weighted-average years over which unrecognized share-based compensation expense will be recognized	1 year 10 months 24 days
China Cash Bonuses
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Unrecognized share-based compensation cost for non-vested awards	$ 0
Weighted-average years over which unrecognized share-based compensation expense will be recognized	0 years

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RELATED PARTY TRANSACTIONS (Details) $ in Millions	Mar. 31, 2023 USD ($)
Management | Advances To Senior Management For Operating Expenses
Related Party Transaction [Line Items]
Receivable from China Business Partner (See Note 15)	$ 1.2

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CHINA BUSINESS PARTNER (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022	Dec. 31, 2022
Trade accounts receivable, net	$ 2,719		$ 3,091
China Branding Group Limited
Revenues	100	$ 2,200
China Branding Group Limited | VIE
Trade accounts receivable, net	$ 700		$ 700

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SUBSEQUENT EVENTS (Details) - Subsequent Event - Ionic - shares	May 05, 2023	May 04, 2023
Final Settlement, 2022 Debenture
Subsequent Event [Line Items]
Number of shares issued in transaction (in shares)		136,386
Final Settlement, Letter Agreement Shares
Subsequent Event [Line Items]
Number of shares issued in transaction (in shares)		200,715
Partial Settlement, ELOC Advances
Subsequent Event [Line Items]
Number of shares issued in transaction (in shares)	378,965