Initiation: February 6, 2018

J Capital Research ("J Cap") is an investment advisor to private funds. J Cap has analyzed the U.S.-listed company Remark Holdings (“MARK”) and is hereby publishing the outcome and the conclusions of our analysis, based on publicly available information. Some of our clients may be short shares of MARK, and, for this reason, there might be a conflict of interest.

Update: April 4, 2018
Artificial, but where's the "intelligence"?
Remark Holdings came out on April 2 with a 10-K for 2017 and, unable to wait, did an earnings call on March 29. As far as we can determine, the contents were almost wholly fictional. The stock declined 20%, probably just because MARK missed its revenue target and dramatically increased losses, far beyond the projected amount. Highlights:

• Dilution: Shareholders learned that the $10 mln invested by CP Group gleaned 3.83 mln shares, coming in at $3.60 per share. When the shares and warrants were sold, on December 20, Remark’s stock was trading at $8.86. The company did not issue an 8-K. Between the end of 2016 and the end of Q1 2018, shareholders have been diluted by more than 9 mln shares, or over 40%. 
• Financial results were poor. The company missed its Q4 revenue target by about 5% and was lamentably off its targeted net income. For the year, Remark undershot its revenue target by a little more than 1%, but its earnings were 2.7 times worse than projected. Remark reported losses of -$65 mln, while the company had projected -$24.4 mln in losses.
• Randomly raised hopes: The company raised 2018 projected revenue from $30 to $50 mln and suggested that 2019 revenue would be $150 mln but quickly backed off that number when questioned.
• 95% impaired? The company reported a $14.6 mln impairment of China Branding Group Limited, including Fanstang, purchased in September of 2016. Given that the total consideration was $15.4 mln, this is a remarkable write-down one year later.

No “there” there
Wherever we look, we cannot find a real business behind Remark Holdings. The company changes its business description so quickly that even management struggles to explain. That does not stop them from pushing out press releases that make wild claims for fantastic new technologies to come.
The mostly non-existent China business:
The buying fever around MARK comes from extravagant promotion of a mostly non-existent artificial intelligence business in China. We did extensive diligence on MARK in China and found:MARK claims to be a major player in credit checks, but some of the biggest private lenders have never heard of the KanKan credit platform and
say they wouldn’t use it if they had.
There is no evidence of promised partnerships with Alibaba, Tencent, and other Chinese majors.
MARK claims to have developed language-recognition software, web filtration, Big Data analysis of virtually all China’s consumer records, and 3D face recognition, all on a historical total of USD 2.8 mln in R&D costs—roughly the price of a nice two-bedroom apartment on Park Avenue. They claim to manage a database with 2 petabytes of data and yet show no hosting costs.
No KanKan assets:
What’s more, MARK owns none of the vaunted KanKan technology that is driving share appreciation. The platform resides in companies owned by individuals – these companies are not MARK’s VIEs–and there are no discoverable patent applications, contrary to the company’s claims.
The “leading website” with 335 followers:
The website that the company claims is “China’s leading source of Western digital content” with 28 million followers has not attracted new user posts since 2014 and has 335 followers on Weibo.
All about the options:
The real driver behind share appreciation seems to be that management is looking to cash in on options. The CFO in particular is a very active seller.
Shady U.S. websites
The U.S. properties look equally dubious. They appear to be money-losing businesses for which MARK makes big and unverifiable claims.
Conflicts right and left:
The CEO and CFO lend money to MARK through their own investment company at rates over 8%, with conversion terms that price the shares well below market.

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Update May 23

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