Good day and welcome to the Remark Holdings’ Second Quarter 2020 Financial Results Conference Call. My name is Derrick. I will be the operator today and will handle the Q&A. As a reminder, this conference is being recorded. Now, I would like to turn the call over to Mr. Brian Harvey. Please go ahead..

Thank you, Derrick. Good afternoon, everybody and welcome to Remark Holdings second quarter 2020 financial results conference call. I am Brian Harvey, Director of Capital Markets and Investor Relations for Remark. On the call with me this afternoon is Kai-Shing Tao, Remark’s Chairman and Chief Executive Officer. In just a moment, Mr.

Tao will provide an update on our business and then I will recap our first quarter financial results. Following those remarks, we will open the call to questions. But before I turn the call over to Mr. Tao, I would like to take this opportunity to remind you that some of the statements made today maybe forward-looking statements.

These statements involve risks, uncertainties and other factors that could cause actual results to differ materially from those expressed or implied by these forward-looking statements.

Any forward-looking statements reflect Remark Holdings’ current views and Remark Holdings expressly disclaims any obligation to update or revise any forward-looking statements after the date hereof.

This disclaimer is only a summary of Remark Holdings’ statutory forward-looking statements disclaimer, which can be found in the full filings with the SEC. I will turn the call over to Remark’s Chairman and Chief Executive Officer, Mr. Tao so he can provide additional color on Remark’s businesses and recent developments.

Shing?.

Thank you, Brian. We entered second quarter in April with much of the world on lockdown and most businesses in all countries closed.

It was a time of confusion for businesses as they are trying to determine how to safely reopen while protecting employees and customers while not getting much visibility from the federal and state government on not just when they could reopen, but what the operational protocols to reopen were.

Having just repurposed our AI-powered thermal imaging for the U.S. market, we are confident that we had built from the ground up and owned the best-of-breed products that were far superior to existing market competitors due to our speed, accuracy and supplemental offerings.

We saw solid immediate initial success registering over $1 million in revenue during the quarter from a diverse group of companies and industries, including previously mentioned, casinos, restaurants, hotels, office buildings, entertainment venues, sports franchises, hospitals and public safety groups.

The common denominator with all these new customers were that they are not only the leaders within their respective industries, but what uncompromising in the high standards of safety to protect their customers and employees. Those initial successes have provided great momentum in quarter two and is now carrying into quarter three.

Having won the Las Vegas Metro Police Department, we successfully beat out established competitors to install our cameras at every major entry and exit point for both public customers and employees to help a global Las Vegas headquartered gaming resort who has set the standard for COVID prevention and reopening safety protocols.

This resort was the first to test 100% of all its employees onsite, through the help of UMC, University Medical Center for local Clark County operating hospital organization.

Having viewed the ease of use and success of our product in helping with rapid thermal temperature screening, UMC elected to purchase cameras throughout the system to help screen for other casino employees at the Las Vegas Convention Center, which later expanded to include two additional locations operated by the Las Vegas Fire Department in order to fulfill the demand to screen 4,000 to 5,000 people per location per day.

These experiences have led to additional opportunities in Clark County that was referred by existing customers and institutions in the area. As we released earlier in the week, we have also launched at our first U.S. school, the Metals School in Las Vegas. We previously noted our success with schools in China and now that U.S.

schools are debating how to best open safely, we can point to the Metals School using 4 thermal kits throughout the campus, taking skin temperature readings on all faculty, staff, student and guests.

Initially, we are providing the Metals School with skin temperature reading technology, but we plan to add important upgrades from our AI suite of products, including people counting, PPE compliance, which is mask wearing and social distancing.

We are grateful to be working with the forward-thinking Head of School, Jeremy Gregerson, as he prepares his students, faculty and staff for safe return to campus next week.

The Metals School is a premier academy for pre-K-12 student known for its very high academic standards and we are excited to be part of the reopening for students going back to school. With parents and teachers unions demanding safe schools, we believe this is a market that is poised for growth and are already seeing and experiencing it.

And given our success in China and now in the U.S., we believe our product suite, which includes attendance management and other AI-powered applications can be a powerful tool for administrators.

And speaking as to how the initial successes achieved in the second quarter is setting us up for fundamental growth, we are working with a very well-known football franchise that originally purchased our thermal kit for employees and contractor testing and was looking for solutions to expand when fans return.

Obviously, that isn’t happening anytime soon and the customers facing the difficulty of knowing when they can reopen. However, given the initial results of the first installation, they have expanded beyond our thermal kit and have now also purchased pads for all employee access points.

And we hope that as fans are allowed to return, we expect more of our AI solutions to be used to make both marketing and security more efficient and effective for them and subsequently for the rest of the week.

As you can see here, as we have been establishing our initial business with all of these different leaders in their respective fields, we see tremendous opportunity to grow with them as the economy reopens and their needs continue to expand.

We have built an AI platform over a point solution, which allows us to up-sell the customers not just in various ways, but in a continuous recurring fashion.

We continue to actively pursue the healthcare markets with multiple wins across the United States as we seek to help clinics implement the latest safety protocols so that they can provide the proper COVID protection and screening services for their local communities.

Our relationship with UMC has also led to purchases from other large hospital clinics that have witnessed first the effectiveness of our AI platform to make their daily business for safety much more effective and efficient. So, while we are pleased with our initial U.S.

results, we have much more to do to prepare the company to become a full platform solutions provider, where our smart retail smart school and workplace safety series AI products can help businesses not only with their safety, but also with the business recovery. The economic conditions in the U.S.

have allowed us to upgrade our overall team, adding seasoned developers to our R&D team and expanding our sales and installation groups.

We have utilized our now expired Aspire line of credit to raise $32 million during the quarter, which allowed us to repay over $13 million of debt other liabilities and put over $10 million of cash on our balance sheet. Our goal is to best determine how to move faster utilizing our newfound balance sheet strength.

We have been moving fast, but we now need to move faster. And now that we resolved our debt issues, we are focused on several new initiatives to enable us to do so.

In the third quarter and fourth quarter, we will be announcing distribution partnerships with large enterprise solution providers, not just in the U.S., but in the other parts of the world. We know our technology capability is unique and best-in-class.

And as we continue to prove this, leading business groups from their regional industries have been finishing their due diligence on us and we look to cross the finish line and concluding these partnerships in the near future.

We are attracted to them because it is difficult to recreate the full AI platform that we have put together over the past 5 plus years. As an ODM, which means original design manufacturer, we will look to continue to upgrade the designs of our own camera and pad hardware.

Make no mistake we are not a hardware company, but we have designed our own cameras, kits and pads, utilizing international contract manufacturers to build the hardware for us and then we overlay our AI software.

And to provide our customer the best AI products, we have been designing our own hardware, including multi-spectrum cameras, pad and tablets and AI boxes with the top AI chip manufacturers globally and utilizing international contract manufacturers to build the equipment for us that can run our AI software with better performance, more efficiency, better reliability and more safe, secure and better energy saving for our customers.

Now moving on to our China business, with the recovery of the China economy, previously frozen orders due to COVID in Q1 on technology products have begun to saw in Q2.

Our China team has been executing the contracts not only from our existing customers like China Mobile, National Power Grid, Retail Bank, Construction Bank, Lotus Supermarket, but also from our new customers like the Bank of China in Sichuan, the Agricultural Bank of China in Sichuan over 100 new primary schools, several hospitals and shopping malls.

We are also pleased to announce that our first AI Biosafety product for cattle farms has passed the customer acceptance test and formerly in production in Northern China and we are in the process of deploying the system into other cattle farms, who have been fighting against cattle viruses since last year.

In Q2, we have also upgraded our smart retail product, where we have enhanced our live video analytics capabilities by integrating with newly installed 5G wireless communication infrastructures in many bank retail stores, which allows us to distribute and process more live videos in real-time and can provide bank managers live data from all of their branches all the time.

We have also upgraded our smart campus, which has AI COVID-19 prevention system, AI attendance system, AI energy system, AI energy saving system, AI abnormal activity prevention system and our AI kitchen food safety system.

To include our new AI anti-intrusion system, where unauthorized or health condition disqualified personnel will be prevented from entering school campuses or getting near to the children. We are helping schools especially K-12 schools get ready for the September opening.

Overall, after experiencing a quarter one country side shutdown, our AI business in China has been recovering in the very fast pace in Q2 and we look forward to having a busy and prosperous Q3 and Q4 with the bounce back of the economy and technology demands. We are proven, tested and live globally now.

Sharecare, with the recent $18.5 billion acquisition by Teladoc or Livongo, which created together a $30 billion plus business, I wanted to take a step back and go into detail regarding our 4.5% ownership stake in Sharecare.

Our stake continues to grow rapidly in value and with Livongo’s acquisition this validates Sharecare’s strategy of creating a platform versus point solution. This is a huge deal for Sharecare and obviously Remark, as we are one of its largest shareholders. Livongo was Sharecare’s closest public comp.

And by comparison, Sharecare is a larger business in terms of revenue, profitability and scale of services. As a reminder, Sharecare has spent the past decade executing a business plan to become today’s leading digital health company in the market.

As a current board member, I have watched Sharecare raise over $430 million in capital executed and integrated 16 acquisitions and built a solid foundation for leveragable growth.

The company has achieved an enterprise valuation of approximately a couple of billion based on our most recent equity raise and are entering into an important period of value realization over the next few years.

Through Sharecare’s internal sales efforts and our various acquisitions, they have built an enviable customer base for leading healthcare providers, insurance companies and self-insured payers, pharmaceutical and medical device companies, employers across multiple industries, and government agencies and communities, the best guess and the quality of the customer base provides them with a tremendous strategic asset that they can use for credible references for new customer generation, and that they can grow by cross selling and up-selling additional solutions into the existing base.

These cross selling and up-sell initiatives offer numerous revenue growth opportunities for Sharecare without adding a single day customer to their base or single additional product to their existing solution set.

The Sharecare management team has developed a core competency, managing costs, integrating strategic acquisitions, and developing business lines with significant operating leverage. Their leadership team is capable of managing significant growth without major expansion of their overhead expenses.

So as the industry leading solutions and strategic customer base drive future revenue growth Sharecare’s operating model will provide an even faster growth of the bottom line.

And in conclusion, Remark AI has built the most comprehensive suite with artificial intelligence solutions in a number of different industries, ranging from retail to construction and to agriculture.

These solutions are able to deliver on a unified and scalable platform and this multi solution approach provides us with multiple points of entry in commercial conversations with a wide audience of potential customers.

Our own ability to bundle multiple solutions also provides us with a huge competitive advantage in bidding against point solution companies in a marketplace that’s looking to escape the difficulties of managing multiple and disparate vendors.

So as we are in Q3, we are very confident in our growth businesses on both sides of the Pacific, as well as the large asset value we own the Sharecare especially as, as the validation the most recent acquisition of Livongo. Thank you..

Thank you, Shing. Now I would now like to provide a brief overview of our financial results for the second quarter ended June 30, 2020. Revenue for the second quarter of 2020 was $2.3 million, down from $2.9 million during the second quarter of 2019.

However, revenue from our new Biosafety business totaled $1.1 million as thermal imaging products were delivered to casinos, restaurants, hotels, law enforcement agencies, medical centers, office buildings and other industries throughout the United States.

Our China business continued to be adversely impacted during the second quarter by several factors, but most notably by COVID-19 related quarantines, which negatively affected revenue by preventing our personnel in China from continuing project rollouts, and by delaying project testing and customization work on some of our larger projects.

However, as Shing noted we saw some easing in the latter half of our second quarter, and that led us to recognize a $1 million of revenue from China. Total cost and expense for the second quarter of 2020 was $5.1 million, a decrease from the $5.8 million reported in the same period of 2019.

The decrease is primarily attributable to a $300,000 decline and the cost of revenue resulting from fewer project completions and decreases in sales and marketing of approximately $200,000 and G&A expense of $600,000.

As headcount declined, these were also offset by a $600,000 increase in technology and development costs associated with the launch of the Biosafety thermal imaging business. Our operating loss declined to $2.8 million in the second quarter from $2.9 million in the comparable period of last year.

Our loss on continuing operations total $9.8 million or $0.11 per diluted share in the second quarter ended June 30, 2020. That compared to a net loss from continuing operations at $1.3 million or $0.03 per diluted share in the second quarter ended June 30 2019.

The bulk of that loss is tagged to a non-cash charge in the fair value of our warrant liability of $6.3 million, which compared to a $2.1 million gain in the comparable period of 2019. And this resulted from the increased share price of Remark’s common shares.

Again, this is a non-cash charge that had no impact on our cash operation, and it resulted from the increase in our share price. At June 30, 2020, our cash and cash equivalents balance was $10.2 million compared to cash position of $300,000 at December 31, 2019.

Cash increased primarily due to $32.1 million in proceeds from common stock issuances, which were offset by operating losses and the payment of certain liabilities and the repayment of $13.3 million of debt.

Finally, subsequent to quarter’s end, we settled a lawsuit with our former landlord and we are working towards settling additional litigation soon. And that settlement was for about half of the original accrual. So, Derrick, we would now like to open the conference to questions.

We encourage callers with questions to queue up with the operator as soon as possible so that there will be minimal lag time between each caller.

Derek, could you instruct the callers how to queue up with their questions?.

Absolutely. [Operator Instructions] We will take our first question from Darren Aftahi with ROTH Capital. Go ahead..

Hey, guys. Good morning. Thanks for taking my questions. Shing, maybe I could start you mentioned some potential global distribution partnerships.

I am just kind of curious the type of essentially partner that you are looking forward to scale this and then as you think about kind of longer term, how do you think about kind of direct versus indirect channels in terms of scaling your business?.

Thanks, Darren. I think we start with companies that I am referring to are – these large enterprise solutions companies that we have been accustomed to seeing them over the last 20, 30 years. They are all very large global technology companies that have established themselves on the hardware and software side.

But what we do with artificial intelligence is not something that is easy to be creative. So, lot of our conversations and discussions with them kind of started out with them trying to create something by themselves realizing that one, they are either unable to do it, or number two, it takes much longer for them to recreate it.

And so, we are deep in the discussion with them to allow us to partner with them not just in the U.S. but around the world. So, I think working with going direct and indirect with these different partners, we are reviewing all the different proposals. It’s the main focus of our team in this quarter and certainly in Q4.

This really allows us to expand much faster..

Got it. The two questions on your AI business, one you made commentary that the things started to saw in China towards the end of 2Q and into 3Q.

So, how would you juxtapose where the third quarter is in China and in terms of being kind of pull back to operations maybe relative to the pre-COVID levels? And then second question on your pipeline, how has that changed from the last conference call in terms of how many companies you have in the pipeline? And then are there any other industries beyond kind of what you have talked about today that present kind of better than average opportunities? Thanks..

Yes. So, I wouldn’t say China is back to pre-COVID levels, but it’s coming back very fast. And I think because of the steps that the government has taken over there, they – life is coming back to normal. So, our pipeline I think is very strong. A lot of the discussions that we had pre-COVID are now back.

Our current implementations that were stopped in Q1 and Q2 are back. And we are seeing a very strong pipeline going in. One of the things I mentioned before was just the reopening of the schools.

Certainly with our technology, we are getting a lot of inbound requests on how we can setup our systems and it’s not just for body temperature standing, right? It’s because we are able to do 10 to 15 different applications for school management, that’s attracted people with the factories now, a lot of them coming back online.

That’s an additional area that we are focused on, in terms of helping them doing the facilities management. And so we are seeing a lot of demand in China. And so we are working right now on just moving what we are already working with, and obviously we don’t want to leave any of these new opportunities to go to waste..

Thank you..

Thank you.

Derrick?.

Thank you. We will next move to Stephen Clever with [indiscernible] Capital. Go ahead, your line is open..

Yes. Hi, guys. Thank you so much for taking the question.

So first and foremost I wanted to clarify for some people who may not have an exact understanding that the majority of this loss for you guys coming into this quarter, obviously being much more than expected is due to the black hole of accounting method and it’s a paper loss?.

Yes, exactly. It had – this is Brian, this had to do with the increase in our share price affected the warrant liability on our balance sheet, so if a non cash transaction. And, again, it resulted from our stock price being up in the prior quarter in the comparable period last year. The stock was down and so it was a $2 million gain.

So again, you have it right. It has to do with the functionality of the Black-Scholes option method okay..

Next is the current status of the Amex lawsuit? And what’s the company’s plan in regards to dealing with that?.

I believe that Amex was that’s been cleared several months ago. So I think that was done back in maybe the end of Q1 or I think it was done at the end of Q1. But the Amex issues haven’t been an issue for us for a while. .

Excellent, please. I have a question.

Gentlemen, this is Steve – pardon me, it’s Mike and my quick question with regard to Sharecare is that somebody has been posting a video earlier this week suggesting that you will no longer in possession of your Sharecare share that they were taken by a sheriff and he posted a, I guess rich showing that they took possession of the shares.

I am rather confident that we would not have paid up the loan without getting a release of the shares. There is some – there is a cloud around those shares, because that’s really, in reality makes up a tremendous amount of value for your stock share.

If Sharecare is valued at $2 billion or $3 billion or $4 billion by the time they go public, that translates to a lot of money to this company and a lot of value in the stock price.

So, for those who have [indiscernible], I would like to know it myself included, what is going on with the sheriff, what’s going on with return of the collateral?.

Thank you for a question. Yes, as we kind of responded to the video that suggest that is very misleading and just wrong. As of June 30, 2020 we owned approximately 4.5% of Sharecare’s issued stock and maintained representation on its Board of Directors meaning myself.

And the Greenspan lawsuit is a legal action attempting to try to take control of our interest in order to satisfy approximately $1 million in debt, but it is still proceeding and therefore we cannot discuss it any further..

Okay. Only because we believe and we are rather confident that you actually do have control of the shares and you start…..

We own our shares, but I would compare it to as the issue with the – with our previous situation with the rent, which we settled for 50% less. We are in discussions and doing something similar..

Okay, thank you. Shareholders should sleep well at night knowing that there is good value in your 4.5% ownership of Sharecare..

Thank you. Thank you, Steve..

Just one last quick question if you guys don’t mind.

The last call, the vote call, where you mentioned 50 kindergartens a month that were being added on, are those contracts being done at the same average price that we discussed contracts in the past at $25 to $50 fees?.

No, each case is different, because obviously each school size is different. And also, some different schools have a number of – they have a number of them – they own and operate a number of different schools. So, each case is different. I wouldn’t put a kind of just pay this is the exact number that place on each school..

Okay, thank you so much for your time..

I got one question on the analyst for ROTH capital. One quick question your analyst looks like based on the analyst reports, which I saw a few weeks ago, it looks like you have a beat on the revenue, but you have a loss on the earnings.

I am wondering if the analysts at that point, I guess you could not have projected, Black-Scholes implication of the loss. I don’t know how that works exactly on Wall Street with regard to loss on the – and there is an increase on the loss from $0.05 to $0.11.

And what would the loss have been without the Black-Scholes indication per share?.

So, the loss was approximately $6.3 million associated with the warrant liability change. So, it would have been about $3 million or above, so approximately $0.03. So, I haven’t figured that out, but it would have been approximately $0.02 or $0.03..

Okay.

So, I am assuming that the analyst, when he projected a $0.05 loss likely, was considering a cash loss of $0.05, although I can’t see some just assuming and so you actually did beat the analysts expectation on cash loss from operations and the paper loss makes up the differential as you explained earlier?.

I look forward to reading your report, but yes, we agree..

Okay. Thank you so much..

You are welcome, guys..

Thank you. [Operator Instructions] And we have time for one more question from Ron Nash with Nash Partners. Please go ahead. Your line is open..

Yes, good morning.

How do you expect MARK to grow with the economy now open up which should be a lot more opportunities, so where do you see really stepping up to the plate and getting some major contracts?.

Hi, Ron. I think that as the economy reopens and companies have more visibility and how they can operate, one day reopen allows us a great opportunity to up-sell all of our different services.

And I see this very similar to other industries that are facing similar thing just say for example, with online sports betting, like sports is not happening right now. But once it opens a lot of the companies that are positioned very well, to take advantage of that growth. We view ours as the same way.

We made the decision when we first started our AI business to create a platform over point solution, which allows us to provide an A to Z solution on all the different operating issues that companies may face and we see that as a great opportunity for us.

So, as I said in the last couple of calls, the thermal technology is just the tip of the spear for us. We provide and have over 100 other AI applications that we feel that we can up-sell to them successfully on a recurring basis and we are already seeing that effects right now not just in China but in the U.S. as well..

Got it.

And also you said the thermal technology, how does your thermal camera compared to a lot of the other thermal cameras that are out there, because that seems to me the hot area right now?.

Yes. So, just to be clear, we are not hardware manufacturers. As we mentioned, we design our – we design it. But the unique value which we provide is our software and the ability to provide more than just body temperature, we feel sets us apart.

And many of the new operating protocols as it relates to social distancing, mass detection, which is PPE detection and people counting as a lot of these places need to operate at a below 25% or 50% capacity. These are types of AI applications that we have built from the ground up and own and can integrate in our overall suite of products.

Many of these other companies that do sell thermal technology don’t have that. And if they do, it doesn’t work that well.

So, we are finding a lot of demand from many of the customers that we have mentioned right now and new customers, because they are looking for a company that can provide all of these solutions rather than managing a bunch of different vendors for it..

Okay, thank you very much..

Thank you..

Thank you. And at this time, I would like to turn the conference back over to Mr. Brian Harvey for any additional or closing remarks..

Thank you, Derrick. And thank you everyone for participating in this early morning Remark Holdings second quarter 2020 financial results conference call. A replay will be available in approximately 4 hours through the same link issued on our August 5 press release. Thank you and have a good morning..

Again, that does conclude today’s call. We do thank you for your participation. You may now disconnect..